________________________________________________________________________________
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
SIRIUS SATELLITE RADIO INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
___________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
___________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
___________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
___________________________________________________________________
(5) Total fee paid:
___________________________________________________________________
[ ] Fee paid previously with preliminary materials:
_______________________________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of the filing.
1) Amount previously paid:
_____________________________________________________________________
2) Form, Schedule or Registration Statement No.:
_____________________________________________________________________
3) Filing Party:
_____________________________________________________________________
4) Date Filed:
______________________________________________________________________
________________________________________________________________________________
[SIRIUS SATELLLITE RADIO LOGO]
December , 2002
Dear stockholders:
We are furnishing the accompanying Proxy Statement to you in connection with
a proposed financial restructuring of our company. This restructuring is a
crucial step in ensuring the continuing viability of our company, and we would
like your support in completing it. The restructuring will result in the
elimination of all or substantially all of our outstanding debt, the elimination
of all of our preferred stock and a cash infusion of $200 million. In short, the
restructuring will provide us with sufficient cash to cover our estimated
funding needs into the second quarter of 2004 and allow us to focus our
attention on strengthening our business and acquiring subscribers for our
premier entertainment service.
We plan to complete the restructuring through either (1) our
recapitalization plan, which consists of the consensual exchange of our debt and
our preferred stock for common stock and the purchase of new common stock by
certain investors for $200 million cash, or, alternatively, (2) the filing of a
prepackaged plan of bankruptcy which will attempt to accomplish the
restructuring on substantially the same terms as the recapitalization plan but
under the supervision of the bankruptcy court. Our creditors and stockholders
will receive the same treatment under each of the plans. In fact, you can think
of the recapitalization plan and the prepackaged plan as two ways of achieving
the same goal, although the out-of-court consensual recapitalization plan will
be much quicker, much less expensive to accomplish, and will have the least
disruptive effect on our business.
In order to effect the recapitalization plan, our stockholders must vote to
(1) approve the issuance of new shares of our common stock in the restructuring
transactions, (2) approve an amendment and restatement of our certificate of
incorporation to increase the number of authorized shares of our common stock
and (3) elect our new board of directors. We are also asking you to approve the
adoption of our 2003 stock option plan.
While the restructuring will significantly dilute the percentage of
outstanding stock owned by our common stockholders, we believe that the plan we
put before you today is the best solution for adequately addressing our funding
needs and ensuring the continuing viability of our company. Without the
restructuring, we have sufficient cash to cover our estimated funding needs only
through the second quarter of 2003, and anticipate that we will need an
additional $600 million of funding until our operations become self-sustaining.
If the restructuring is not completed, we will be forced to consider an
alternative plan of reorganization or liquidation. Any alternative plan of
reorganization or liquidation is likely to result in our stockholders receiving
nothing.
Pursuant to the accompanying Proxy Statement, we are soliciting your proxy
to be voted in favor of the recapitalization plan and your vote to accept the
prepackaged plan. YOUR VOTE TO APPROVE THE RECAPITALIZATION PLAN AND YOUR VOTE
TO ACCEPT THE PREPACKAGED PLAN ARE VERY IMPORTANT. We urge you to carefully
review the Proxy Statement and the other documents we refer you to in the Proxy
Statement for a detailed description of the proposed restructuring and the
dilutive effect it will have on our existing stockholders. Please take the time
to complete the enclosed proxy and ballot, and sign and return each of them in
the enclosed postage-paid envelopes as soon as possible, but in no event later
than , 2003. We will not be able to complete the recapitalization plan
unless we obtain the approval of our stockholders.
Sincerely,
JOSEPH P. CLAYTON
President and Chief Executive Officer
[SIRIUS SATELLLITE RADIO LOGO]
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2003
-------------------
You are cordially invited to attend our special meeting of stockholders,
which will be held on , 2003, at 10:30 a.m. at The McGraw-Hill Building,
in the Auditorium, 2nd Floor, 1221 Avenue of the Americas, New York, New York.
The special meeting is being held for the purpose of implementing a proposed
restructuring of our company. The proposed restructuring will result in the
elimination of all or substantially all of our outstanding debt, the elimination
of all of our preferred stock and the investment of $200 million cash in new
equity capital.
At the special meeting, you will be asked to consider and vote upon the
following proposals in connection with the restructuring, all of which are more
fully described in the accompanying Proxy Statement:
1. The issuance of an aggregate of 885,393,009 shares of our common
stock and warrants to purchase 87,577,114 shares of our common stock
in the restructuring transactions.
2. An amendment and restatement of our certificate of incorporation to
increase our authorized common stock from 500,000,000 to
2,500,000,000 shares.
3. The election of our new board of directors.
4. The adoption of our 2003 Long-Term Stock Incentive Plan.
Only stockholders of record at the close of business on December , 2002
are entitled to vote at our special meeting. A list of stockholders entitled to
vote will be available for examination for ten days prior to the special
meeting, between the hours of 9:00 a.m. and 4:00 p.m., at our offices at 1221
Avenue of the Americas, 36th Floor, New York, New York 10020.
YOUR VOTE IS IMPORTANT. WE URGE YOU TO SIGN AND RETURN YOUR PROXY BEFORE THE
SPECIAL MEETING SO THAT YOUR SHARES WILL BE REPRESENTED AND VOTED AT THE SPECIAL
MEETING, EVEN IF YOU CANNOT ATTEND.
This Proxy Statement is being distributed on or about December , 2002.
By Order of the Board of Directors,
PATRICK L. DONNELLY
Executive Vice President,
General Counsel and Secretary
[SIRIUS SATELLLITE RADIO LOGO]
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PROXY STATEMENT
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GENERAL
This Proxy Statement is being furnished to our stockholders in connection
with the proposed restructuring of our company. The proposed restructuring will
result in the elimination of all or substantially all of our outstanding debt,
the elimination of all of our preferred stock and the investment of $200 million
cash in new equity capital. The proposed restructuring will be effected through
either (1) our recapitalization plan, which consists of the several concurrent
restructuring transactions described below, or, alternatively, (2) the filing of
a prepackaged plan of bankruptcy, which will attempt to accomplish the
restructuring on substantially the same terms as the recapitalization plan but
under the supervision of the bankruptcy court. For a description of the
recapitalization plan, see 'The Restructuring -- The Recapitalization Plan' on
page 18 and for a description of the prepackaged plan, see 'The Prepackaged
Plan' on page 36. Accordingly, this Proxy Statement is being furnished to our
stockholders in connection with (1) our solicitation of proxies for use at the
special meeting of stockholders to be held on , 2003 for the purpose of
voting on the restructuring proposals set forth below and (2) our solicitation
of acceptances of the prepackaged plan of reorganization under Chapter 11 of the
Bankruptcy Code.
THE RESTRUCTURING WILL SIGNIFICANTLY DILUTE THE PERCENTAGE OF OUTSTANDING
STOCK OWNED BY OUR COMMON STOCKHOLDERS. HOWEVER, WE BELIEVE THAT THE COMPLETION
OF THE RESTRUCTURING IS CRITICAL TO OUR CONTINUING VIABILITY. IF THE
RESTRUCTURING IS NOT COMPLETED, WE WILL BE FORCED TO CONSIDER AN ALTERNATIVE
PLAN OF REORGANIZATION OR LIQUIDATION. ANY ALTERNATIVE PLAN OF REORGANIZATION OR
LIQUIDATION MAY RESULT IN OUR EQUITY HOLDERS RECEIVING NOTHING.
The percentage ownerships set forth in this Proxy Statement after giving
effect to the restructuring assume that all of our outstanding debt securities
are exchanged for common stock in the exchange offer and do not give effect to
any shares of our common stock that may be issued pursuant to employee options
and warrants, including the warrants held by our automobile partners, and the
warrants to be issued to Apollo and Blackstone in the restructuring.
RECAPITALIZATION PLAN
The recapitalization plan for achieving our financial goals consists of the
following transactions (the 'restructuring transactions'):
1. EXCHANGE OFFER FOR OUR DEBT SECURITIES. We are offering to exchange all
of our outstanding 15% Senior Secured Discount Notes due 2007, 14 1/2% Senior
Secured Notes due 2009, 8 3/4% Convertible Subordinated Notes due 2009 and
senior term loans under our term loan agreement with Lehman Commercial Paper
Inc. and our deferral credit agreement with Space Systems/Loral, Inc.
(collectively, the 'debt securities') for up to 596,669,765 newly issued shares
of our common stock, representing approximately 62% of the outstanding shares of
our common stock after giving effect to the restructuring. Under a lockup
agreement, dated October 17, 2002, Lehman, Loral and holders of a majority of
our notes have agreed to tender their debt securities in the exchange offer.
2. PREFERRED STOCK EXCHANGE. Our preferred stockholders have agreed to
exchange all of our outstanding preferred stock for (1) an aggregate of
76,992,865 newly issued shares of our common stock, representing approximately
8% of our outstanding common stock after giving effect to the restructuring, and
(2) warrants to purchase an aggregate of 87,577,114 shares of our common stock,
representing approximately 9.1% of our outstanding common stock after giving
effect to the restructuring.
3. NEW EQUITY INVESTMENT. Certain affiliates of Apollo Management, L.P., or
Apollo, The Blackstone Group L.P., or Blackstone, and OppenheimerFunds, Inc., or
Oppenheimer, have agreed to purchase an aggregate of 211,730,379 newly issued
shares of our common stock, representing approximately 22% of our outstanding
common stock after giving effect to the restructuring, for a total purchase
price of $200 million cash.
STOCKHOLDER APPROVAL
Pursuant to this Proxy Statement, we are soliciting proxies to be voted at
the special meeting. The special meeting will be held to consider and vote on
the following proposals:
1. The issuance of an aggregate of 885,393,009 shares of our common
stock and warrants to purchase 87,577,114 shares of our common stock in the
restructuring transactions.
2. An amendment and restatement of our certificate of incorporation to
increase our authorized common stock from 500,000,000 to 2,500,000,000
shares.
3. The election of our new board of directors.
4. The adoption of our 2003 Long-Term Stock Incentive Plan.
Consummation of the recapitalization plan requires stockholder approval of
each of proposals 1, 2 and 3. IF ANY OF PROPOSALS 1, 2 OR 3 ARE NOT APPROVED BY
OUR STOCKHOLDERS AT THE SPECIAL MEETING, THEN NONE OF THEM WILL BECOME
EFFECTIVE. Stockholder approval of proposal 4, the adoption of our 2003 stock
option plan, is not a condition to the consummation of the recapitalization
plan.
Pursuant to the lockup agreement, Apollo and Blackstone (the holders of all
of our outstanding preferred stock and one million shares of our common stock)
and Oppenheimer (the holder of 13,258,200 shares of our common stock) have
agreed to vote in favor of the restructuring proposals, which together represent
approximately 30% of the total votes entitled to participate in this proxy
solicitation. Holders of the debt securities that are signatories to the lockup
agreement have also agreed to vote any shares of common stock owned by them in
favor of the restructuring proposals.
MINIMUM TENDER CONDITION
The completion of the recapitalization plan is also conditioned upon, among
other conditions, our receipt of valid tenders in the exchange offer from not
less than (i) 97% in aggregate principal amount of our outstanding debt
securities and (ii) 90% in aggregate principal amount of our convertible
subordinated notes; provided that the holders of a majority of our debt
securities may reduce the minimum tender condition to not less than 90% in
aggregate principal amount of our debt securities and may lower or eliminate the
minimum condition applicable to our convertible subordinated notes. We reserve
the right to waive the minimum tender condition, which we will be able to do
only with the prior written consent of our board of directors, the holders of a
majority of our debt securities, Apollo and Blackstone. Under the lockup
agreement, the holders of approximately % of our outstanding debt securities
agreed to tender all of their debt securities in the exchange offer.
DILUTION
Upon consummation of the restructuring, the equity interests of our existing
common stockholders, as a percentage of the total number of the outstanding
shares of our common stock, will be significantly diluted. The following table
sets forth the approximate percentages of our common
2
stock that holders of our common stock, preferred stock and debt securities will
own whether the restructuring is completed pursuant to the recapitalization plan
or the prepackaged plan:
PERCENTAGE OF OUTSTANDING
COMMON STOCK OWNED
-----------------------------
BEFORE THE AFTER THE
HOLDER RESTRUCTURING RESTRUCTURING
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Common stockholders......................................... 83% 8%
Preferred stockholders...................................... 17% 8%
Holders of debt securities.................................. -- 62%
New equity investors........................................ -- 22%
IF THE RESTRUCTURING IS NOT COMPLETED, WE MAY BE FORCED TO CONSIDER AN
ALTERNATIVE PLAN OF REORGANIZATION OR LIQUIDATION. ANY ALTERNATIVE PLAN OF
REORGANIZATION OR LIQUIDATION MAY RESULT IN OUR EQUITY HOLDERS RECEIVING
NOTHING.
PREPACKAGED PLAN
If we are not able to complete the recapitalization plan, but the required
acceptances have been received to confirm the prepackaged plan, we will use such
acceptances to seek confirmation of the prepackaged plan under Chapter 11 of the
Bankruptcy Code. See 'The Prepackaged Plan.'
For the prepackaged plan to be confirmed by the bankruptcy court without
invoking the 'cram down' provisions, each class of claims or interests that is
impaired must vote to accept the prepackaged plan. An impaired class of claims
is deemed to accept a plan of reorganization under the provisions of the
Bankruptcy Code if holders of at least two-thirds in dollar amount and more than
one half in number of the holders of claims who actually cast ballots vote to
accept the prepackaged plan. An impaired class of interests (such as our
preferred stock and common stock) is deemed to accept a plan of reorganization
if the holders of at least two-thirds in amount of the interests in such class
who actually cast ballots vote to accept the prepackaged plan.
THE SOLICITATION PERIOD FOR ACCEPTANCES OF THE PREPACKAGED PLAN WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON , 2003 (UNLESS EXTENDED). VOTES
ON THE PREPACKAGED PLAN MAY BE REVOKED, SUBJECT TO THE PROCEDURES DESCRIBED IN
THIS PROXY STATEMENT, AT ANY TIME PRIOR TO THE SOLICITATION EXPIRATION DATE.
Only stockholders of record at the close of business on , 2002 are
entitled to vote at the special meeting and to vote to accept or reject the
prepackaged plan.
Stockholders are not required to vote at the special meeting in order to
vote on the prepackaged plan. It is important that all stockholders vote to
accept or reject the prepackaged plan because, under the Bankruptcy Code, only
holders who vote will be counted for purposes of determining whether the
requisite acceptances have been received. Failure by a stockholder to send a
duly completed and signed ballot will be deemed to constitute an abstention by
such stockholder with respect to a vote on the prepackaged plan, and will not be
counted as a vote for or against the prepackaged plan.
STOCKHOLDERS WHO COMPLETE A PROXY WITH RESPECT TO THE SPECIAL MEETING SHOULD
ALSO DULY COMPLETE AND SIGN A BALLOT IN ORDER TO VOTE ON THE PREPACKAGED PLAN.
3
TABLE OF CONTENTS
PAGE
----
About the Solicitation...................................... 5
Risk Factors................................................ 8
The Restructuring........................................... 14
The Restructuring Proposals................................. 28
Proposal 1 Issuance of Our Common Stock in the
Restructuring Transactions............................. 28
Proposal 2 Amendment and Restatement of Our Certificate
of Incorporation....................................... 29
Proposal 3 Election of Our New Board of Directors....... 30
Proposal 4 Approval of the Sirius Satellite Radio 2003
Long-Term Stock Incentive Plan......................... 30
The Prepackaged Plan........................................ 36
Selected Consolidated Historical Financial Data............. 70
Capitalization.............................................. 72
Unaudited Pro Forma Financial Data.......................... 74
Accounting Treatment of the Restructuring................... 80
Unaudited Projected Consolidated Financial Information...... 80
Management.................................................. 85
Security Ownership of Certain Beneficial Owners and
Management................................................ 94
Stockholder Proposals for Next Year's Annual Meeting........ 97
Incorporation by Reference.................................. 97
Other Matters............................................... 98
Exhibit A -- Fairness Opinion of Miller, Buckfire, Lewis &
Co., LLC.................................................. A-1
Exhibit B -- The Prepackaged Plan........................... B-1
Exhibit C -- 2003 Long-Term Stock Incentive Plan............ C-1
4
ABOUT THE SOLICITATION
SOLICITATION OF PROXIES AND ACCEPTANCES
This Proxy Statement is furnished in connection with:
our solicitation of proxies to be voted at the special meeting; and
our solicitation of ballots to be voted in connection with the prepackaged
plan.
YOU MUST COMPLETE AND RETURN THE ENCLOSED PROXY IN ORDER TO VOTE FOR OR
AGAINST THE RESTRUCTURING PROPOSALS AND THE ENCLOSED BALLOT IN ORDER TO VOTE TO
ACCEPT OR REJECT THE PREPACKAGED PLAN. OUR BOARD OF DIRECTORS RECOMMENDS A VOTE
'FOR' BOTH THE RESTRUCTURING PROPOSALS AND THE PREPACKAGED PLAN.
Whether or not you are able to attend the special meeting, your vote by
proxy is very important. Stockholders are encouraged to mark, sign and date the
enclosed proxy and mail it promptly in the enclosed return envelope marked
'proxy'. Stockholders who complete a proxy with respect to the special meeting
should also duly complete and sign a ballot in order to vote on the prepackaged
plan.
Proxies and ballots are being solicited by and on behalf of our board of
directors. We will bear all expenses of this solicitation, including the cost of
preparing and mailing this Proxy Statement. In addition to solicitation by use
of the mails, proxies may be solicited by directors, officers and employees in
person or by telephone, telegram or other means of communication. Such
directors, officers and employees will not be additionally compensated, but may
be reimbursed for out-of-pocket expenses in connection with such solicitation.
Arrangements will also be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation material to beneficial owners of our common
stock held of record by such persons, and we may reimburse such custodians,
nominees and fiduciaries for reasonable expenses incurred in connection
therewith.
RECORD DATE
The record date for purposes of determining which stockholders are eligible
to vote at the special meeting and on the prepackaged plan is 5:00 p.m., New
York City time, on , 2002. On the record date there were
shares of our common stock outstanding, and there were holders of
record. We believe there are approximately 75,000 beneficial owners of our
common stock. In addition, there were 4,867,151 shares of our preferred stock
outstanding and two holders of record, Apollo and Blackstone.
DATE, TIME AND PLACE OF SPECIAL MEETING
The special meeting will be held on , 2003 at 10:30 a.m., New York
City time, at The McGraw-Hill Building, in the Auditorium, 2nd Floor, 1221
Avenue of the Americas, New York, New York.
PURPOSE OF SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote on the following
restructuring proposals:
1. The issuance of an aggregate of 885,393,009 shares of our common
stock and warrants to purchase 87,577,114 shares of our common stock in the
restructuring transactions.
2. An amendment and restatement of our certificate of incorporation to
increase our authorized common stock from 500,000,000 to 2,500,000,000
shares.
3. The election of our new board of directors.
4. The adoption of our 2003 Long-Term Stock Incentive Plan.
Receipt of the affirmative vote of our stockholders to approve the issuance
of our common stock in the restructuring transactions and an amendment and
restatement of our certificate of
5
incorporation, and to elect our new board of directors, is a condition to the
consummation of the recapitalization plan. For a full description of each of the
restructuring proposals, see 'The Restructuring Proposals' on page 28.
VOTING ON THE RESTRUCTURING PROPOSALS
VOTING OF PROXIES
All shares represented by a properly executed proxy will be voted at the
special meeting in accordance with the directions on such proxy. If no direction
is indicated on a properly executed proxy, the shares covered thereby will be
voted in favor of each proposal.
In the event that sufficient votes in favor of the restructuring proposals
are not received by the time scheduled for the special meeting, or if any of the
other conditions to the consummation of the recapitalization are not satisfied,
the persons named as proxies may propose one or more adjournments of the special
meeting to permit further solicitation of proxies with respect to such proposals
or to permit the satisfaction of any such condition. Any such adjournment will
require the affirmative vote of a majority of the voting power present or
represented at the special meeting.
VOTING RIGHTS; QUORUM
Shares representing a majority of the total outstanding votes, present or
represented by proxy, constitute a quorum. If you vote or return a proxy, your
shares will be considered part of the quorum.
Assuming a quorum of stockholders is present at the special meeting, the
affirmative vote of a plurality of all votes cast is required to elect each
director, the affirmative vote of a majority of all votes cast is needed to
approve the issuance of our common stock in the restructuring transactions, and
the affirmative vote of a majority of the total votes attributable to our
outstanding common stock and preferred stock, voting as a single class, is
needed to approve the amendment and restatement of our certificate of
incorporation, and the adoption of our 2003 stock option plan.
Each share of our common stock is entitled to one vote. Each share of our
9.2% Series A Junior Cumulative Convertible Preferred Stock and 9.2% Series B
Junior Cumulative Convertible Preferred Stock is entitled to three and one-third
votes. Each share of our 9.2% Series D Junior Cumulative Convertible Preferred
Stock is entitled to 2.9412 votes. Pursuant to the lockup agreement, Apollo and
Blackstone (the holders of all of our outstanding preferred stock and one
million shares of our common stock) and Oppenheimer (the holder of 13,258,200
shares of our common stock), which together will represent approximately 30% of
the total votes entitled to participate in this proxy solicitation, have agreed
to vote in favor of the restructuring proposals. Holders of the debt securities
that are signatories to the lockup agreement have also agreed to vote any shares
of common stock owned by them in favor of the restructuring proposals.
NO DISSENTERS' RIGHTS
Stockholders have no appraisal or dissenters' rights with respect to the
restructuring proposals or the undertaking by us of any of the transactions
described in this Proxy Statement.
REVOCATION OF PROXIES
A stockholder who has executed and returned a proxy may revoke it at any
time before it is voted by executing and returning a proxy bearing a later date,
by giving written notice of revocation to our Secretary, Patrick L. Donnelly, or
by attending the special meeting and voting in person.
6
VOTING ON THE PREPACKAGED PLAN
PROCEDURES FOR VOTING ON THE PREPACKAGED PLAN
To vote to accept the prepackaged plan, you must sign and date the enclosed
ballot and return it in the enclosed postage-paid envelope to the voting agent
by , 2003 (the 'solicitation expiration date').
If you hold shares of common stock registered in your own name, you can vote
on the prepackaged plan by completing the information requested on the ballot,
signing, dating and indicating your vote on the ballot, and returning the
completed original ballot in the enclosed, pre-addressed, postage-paid envelope
marked 'ballot' so that it is actually received by the voting agent before the
solicitation expiration date.
If you are a beneficial owner holding shares of our common stock through
your broker, dealer, commercial bank, trust company or other nominee (your
'nominee'), you can vote on the prepackaged plan in one of the two following
ways:
IF YOUR BALLOT HAS ALREADY BEEN SIGNED (OR 'PREVALIDATED') BY YOUR NOMINEE,
you can vote on the prepackaged plan by completing the information
requested on the ballot, indicating your vote on the ballot, and returning
the completed original ballot in the enclosed, pre-addressed, postage-paid
envelope so that it is actually received by the voting agent before the
solicitation expiration date.
IF YOUR BALLOT HAS NOT BEEN SIGNED (OR 'PREVALIDATED') BY YOUR NOMINEE, you
can vote on the prepackaged plan by completing the information requested on
the ballot, indicating your vote on the ballot, and returning the completed
original ballot to your nominee in sufficient time for your nominee then to
forward your vote to the voting agent so that it is actually received by
the voting agent before the solicitation expiration date.
If you are a broker, dealer, commercial bank, trust company or other nominee
that is the registered holder of shares of our common stock, please forward a
copy of this Proxy Statement, the ballot, and any other enclosed materials to
each beneficial owner and:
IF YOU HAVE SIGNED (OR 'PREVALIDATED') the appropriate ballot, the ballot
should be completed by the beneficial owner and returned by the beneficial
owner directly to the voting agent so that such ballot is actually received
by the voting agent before the solicitation expiration date.
IF YOU HAVE NOT SIGNED (OR 'PREVALIDATED') the appropriate ballot, you must
collect the ballot or ballots from beneficial owners, complete the master
ballot (as described herein), and deliver the completed original master
ballot to the voting agent so that it is actually received by the voting
agent before the solicitation expiration date.
ONLY THE BENEFICIAL OWNERS OF OUR STOCK (OR THEIR AUTHORIZED SIGNATORIES)
ARE ELIGIBLE TO VOTE ON THE PREPACKAGED PLAN. See 'The Prepackaged Plan --
Classes Entitled to Vote; Voting Record Date.'
REVOCATION OF VOTES ON THE PREPACKAGED PLAN
Votes on the prepackaged plan may be revoked at any time prior to the
solicitation expiration date. If we file a Chapter 11 petition, the revocations
of such votes may be effected thereafter only with the approval of the
bankruptcy court. See 'The Prepackaged Plan -- The Prepackaged Plan
Solicitation.'
VOTING AGENT AND INFORMATION AGENT
The Bank of New York is the voting agent and MacKenzie Partners, Inc. is the
information agent. Their addresses and telephone numbers are set forth on the
back cover of this Proxy Statement.
Questions and requests for assistance or for additional copies of this Proxy
Statement, the proxy card and ballots may be directed to the information agent
at the address and telephone number set forth on the back cover of this Proxy
Statement.
7
RISK FACTORS
You should carefully consider the following risk factors before you decide
to vote (1) in favor of or against the restructuring proposals, and (2) to
accept or to reject the prepackaged plan. These risks are not intended to
represent a complete list of the general or specific risks that may affect
stockholders in connection with the restructuring or that relate to us.
RISKS RELATED TO THE RESTRUCTURING
CONSUMMATION OF THE RESTRUCTURING WILL RESULT IN SIGNIFICANT DILUTION OF OUR
COMMON STOCKHOLDERS.
Upon consummation of the restructuring, the equity interests of our existing
common stockholders, as a percentage of the total number of the outstanding
shares of our common stock, will be significantly diluted. Whether the
restructuring is completed pursuant to the recapitalization plan or the
prepackaged plan:
holders of our debt securities will receive an aggregate of 596,669,765
newly issued shares of our common stock, representing approximately 62% of
our outstanding common stock after giving effect to the restructuring;
holders of our preferred stock will receive an aggregate of 76,992,865
newly issued shares of our common stock, representing approximately 8% or
our outstanding common stock after giving effect to the restructuring, and
warrants to purchase an additional 87,577,114 shares of our common stock,
representing approximately 9.1% of our outstanding common stock after
giving effect to the restructuring;
Apollo, Blackstone and Oppenheimer will receive an aggregate of 211,730,379
newly issued shares of our common stock in the new equity investment,
representing approximately 22% of our outstanding common stock after giving
effect to the restructuring; and
the existing holders of our common stock will retain 8% of our outstanding
common stock after giving effect to the restructuring.
There can be no assurance that we will not need to issue additional shares
of common stock in the future to fund our business and achieve our projected
results, which could lead to further dilution of our stockholders.
IF THE RESTRUCTURING IS NOT COMPLETED, WE MAY NOT BE ABLE TO OBTAIN THE
SUBSTANTIAL ADDITIONAL FINANCING WE NEED BY EARLY 2003 TO CONTINUE TO PROVIDE
SERVICE AND TO FURTHER DEVELOP AND MARKET OUR SATELLITE RADIO SERVICE.
We have sufficient cash to cover our estimated funding needs only through
the second quarter of 2003, without giving effect to the restructuring. If we
fail to obtain additional financing on a timely basis, our business will be
materially impacted and we could default on our commitments to our distribution
partners, creditors or others, and may have to discontinue operations or seek a
purchaser for our business or assets.
The restructuring will eliminate substantially all of our outstanding debt
and provide us with sufficient cash to cover our estimated funding needs into
the second quarter of 2004. After giving effect to the restructuring, we
anticipate that we can achieve cash flow breakeven with further additional
funding of approximately $75 million. This amount is an estimate and may change,
and we may need additional financing in excess of this estimate. Our actual
funding requirements could vary materially from our current estimates. We may
have to raise more funds than expected to remain in business and continue to
develop and market our satellite radio service.
AN ALTERNATIVE TO THE RESTRUCTURING MAY NOT BE AVAILABLE TO US AND, IF AVAILABLE
AND COMPLETED, MAY BE LESS FINANCIALLY ATTRACTIVE TO OUR EQUITY HOLDERS THAN THE
RESTRUCTURING.
We believe that the completion of the restructuring is critical to our
continuing viability. If the restructuring is not completed, we may be forced to
consider an alternative restructuring of our capitalization and our obligations
to our creditors and equity holders and obtain their consent to
8
any such restructuring plan with or without a pre-approved plan of
reorganization or otherwise. We cannot assure you that any alternative
restructuring arrangement or plan would be available, or if available, would
result in a successful reorganization or that any reorganization or liquidation
would be on terms as favorable to our equity holders as the terms of the
restructuring or result in any distributions being made to our equity holders.
WE WILL NOT BE ABLE TO COMPLETE THE RECAPITALIZATION PLAN IF WE DO NOT OBTAIN
STOCKHOLDER APPROVAL OF THE RESTRUCTURING TRANSACTIONS.
The consummation of the transactions contemplated by the recapitalization
plan is conditioned upon our receiving the approval of our existing stockholders
to the issuance of our common stock in the exchange offer, the preferred stock
exchange and the new equity investment, an amendment and restatement of our
certificate of incorporation to increase the authorized number of shares of our
common stock and the election of our new board of directors. Therefore, even if
the minimum tender condition and each of the other conditions to the exchange
offer are met or waived, the failure to obtain such stockholder approval will
prevent us from consummating the recapitalization plan and require us to seek to
implement the restructuring through the prepackaged plan.
WE MAY INCUR INCOME TAX LIABILITY AS A RESULT OF THE RESTRUCTURING.
We will realize cancellation of indebtedness, or COD, income as a result of
the exchange to the extent that the value of the common stock issued in exchange
for the debt securities is less than the 'adjusted issue price' of the debt
securities. Thus, the precise amount of COD income cannot be determined until
the closing date of the restructuring.
We will not recognize COD income to the extent we are considered insolvent
from a tax perspective immediately prior to the completion of the restructuring.
If and to the extent COD income is excluded from taxable income due to
insolvency, we will generally be required to reduce certain of our tax
attributes, including, but not limited to, net operating losses and loss
carryforwards. This may result in a significant reduction in, and possible
elimination of, our tax attributes. Taxable income will result to the extent COD
income exceeds the amount by which we are considered to be insolvent immediately
prior to the completion of the restructuring.
To the extent that we are considered solvent from a tax perspective
immediately prior to the completion of the restructuring and realize COD income,
our available losses may offset all or a portion of the COD income. COD income
realized in excess of available losses will result in a tax liability. In
addition, the issuance of our common stock in the exchange will result in an
ownership change in our company that will significantly limit the use of our
remaining tax attributes, including net operating losses.
Alternatively, if the discharge of the debt securities occurs in a
Chapter 11 bankruptcy case pursuant to the prepackaged plan, we will not
recognize any COD income as a result of such discharge although certain of our
tax attributes will be reduced.
RISKS RELATED TO THE PREPACKAGED PLAN
WE MAY SEEK CONFIRMATION OF THE PREPACKAGED PLAN EVEN IF EACH IMPAIRED CLASS OF
CLAIMS OR INTERESTS DOES NOT ACCEPT THE PREPACKAGED PLAN, AND SUCH CONFIRMATION
MAY RESULT IN OUR STOCKHOLDERS RECEIVING NOTHING.
If each impaired class of claims or interests under the prepackaged plan
does not accept the prepackaged plan, we may nevertheless seek to have the
prepackaged plan confirmed under the 'cram down' provisions of Section 1129(b)
of the Bankruptcy Code. The cram down provisions allow a bankruptcy court to
confirm a plan even if the plan is not accepted by all impaired classes, as long
as at least one impaired class has accepted the plan. In the event that our
common stockholders do not accept the prepackaged plan, we may nevertheless seek
confirmation of the prepackaged plan under the 'cram down' provisions of the
Bankruptcy Code.
9
Furthermore, the 'cram down' provisions insure that holders of junior
interests, such as common stockholders, cannot retain any interest in the debtor
under a plan that has been rejected by a senior class of impaired claims or
interests unless such impaired claims or interests are paid in full. Therefore,
in the event that any class of impaired claims or interests senior to our
stockholders does not accept the prepackaged plan and we nevertheless seek
confirmation of the prepackaged plan under the cram down provisions, our
stockholders could receive nothing.
Upon confirmation, the prepackaged plan will be binding on all of our debt
and equity holders regardless of whether such holders voted to accept the
prepackaged plan.
THE PREPACKAGED PLAN MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS.
We believe that the solicitation of votes to approve the prepackaged plan,
and the potential subsequent commencement of a prepackaged Chapter 11 case by us
in connection with the prepackaged plan, would not materially adversely affect
our relationships with customers, employees, partners and others, provided that
we can demonstrate sufficient liquidity to continue to operate our business and
a likelihood of success for the prepackaged plan in a reasonably short time
frame. However, the prepackaged plan solicitation or any subsequent commencement
of a prepackaged Chapter 11 case could adversely affect the relationships
between us and our customers, employees, partners and others. There is a risk,
due to uncertainty about our future, that:
customers could seek alternative sources of service from our competitors,
including XM Radio,
employees could be distracted from performance of their duties or more
easily attracted to other career opportunities, and
radio, retail, content or automaker partners could terminate their
relationship with us or require financial assurances or enhanced
performance.
These factors could adversely affect our ability to obtain confirmation of
the prepackaged plan.
EVEN IF ALL CLASSES OF CLAIMS AND INTERESTS THAT ARE ENTITLED TO VOTE ACCEPT THE
PREPACKAGED PLAN, THE PREPACKAGED PLAN MAY NOT BECOME EFFECTIVE.
The confirmation and effectiveness of the prepackaged plan is subject to
certain conditions that may not be satisfied. We cannot assure you that all
requirements for confirmation and effectiveness required under the prepackaged
plan will be satisfied or that the bankruptcy court will conclude that the
requirements for confirmation and effectiveness of the prepackaged plan have
been satisfied. See 'The Prepackaged Plan -- Conditions to Confirmation' and
' -- Conditions to Effective Date of the Prepackaged Plan.'
Furthermore, in the event that we determine to file the prepackaged plan
with the bankruptcy court, Apollo, Blackstone and Oppenheimer may elect to
terminate their obligations to purchase common stock in the new equity
investment. Without the new equity investment or a suitable alternative new
equity investment, we do not believe the prepackaged plan would meet the
confirmation requirement of Section 1129 of the Bankruptcy Code that the plan be
'feasible.' See 'The Prepackaged Plan -- Conditions to Confirmation.' In that
event, we shall not seek confirmation of the prepackaged plan and your vote in
favor of the prepackaged plan will be disregarded.
THE BANKRUPTCY COURT MAY NOT CONFIRM THE PREPACKAGED PLAN.
If all of the conditions to the exchange offer cannot be satisfied or waived
by March 15, 2003, but we receive required acceptances to seek confirmation of
the prepackaged plan, then on March 15, 2003 (or such earlier or later date as
we and the other parties to the lockup agreement may agree), we expect to file a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code
and, provided that Apollo, Blackstone and Oppenheimer agree to proceed with
10
the new equity investment, will seek confirmation of the prepackaged plan as
promptly as practicable thereafter.
We cannot assure you that the prepackaged plan, if filed, will be confirmed
by the bankruptcy court. Section 1129 of the Bankruptcy Code, which sets forth
the requirements for confirmation of a plan of reorganization, requires, among
other things, a finding by the bankruptcy court that the plan is 'feasible,'
that all claims and interests have been classified in compliance with the
provisions of Section 1122 of the Bankruptcy Code, and that, under the plan,
each holder of a claim or interest within each impaired class either accepts the
plan or receives or retains cash or property of a value, as of the date the plan
becomes effective, that is not less than the value such holder would receive or
retain if the debtor were liquidated under Chapter 7 of the Bankruptcy Code.
There can be no assurance that a bankruptcy court will conclude that the
feasibility test and other requirements of Section 1129 of the Bankruptcy Code
have been met with respect to the prepackaged plan.
If the prepackaged plan is filed, there can be no assurance that
modifications thereto would not be required for confirmation, or that such
modifications would not require a resolicitation of votes on the prepackaged
plan. We believe that, if the prepackaged plan is confirmed, it would not be
followed by a liquidation or an immediate need for further financial
reorganization and that holders of claims and interests in any impaired class
would receive or retain value that is not less than the value such holders would
receive or retain if we were liquidated under Chapter 7 of the Bankruptcy Code.
If no plan can be confirmed, our reorganization case may be converted to a
case under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would
be appointed or elected to liquidate our assets for distribution in accordance
with the priorities established by the Bankruptcy Code. A discussion of the
effects that a Chapter 7 liquidation would have on the recoveries of holders of
claims and interests and our liquidation analysis are set forth under 'The
Prepackaged Plan -- Liquidation Analysis' on page 52. We believe that
liquidation under Chapter 7 would result in no distributions being made to
holders of our preferred stock and common stock.
THE BANKRUPTCY COURT MAY DISAGREE WITH OUR CLASSIFICATION OF CLAIMS AND
INTERESTS.
Section 1122 of the Bankruptcy Code provides that a plan may place a claim
or an interest in a particular class only if such claim or interest is
substantially similar to the other claims or interests of such class. We believe
that the classification of claims and interests under the prepackaged plan
complies with the requirements set forth in the Bankruptcy Code; however, once a
Chapter 11 case has been commenced a claim or interest holder could challenge
the classification. In such event, the cost of the prepackaged plan and the time
needed to confirm the prepackaged plan would increase and we cannot assure you
that the bankruptcy court will agree with our classification of claims and
interests. If the bankruptcy court concludes that the classification of claims
and interests under the prepackaged plan does not comply with the requirements
of the Bankruptcy Code, we may need to modify the prepackaged plan. Such
modification could require a resolicitation of votes on the prepackaged plan. If
the bankruptcy court determined that our classification of claims and interests
was not appropriate, the prepackaged plan may not be confirmed.
THE BANKRUPTCY COURT MAY FIND THE SOLICITATION OF ACCEPTANCES INADEQUATE.
Usually, a plan of reorganization is filed and votes to accept or reject the
plan are solicited after the filing of a petition commencing a Chapter 11 case.
Nevertheless, a debtor may solicit votes prior to the commencement of a
Chapter 11 case in accordance with Section 1126(b) of the Bankruptcy Code and
Bankruptcy Rule 3018(b). Section 1126(b) of the Bankruptcy Code and Bankruptcy
Rule 3018(b) require that:
the plan of reorganization be transmitted to substantially all creditors
and other interest holders entitled to vote,
the time prescribed for voting is not unreasonably short, and
11
the solicitation of votes is in compliance with any applicable
nonbankruptcy law, rule or regulation governing the adequacy of disclosure
in such solicitation or, if no such law, rule or regulation exists, votes
be solicited only after the disclosure of adequate information.
Section 1125(a)(1) of the Bankruptcy Code describes adequate information as
information of a kind and in sufficient detail as would enable a hypothetical
reasonable investor typical of holders of claims and interests to make an
informed judgment about the plan. With regard to solicitation of votes prior to
the commencement of a bankruptcy case, if the bankruptcy court concludes that
the requirements of Bankruptcy Rule 3018(b) have not been met, then the
bankruptcy court could deem such votes invalid, whereupon the prepackaged plan
could not be confirmed without a resolicitation of votes to accept or reject the
prepackaged plan. While we believe that the requirements of Section 1126(b) of
the Bankruptcy Code and Bankruptcy Rule 3018 will be met, there can be no
assurance that the bankruptcy court will reach the same conclusion.
OUR FUTURE OPERATIONAL AND FINANCIAL PERFORMANCE MAY VARY MATERIALLY FROM THE
FINANCIAL PROJECTIONS.
We have prepared the financial projections contained in this Proxy Statement
as required in connection with the filing of the prepackaged plan. These
projections are based upon a number of assumptions and estimates, including that
the restructuring will be implemented in accordance with its current terms.
Financial projections are necessarily speculative in nature and one or more of
the assumptions and estimates underlying these projections may prove not to be
valid. The assumptions and estimates underlying these projections are inherently
uncertain and are subject to significant business, economic and competitive
risks and uncertainties, many of which are beyond our control. See 'Risk
Factors -- Risks Related to Our Business.' Accordingly, our financial condition
and results of operations following the restructuring may vary significantly
from those set forth in the financial projections. Consequently, the financial
projections should not be regarded as a representation by us, our advisors or
any other person that the projections will be achieved. Holders are cautioned
not to place undue reliance on the financial projections. See 'Unaudited
Projected Consolidated Financial Information.'
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS MIGHT FAIL EVEN AFTER THE RESTRUCTURING.
We were a development stage company until early 2002. We began generating
revenues on February 14, 2002, although, to date, these revenues have not been
significant. Our ability to generate significant revenues and ultimately to
become profitable will depend upon several factors, including whether we can
attract and retain a sufficient number of subscribers and advertisers to our
satellite radio service and whether we compete successfully. As of October 31,
2002, we had 16,136 subscribers.
We cannot estimate with any certainty the consumer demand for our service or
the degree to which we will meet that demand. Among other things, consumer
acceptance will depend upon whether we obtain, produce and market high quality
programming consistent with consumers' tastes; the willingness of consumers to
pay subscription fees to obtain satellite radio; the cost and availability of
our radios; our marketing and pricing strategy; and the marketing and pricing
strategy of our direct competitor, XM Radio. If demand for our service does not
develop as expected, we may not be able to generate enough revenues to become
profitable or to generate positive cash flow. Accordingly, we cannot assure you
that our business will succeed following the restructuring.
WE WILL NEED ADDITIONAL FINANCING AFTER THE RESTRUCTURING TO OPERATE OUR SERVICE
AND ADDITIONAL FINANCING MIGHT NOT BE AVAILABLE.
Following consummation of the restructuring, we expect to have sufficient
cash to cover our funding needs into the second quarter of 2004. After giving
effect to the restructuring, we anticipate that we can achieve cash flow
breakeven with further additional funding of approximately $75 million. This
amount is an estimate and may change. However, if the number of
12
actual subscribers, or the cost to acquire each new subscriber, differs
substantially from our expectations, we may need substantial additional funding.
We plan to raise future funds by selling debt or equity securities, or both,
publicly and/or privately, and by obtaining loans or other credit lines from
banks or other institutions. We may not be able to raise sufficient funds on
favorable terms or at all. If we fail to obtain any necessary financing on a
timely basis, then our business would be materially impacted and we could
default on commitments to our distribution partners, creditors or others, and
may have to discontinue operations or seek a purchaser for our business or
assets.
OUR SUBSTANTIAL INDEBTEDNESS WILL ADVERSELY AFFECT OUR FINANCIAL CONDITION IF WE
FAIL TO COMPLETE THE RESTRUCTURING.
As of September 30, 2002, we had total indebtedness of $683.6 million and we
had stockholders' equity of $170.4 million. We have significant principal
payments under our indebtedness coming due in the next several years. Unless we
complete the restructuring, we will be required to make the following principal
payments on our long-term debt: $15.0 million in the remainder of 2002; $34.8
million in 2003; $38.5 million in 2004; $111.7 million in 2005; $ -- million in
2006; $280.4 million in 2007; and $216.5 million in the aggregate thereafter.
Our substantial indebtedness has important consequences. For example, it:
increases our vulnerability to general adverse economic and industry
conditions;
requires us to dedicate a substantial portion of our cash to payments on
our indebtedness, thereby reducing the cash available to fund working
capital, capital expenditures, research and development efforts and other
general corporate purposes;
limits our flexibility in planning for, or reacting to, changes in our
business and industry;
places us at a competitive disadvantage compared to our competitor that has
less debt; and
limits our ability to raised additional capital.
RISKS RELATED TO RELATIONSHIPS WITH STOCKHOLDERS, AFFILIATES AND RELATED PARTIES
IF THE RESTRUCTURING IS COMPLETED, A SMALL NUMBER OF STOCKHOLDERS WILL CONTINUE
TO CONTROL A SIGNIFICANT PORTION OF OUR STOCK.
Upon completion of the restructuring, and assuming all of our debt
securities are exchanged for common stock and assuming the exercise of the
warrants issued in the restructuring, Oppenheimer, Lehman, Apollo, Blackstone,
Loral and Continental Casualty Company will be our largest stockholders and will
beneficially own approximately 23%, 13%, %, %, 6% and 6% of our outstanding
common stock, respectively. As a result, these stockholders have significant
voting power with respect to the ability to:
authorize additional shares of capital stock;
amend our certificate of incorporation or bylaws;
elect our directors; or
effect or reject a merger, sale of assets or other fundamental transaction.
The extent of ownership by these stockholders may also discourage a
potential acquirer from making an offer to acquire us. This could reduce the
market price of our common stock.
Furthermore, pursuant to the lockup agreement and in connection with the
restructuring, we are asking you to elect a new seven-member board of directors
which will consist of one director nominated by management; one director
nominated by each of Apollo and Blackstone; and four directors nominated by the
holders of our debt securities. We have nominated Joseph P. Clayton, our
President and Chief Executive Officer and a member of our existing board of
directors. Apollo has nominated Leon D. Black, a member of our existing board of
directors and one of the founding principals of Apollo Advisors, IV, L.P.
Blackstone has nominated Peter G. Peterson, a member of our existing board of
directors and the chairman of The Blackstone Group. L.P.
13
THE RESTRUCTURING
BACKGROUND OF AND REASONS FOR THE RESTRUCTURING
Since inception, we have funded the development of our system and the
introduction of our service through the issuance of debt and equity securities.
As of September 30, 2002, we had raised approximately $1.25 billion in equity
capital from the sale of our common stock and convertible preferred stock. In
addition, we have received approximately $638 million in net proceeds from
public debt offerings and private credit arrangements.
We believe that the completion of the restructuring is critical to our
continuing viability. We have sufficient cash to cover our estimated funding
needs only through the second quarter of 2003, without giving effect to the
completion of the restructuring. If the restructuring is not completed, we
anticipate that our additional funding needs will total approximately
$600 million until our operations become self-sustaining, which we currently
anticipate will not occur for several years, when we have approximately three
million subscribers. However, if the growth rate of the number of subscribers is
slower than expected or the cost of obtaining these subscribers is higher than
forecast, our operations may become self-sustaining at a later date or may never
become self-sustaining. The amount and timing of our cash requirements also
depend upon other factors, including the rate of growth of our business,
subscriber acquisition costs and costs of financing.
In early April 2002, we began to investigate the feasibility of executing a
transaction, or series of transactions, to raise additional capital and reduce
our indebtedness. As part of those efforts, we commenced informal discussions
with Apollo and Blackstone regarding their willingness to invest additional
capital. At that time, both Apollo and Blackstone indicated to us they would be
interested in making an additional investment in our company if a consensual
transaction could be arranged which reduced our debt, eliminated the covenants
contained in the Lehman senior term loans and attracted new investors. In April
2002, we also engaged UBS Warburg LLC, an investment bank, as our financial
advisor to assist us in arranging a transaction to raise new capital and reduce
our debt. Throughout this period, we consulted with Simpson Thacher & Bartlett,
our outside counsel.
At our request, during May and June 2002, UBS Warburg LLC began contacting
financial and strategic investors regarding their interest in investing in us.
Selected investors received materials describing our business and were invited
to conduct due diligence and participate in management discussions.
On May 21, 2002, our board of directors determined that it was advisable to
form a special committee, consisting of Lawrence F. Gilberti, James P. Holden
and Joseph V. Vittoria, each an independent director, to evaluate and review,
and make recommendations to our board of directors with respect to, any
financing transactions pursued by us to the extent such transactions involved
any of our directors or any of our or their affiliates or associates. The
special committee was authorized by our board of directors to retain a financial
advisor and legal counsel to assist it in the performance of its functions.
During the first week of June 2002, the special committee engaged Miller
Buckfire Lewis & Co., LLC, or MBL, as its financial advisor, and Davis Polk &
Wardwell, as its legal counsel.
On June 7, 2002, after consulting with the special committee, we and
UBS Warburg LLC commenced discussions with Apollo and Blackstone regarding a
potential rights offering to stockholders to be underwritten in part by Apollo
and Blackstone. The discussions with Apollo and Blackstone continued through
June 2002 and the first two weeks of July 2002. During this period, UBS Warburg
LLC continued to contact potential financial and strategic investors regarding
their interest in engaging in a financing or alternative transaction with us.
Although numerous potential investors were contacted, none indicated any
significant interest, citing general economic and market conditions, our high
level of debt and the risks associated with an investment given our early stage
of operations.
The special committee held several meetings with MBL and Davis Polk &
Wardwell during June and the first two weeks of July 2002 for purposes of
reviewing and analyzing our discussions with Apollo and Blackstone and the
efforts being undertaken by UBS Warburg LLC and us to solicit potential
investors.
14
At a meeting of the special committee held on July 16, 2002, after (i)
reviewing with MBL the efforts being undertaken by UBS Warburg LLC and us to
solicit potential investors, (ii) reviewing with MBL the terms of a draft
non-binding letter of intent with Apollo and Blackstone with respect to a
proposed recapitalization of our company, (iii) discussing the lack of financing
alternatives available to us and (iv) being advised by Davis Polk & Wardwell as
to its fiduciary duties, the special committee approved the execution of such
non-binding letter of intent.
At a meeting on July 16, 2002, our board of directors also approved the
execution of the non-binding letter of intent with Apollo and Blackstone. Our
board approved the execution of the letter of intent after reviewing with UBS
Warburg LLC the terms of the proposed restructuring and UBS Warburg LLC's
efforts to attract other parties to invest in our company; being advised by
Simpson Thacher & Bartlett as to its fiduciary duties; and after discussing with
the members of the special committee their approval of our execution of the
letter of intent.
On July 16, 2002, we executed the non-binding letter of intent with Apollo
and Blackstone. Pursuant to this letter of intent, Apollo and Blackstone agreed
to underwrite an aggregate of $125 million of new capital, provided that, among
other things:
$125 million from other investors was raised as part of the transaction;
no less than $250 million of our debt securities were converted into common
stock as part of the transaction;
no material adverse change occurred in our business affairs, financial
condition or prospects prior to closing;
Apollo and Blackstone were reasonably satisfied with the covenants in our
debt securities; and
the transaction was completed prior to February 1, 2003.
Apollo and Blackstone agreed to purchase this new equity at the market price of
our common stock at the time of the debt exchange, but in no event at a price
greater than $4.00 per share or on terms less favorable than those at which the
additional $125 million of capital was raised.
The letter of intent provided that upon substantial satisfaction of the
conditions to funding the investment, the conversion price of our existing
preferred stock held by Apollo and Blackstone would be reduced to $8.00 per
share on a blended basis. Further, the letter of intent provided that if Apollo
and Blackstone funded their investments they would receive, for each share of
common stock purchased, seven-year warrants to purchase 1.25 shares of common
stock for each share of common stock they received for their $125 million
investment, at an exercise price equal to the price at which they purchased such
common stock. The letter of intent also provided that it could be terminated on
or after August 15, 2002, if definitive agreements relating to the transaction
had not been executed by such date.
Following the execution of this letter of intent, UBS Warburg LLC, on our
behalf, contacted Oppenheimer, Lehman, Loral and certain holders of our senior
secured discount notes and senior secured notes regarding their interest in
exchanging all, or a portion, of their debt securities for shares of our common
stock and/or investing new capital as part of the transaction outlined in the
letter of intent. Following these initial conversations, Oppenheimer, Lehman,
Loral and holders of our senior secured discount notes and senior secured notes
formed the informal noteholders committee, which retained, at our expense,
Fried, Frank, Harris, Shriver & Jacobson as its counsel.
In August 2002, the informal noteholders committee advised us that its
members would not support or participate in the transaction described in the
letter of intent, and on August 14, 2002, we terminated the letter of intent.
The informal noteholders committee instead requested a series of meetings with
management and UBS Warburg LLC to further evaluate our business plans and
financial model, including our marketing and distribution strategy, and engaged,
at our expense, PricewaterhouseCoopers LLC to assist in this evaluation. During
August and September 2002, the informal noteholders committee, with the
assistance of PricewaterhouseCoopers and Fried, Frank, Harris, Shriver &
Jacobson, conducted extensive due diligence, including meeting with our
executive officers and other employees in charge of our marketing, distribution
and sales efforts.
15
During the course of the informal noteholders committee's due diligence, we
and UBS Warburg LLC had extensive discussions with members of the committee
regarding the possibility of exchanging all of our outstanding debt and
preferred stock for common stock and the infusion of new equity capital into our
company, including the possibility of effecting a transaction through a
prepackaged plan of reorganization under the Bankruptcy Code in which our
existing common stockholders would retain no equity interest. At that time, we
engaged Stutman, Treister & Glatt P.C. as our special bankruptcy counsel.
In August 2002, while conducting discussions with the informal noteholders
committee, we again instructed UBS Warburg LLC to contact potential strategic
and financial investors to solicit an investment in our company as part of a
transaction that would eliminate all, or substantially all, of our debt. During
August and September 2002, we entered into confidentiality agreements with
certain investors who expressed a preliminary interest to UBS Warburg LLC,
provided financial and business information to such parties, conducted meetings
with management and answered questions from these investors. Subsequently, none
of these investors indicated any meaningful interest in investing at that time.
In late August 2002, we began negotiating with Apollo, Blackstone,
Oppenheimer and the informal noteholders committee regarding the term sheet that
is attached as Annex A to the lockup agreement. At the beginning of these
negotiations, Oppenheimer indicated to us that it was prepared to invest between
$100 to $150 million in our common stock if the transaction was acceptable.
Apollo and Blackstone also indicated that each was prepared to invest an
additional $25 million in our common stock under acceptable circumstances.
During late August 2002 and September 2002, negotiations relating to the term
sheet were extensive among us, the informal noteholders committee, and Apollo,
Blackstone and Oppenheimer.
Negotiation of the lockup agreement was on-going at the end of September
2002. As a result, we elected not to make an interest payment on our convertible
subordinated notes that was due on September 29, 2002. In addition, we received
waivers from Lehman of the $7.5 million principal payment that was due on the
Lehman senior term loans on September 30, 2002 in order to complete the
negotiation of the lockup agreement.
On October 1, 2002, the special committee held a meeting with its financial
advisor and legal counsel. At the meeting, MBL reviewed with the special
committee the terms contained in the draft lockup agreement, and the continued
efforts of UBS Warburg LLC to solicit potential investors. In addition, MBL and
Davis Polk & Wardwell discussed with the special committee some additional terms
that could possibly be incorporated into the transactions contemplated by the
draft lockup agreement for the benefit of stockholders, other than Apollo,
Blackstone and Oppenheimer. These additional terms included a common stock
rights offering to such stockholders and a requirement that the recapitalization
plan be approved by a majority of such stockholders. After further discussion,
the special committee directed MBL to propose such additional terms to the
parties to the lockup agreement.
During the week following such meeting, at the direction of the special
committee, MBL and Davis Polk & Wardwell requested that we incorporate the
rights offering and special vote into the recapitalization plan. MBL and Davis
Polk & Wardwell also directly made such request to Apollo, Blackstone and
Oppenheimer and the informal noteholders committee (or their respective
advisors). In addition, again at the special committee's request, MBL requested
that the existing common stockholders retain 10% rather than 8% of the common
stock after the recapitalization. Following discussions with respect to such
requests, the informal noteholders committee rejected the incorporation of such
terms into the recapitalization plan.
At a meeting of the special committee and its advisors on October 10, 2002,
MBL and Davis Polk & Wardwell reported that the requested additional terms for
the benefit of stockholders (other than Apollo, Blackstone and Oppenheimer) had
been rejected by the informal noteholders committee. The special committee and
its advisors also discussed our immediate need for new financing and the
importance of reaching agreement with our creditors promptly. After further
discussion, the special committee determined that it would not object to our
execution of the lockup agreement on the basis that (i) the rights offering and
special vote terms would continue to
16
be pursued after such execution and (ii) the lockup agreement may be terminated
if our board of directors determines such termination to be in our best
interests.
During the following two weeks, the special committee's financial advisor
and legal counsel continued to pursue the rights offering and special vote
protections, but such protections continued to be rejected by the informal
noteholders committee.
Following these extensive negotiations, on October 17, 2002, our board of
directors approved our execution of the lockup agreement. The lockup agreement
was executed by the parties on October 17, 2002, after such meeting.
On November 8, 2002, the trustee for our convertible subordinated notes
informed us in writing that our failure to pay interest had resulted in an event
of default under the indenture for the convertible subordinated notes.
On November 12, 2002, the special committee held a meeting with its
financial advisor and legal counsel. MBL reviewed for the members of the special
committee the negotiations on the lockup agreement and the terms of the
recapitalization plan. The special committee and its advisors also discussed our
current financial condition and future prospects, including the consequences of
not consummating the recapitalization plan or an alternative financing
transaction promptly. MBL then delivered its opinion to the special committee
orally, which was later confirmed in writing, to the effect that, based upon and
subject to the matters set forth in such opinion, the terms of the
recapitalization plan were fair, from a financial point of view, to holders of
our common stock, other than Apollo, Blackstone and Oppenheimer. Davis Polk &
Wardwell advised the special committee on its legal duties and responsibilities,
and discussed with the special committee certain other legal matters relating to
the recapitalization plan.
After further discussion, the special committee unanimously (i) determined
that the recapitalization plan is fair to and in the best interests of our
stockholders, other than Apollo, Blackstone and Oppenheimer, and
(ii) recommended that our board of directors approve the recapitalization plan.
At a meeting on November 18, 2002, our board of directors approved the
restructuring. As part of that meeting, our board of directors reviewed with UBS
Warburg LLC the terms of the restructuring; discussed with the members of the
special committee their recommendation and the fairness of the recapitalization
plan to holders of our common stock, other than Apollo, Blackstone and
Oppenheimer; was advised by Simpson Thacher & Bartlett as to fiduciary duties;
determined that the recapitalization plan and the prepackaged plan are fair to,
and in the best interests of, our stockholders; and unanimously recommended that
our stockholders approve the recapitalization plan and vote to accept the
prepackaged plan.
TERMS OF THE RESTRUCTURING
The restructuring under each of the recapitalization plan and the
prepackaged plan would result in the elimination of all or substantially all of
our debt and all of our preferred stock and the investment of $200 million cash
in new equity capital and contains the following components, each of which is
conditioned upon the successful consummation of the others: (1) the exchange of
100% of our debt securities for 596,669,765 shares of common stock; (2) the
exchange by our preferred stockholders, Apollo and Blackstone, of all of our
outstanding preferred stock for 76,992,865 shares of common stock and warrants
to purchase 87,577,114 shares of our common stock; and (3) the purchase by
Apollo, Blackstone and Oppenheimer of an aggregate of 211,730,379 shares of our
common stock for an aggregate purchase price of $200 million cash.
17
The following table sets forth the approximate percentages of our common
stock that holders of our common stock, preferred stock and debt securities will
own whether the restructuring is completed pursuant to the recapitalization plan
or the prepackaged plan:
PERCENTAGE OF OUTSTANDING
COMMON STOCK OWNED
-----------------------------
BEFORE THE AFTER THE
HOLDER RESTRUCTURING RESTRUCTURING
------ ------------- -------------
Common stockholders......................................... 83% 8%
Preferred stockholders...................................... 17% 8%
Holders of debt securities.................................. -- 62%
New equity investors........................................ -- 22%
THE RECAPITALIZATION PLAN
The recapitalization plan consists of the concurrent transactions described
below, each of which is conditioned upon the successful completion of the
others.
THE EXCHANGE OFFER AND CONSENT SOLICITATION
Concurrently with this proxy solicitation, we are conducting a public
exchange offer for all of our outstanding debt securities. Pursuant to the
exchange offer, we are offering to exchange an aggregate of 596,669,765 shares
of our common stock, representing approximately 62% of the outstanding shares of
our common stock after giving effect to the restructuring, for all of our debt
securities. See 'Capitalization.' We will issue proportionately fewer shares if
less than all of our debt is exchanged. In connection with the exchange offer,
we are soliciting the consent of each holder of the notes to (1) the adoption of
certain amendments to the indentures under which the notes were issued to
eliminate substantially all of the restrictive covenants and modify or eliminate
certain events of default and (2) the waiver of any defaults and events of
default under the indentures now in existence, if any, or caused by the
recapitalization plan. The completion of the exchange offer is conditioned upon,
among other conditions, the satisfaction of the minimum tender condition and the
completion of each of the other transactions contemplated by the
recapitalization plan.
PREFERRED STOCK EXCHANGE
Pursuant to the lockup agreement (as described below), Apollo and Blackstone
have agreed to exchange all of our 9.2% Series A Junior Cumulative Convertible
Preferred Stock, 9.2% Series B Junior Cumulative Convertible Preferred Stock and
9.2% Series D Junior Cumulative Convertible Preferred Stock held by them for
(1) an aggregate of 76,992,865 newly issued shares of our common stock,
representing approximately 8% of our outstanding common stock after giving
effect to the restructuring, and (2) warrants to purchase an aggregate of
87,577,114 shares of our common stock, representing approximately 9.1% of our
outstanding common stock after giving effect to the restructuring. 52,546,268 of
these warrants will have an exercise price of $1.04 per share of common stock,
and 35,030,846 of these warrants will have an exercise price of $0.92 per share
of common stock. The warrants will expire two years after the effective date of
the restructuring.
NEW EQUITY INVESTMENT
Pursuant to the lockup agreement, Apollo, Blackstone and Oppenheimer have
agreed to purchase an aggregate of 211,730,379 newly issued shares of our common
stock, representing approximately 22% of our outstanding common stock after
giving effect to the restructuring, for a total purchase price of $200 million
cash.
The obligation of each of Apollo, Blackstone and Oppenheimer to purchase
common stock in the new equity investment is conditioned upon each of the other
purchasers (or a replacement purchaser) fulfilling its obligation to purchase
common stock on the closing date of the restructuring and may be terminated by
Apollo, Blackstone or Oppenheimer upon the occurrence of specified events that
constitute a material adverse change, in the event the minimum tender condition
of the exchange offer is not satisfied, and upon the filing of a case under the
Bankruptcy
18
Code by or against us. For a description of the terms and conditions of the new
equity investment, see ' -- Lockup Agreement.'
LOCKUP AGREEMENT
On October 17, 2002, we entered into a lockup agreement with Apollo,
Blackstone, Oppenheimer, Lehman, Loral and the members of the informal
noteholders' committee pursuant to which each of the parties has agreed to use
commercially reasonable best efforts to complete the restructuring as
contemplated by the recapitalization plan or, if the minimum tender condition to
the exchange offer or any of the other conditions to the recapitalization plan
are not satisfied or waived or we are otherwise not able to complete the
recapitalization plan, but the required acceptances have been received to seek
confirmation of the prepackaged plan, as contemplated by the prepackaged plan.
Pursuant to the lockup agreement and in connection with and conditioned upon
the successful consummation of the restructuring:
Lehman, Loral and the holders of approximately 53% in aggregate principal
amount at maturity of our senior secured discount notes, approximately 60%
in aggregate principal amount of our senior secured notes and approximately
53% in aggregate principal amount of our convertible subordinated notes
agreed to tender all their debt securities in the exchange offer (and
thereby deliver a consent to the proposed amendments and waivers);
each of the noteholders which is a party to the lockup agreement, Lehman,
Loral, Apollo and Blackstone have agreed (1) to vote to accept the
prepackaged plan and to reject any plan of reorganization of Sirius that
does not contain the terms of the restructuring substantially as described
in this Proxy Statement, and (2) not to transfer any of the debt securities
or preferred stock held by it unless the beneficial owner to whom such debt
securities or preferred stock will be transferred agrees in writing to be
bound by the terms of the lockup agreement;
Apollo and Blackstone have agreed (1) to tender for cancellation all of our
outstanding preferred stock in exchange for an aggregate of 76,992,865
newly issued shares of our common stock, warrants to purchase 52,546,268
shares of our common stock at a purchase price of $1.04 per share and
warrants to purchase 35,030,846 shares of our common stock at a purchase
price of $0.92 per share, and (2) in connection with this proxy
solicitation, to vote in favor of each of the restructuring proposals; and
Apollo, Blackstone and Oppenheimer agreed to purchase an aggregate of
211,730,379 newly issued shares of our common stock for an aggregate
purchase price of $200 million cash. Oppenheimer has agreed to purchase
163,609,837 shares of our common stock, representing approximately 17% of
our common stock after giving effect to the restructuring, for a total
purchase price of $150 million cash, or $0.92 per share. Apollo and
Blackstone have each agreed to purchase 24,060,271 shares of our common
stock, representing approximately 2.5% of our outstanding common stock
after giving effect to the restructuring, for a total price of $25 million
cash, or $1.04 per share.
In the event that less than 100% of our outstanding debt securities are
tendered in the exchange offer, each holder of debt securities which is a party
to the lockup agreement (other than Apollo, Blackstone and Oppenheimer) may
retain a pro rata share of its debt securities, provided that the total
outstanding aggregate principal amount of debt securities following the exchange
offer may not exceed the amount permitted by the minimum tender condition.
The obligation of each of Apollo, Blackstone and Oppenheimer to purchase
common stock in the new equity investment is conditioned upon each of the other
purchasers (or, as described below, any replacement purchaser) fulfilling its
respective obligation to purchase common stock on the closing date of the
restructuring. In the event that we are unable to complete the recapitalization
plan and we determine to file the prepackaged plan with the bankruptcy court,
Apollo, Blackstone and Oppenheimer may elect to terminate their obligations to
purchase common stock in the new equity investment. In that event, and so long
as no suitable alternative new
19
equity investment is located, we will not seek confirmation of the prepackaged
plan and your vote in favor of the prepackaged plan will be disregarded.
Under the prepackaged plan: the claims held by holders of the Lehman senior
term loans, senior secured discount notes and senior secured notes (Class 2);
the claims held by holders of the Loral senior term loans (Class 3); the claims
held by the holders of our convertible subordinated notes (Class 5); the
interests held by holders of our preferred stock (Class 8); and the interests
held by holders of our common stock (Class 9), constitute separate impaired
classes of claims or interests. Pursuant to the lockup agreement, approximately
66% in aggregate principal amount of Class 2, 100% in aggregate principal amount
of Class 3, approximately 53% in aggregate principal amount of Class 5 and
Apollo and Blackstone, the holders of our preferred stock and 100% of the
interests in Class 8, have agreed to vote to accept the prepackaged plan.
Unless the restructuring has been completed, the lockup agreement, and the
obligations of the parties to the lockup agreement, will terminate upon the
earliest to occur of:
March 15, 2003, unless a prepackaged plan is filed as set forth in the
lockup agreement, in which case such date will be June 15, 2003;
receipt of written notice from holders of a majority in aggregate principal
amount of the debt securities of their intent to terminate the agreement
upon the occurrence of specified events that constitute a material adverse
change;
ten business days after receipt of written notice from Apollo, Blackstone
or Oppenheimer of its intent to terminate the agreement upon the occurrence
of specified events that constitute a material adverse change;
receipt of written notice from Apollo, Blackstone or Oppenheimer, no later
than five business days after the tender expiration date, of its intent to
terminate its obligation to purchase common stock in the new equity
investment because the minimum tender condition was not satisfied;
a material alteration by us of the terms of the restructuring that was not
permitted under the terms of the lockup agreement;
receipt of written notice from any of the parties to the lockup agreement
of its intent to terminate the lockup agreement upon the occurrence of a
material breach by any of the other parties thereto of its respective
obligations, representations or warranties that is incurable or is curable
and is not cured within 30 days after such notice;
receipt of written notice from us of our intent to terminate the lockup
agreement upon a determination by our board of directors that such
termination is in our best interests;
the thirty-first day following the filing of any bankruptcy proceeding,
other than the prepackaged plan, if such proceeding has not been dismissed
by such day;
the prepackaged proceeding being dismissed or converted to a Chapter 7
case; and
written notice from holders of a majority in aggregate principal amount of
the debt securities to terminate the lockup agreement due to our failure to
pay fees and expenses incurred by the parties in connection with the
restructuring.
In the event that either Apollo or Blackstone (in such capacity, a
'non-funding purchaser') gives notice of its intent to terminate the agreement
upon the occurrence of specified events that constitute a material adverse
change, and any other person (a 'replacement purchaser'), during the ten
business day period following the receipt of such notice, agrees to purchase the
shares of common stock that such non-funding purchaser was obligated to purchase
in the new equity investment, then (i) the lockup agreement shall not terminate,
and (ii) such non-funding purchaser shall assign to the replacement purchaser
all title and interest in the shares of common stock and warrants it receives in
exchange for its preferred stock in the preferred stock exchange. In the event
that there is no replacement purchaser and the lockup agreement terminates,
(i) we have agreed to grant co-exclusivity to Lehman, Loral and the informal
noteholders committee with respect to the filing of a Chapter 11 plan and
(ii) each of Apollo and Blackstone has agreed that if it is a non-funding
purchaser it will not object to any Chapter 11 plan on the basis that no
distributions are being provided to equity holders.
20
APPROVAL OF THE RECAPITALIZATION PLAN BY THE SPECIAL COMMITTEE
At a meeting held on November 12, 2002, the special committee of our board
of directors unanimously determined that the recapitalization plan is fair to
and in the best interests of our stockholders, other than Apollo, Blackstone and
Oppenheimer, and recommended that our board of directors approve the
recapitalization plan.
In the course of making its determination, the special committee consulted
with its financial and legal advisors, as well as our management, and considered
a number of factors, including:
1. The information provided by management to the special committee and its
financial advisor as to our financial condition and future prospects, including:
based on management's financial projections, assuming no financing or
delevering transaction, our projected funding gap prior to our projected
cash flow breakeven is approximately $600 million;
based on management's financial projections, the absence of available
borrowing capacity and our current cash position, if we were to meet all of
our existing payment obligations, including debt service, it would likely
exhaust our cash resources prior to the end of the second quarter of 2003
and we would no longer be able to conduct our operations after such time
without additional financing;
unless we consummate the recapitalization or an alternative cash financing
transaction promptly, it is likely that we will be forced to commence
bankruptcy proceedings; and
based on management's financial projections, following the consummation of
the recapitalization, we should have sufficient liquidity to fund expected
negative cash flow from operations and any residual debt service into the
second quarter of 2004 and our projected funding gap prior to our projected
cash flow breakeven should not exceed $75 million.
2. The special committee's understanding that we have aggressively pursued
alternative financing and other transactions with potential strategic and
financial investors, but have not received any meaningful indications of
interest for a transaction that would adequately address our liquidity needs.
3. The special committee's familiarity with, and information provided by
management as to, our business and current business strategy, and the nature of
the market in which we operate.
4. The historical and current market prices for our common stock and our
publicly traded debt securities.
5. The special committee's understanding, based on the negotiations among
us, Apollo, Blackstone, Oppenheimer, Lehman, Loral and the members of the
informal noteholders committee, that the retention by the existing holders of
our common stock of approximately 8% of the outstanding common stock after the
recapitalization represents the maximum amount of common stock such parties
(other than us) would agree to permit such holders to retain in connection with
the recapitalization plan.
6. The opinion of MBL, the financial advisor to the special committee, that,
as of November 12, 2002 and based upon and subject to the matters set forth in
such opinion, the terms of the recapitalization plan were fair from a financial
point of view to the holders of our common stock, other than Apollo, Blackstone
and Oppenheimer.
7. The fact that we may terminate the lockup agreement if our board of
directors determines that such termination is in our best interests.
8. The significant common stock dilution that will occur as a result of the
transactions contemplated by the recapitalization plan, and the fact that such
transactions will result in our creditors owning a majority of our common stock.
In view of the wide variety of factors considered in connection with its
evaluation of the recapitalization plan and the complexity of these matters, the
special committee did not find it useful to and did not attempt to quantify,
rank or otherwise assign relative weights to the factors considered in
connection with its determination. The special committee relied on the
experience and expertise of its financial advisor for quantitative analysis of
the financial terms of the
21
recapitalization plan, as described under 'Opinion of the Financial Advisor to
the Special Committee'. In addition, the special committee did not undertake to
make any specific determination as to whether any particular factor was
essential to its ultimate determination, but rather the special committee
conducted an overall analysis of the factors described above, including thorough
discussions with its legal and financial advisors. In considering the factors
described above, individual members of the special committee may have given
different weight to different factors or reached different conclusions as to
whether a specific factor weighed in favor of or against approving the plan of
recapitalization.
OPINION OF THE FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
MBL acted as the financial advisor to the special committee in connection
with the recapitalization plan. At the November 12, 2002 meeting of the special
committee, MBL delivered an oral opinion, which was later confirmed in writing,
to the special committee to the effect that, as of the date of such opinion and
based upon and subject to the assumptions made, matters considered and limits of
the review undertaken by MBL in connection with rendering such opinion, the
terms of the recapitalization plan were fair, from a financial point of view, to
the holders of our common stock, other than Apollo, Blackstone and Oppenheimer.
MBL's opinion is dated and speaks only as of November 12, 2002, and has not been
updated, revised or reaffirmed by MBL since that date.
THE FULL TEXT OF MBL'S OPINION, WHICH SETS FORTH, AMONG OTHER THINGS, THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY MBL
IN CONNECTION WITH THE OPINION, IS ATTACHED AS EXHIBIT A TO THIS PROXY
STATEMENT. THE SUMMARY OF MBL'S OPINION SET FORTH BELOW HIGHLIGHTS THE MATERIAL
FEATURES OF MBL'S OPINION, BUT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF MBL'S OPINION. YOU ARE URGED TO READ MBL'S OPINION IN ITS ENTIRETY.
MBL'S OPINION WAS PROVIDED TO THE SPECIAL COMMITTEE TO ASSIST IT IN REVIEWING
THE RECAPITALIZATION PLAN. MBL'S OPINION IS DIRECTED ONLY AS TO THE FAIRNESS
FROM A FINANCIAL POINT OF VIEW OF THE TERMS OF THE RECAPITALIZATION PLAN TO THE
HOLDERS OF OUR COMMON STOCK, OTHER THAN APOLLO, BLACKSTONE AND OPPENHEIMER.
MBL'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW YOU OR ANY OTHER
STOCKHOLDER SHOULD VOTE ON THE RECAPITALIZATION PLAN.
In connection with rendering its opinion, MBL, among other things, reviewed
the following materials and undertook the following actions:
MBL reviewed the lockup agreement and drafts of the exchange offer
documents and consent solicitation materials for the recapitalization plan;
for purposes of its opinion, MBL assumed that the final forms of any such
documents that it reviewed in draft form do not differ in any material
respect from the drafts provided to MBL;
MBL reviewed and analyzed certain publicly available business and financial
information relating to us;
MBL reviewed certain internal financial and operating information,
including financial forecasts, analyses and projections, prepared by us and
provided by us to MBL;
MBL held discussions with our management to review and discuss the
foregoing historical and prospective information; this discussion included
a review of our past and current business, operations, assets, liabilities,
and financial condition, our prospects, the effects of the recapitalization
on our financial condition and prospects, management's view of the risks
and uncertainties associated with not pursuing the recapitalization plan,
and certain other matters believed necessary or appropriate to MBL's
inquiry;
MBL regularly held discussions with our management and with representatives
of UBS Warburg LLC, our financial advisor, with respect to the process,
status and prospects of the solicitation by us and UBS Warburg LLC of
alternative sources of financing and other strategic alternatives
potentially available to us, including the identities of the third parties
contacted and the discussions between us and UBS Warburg LLC and such third
parties;
MBL reviewed certain financial and stock market data relating to us, and
compared that data with similar data for certain other companies, the
securities of which are publicly traded, that MBL believed to be comparable
in certain respects to us; and
22
MBL performed such other financial studies, analyses and investigations and
reviewed such other information as MBL deemed appropriate.
In evaluating our financial condition and prospects, MBL was advised by us
that:
(i) based on our financial projections, assuming no financing or delevering
transaction, we will need approximately $600 million in future funding
prior to reaching breakeven on a cash flow basis;
(ii) based on our financial projections and our current cash position, and
assuming no additional financing, if we were to meet all our existing
payment obligations, including debt service, we would exhaust our
existing cash resources prior to the end of the second quarter of 2003
and would no longer be able to conduct our operations after such date;
(iii) unless we effect the recapitalization plan, or an alternative cash
financing transaction, within the next six months, we would be forced
to commence bankruptcy proceedings;
(iv) UBS Warburg LLC and we have aggressively solicited indications of
interest for a new capital investment in us from numerous strategic
and financial investors (including our current creditors) but have not
received any meaningful indications of interest for any alternative
transaction that would adequately address our liquidity needs; and
(v) based on our financial projections, following the consummation of the
recapitalization plan, we will have sufficient liquidity to fund
expected negative cash flow from operations and any residual debt
service through the end of the first quarter of 2004 and our projected
funding gap prior to our projected cash flow breakeven should not
exceed $75 million.
In preparing its opinion, MBL did not participate in, and did not
independently verify, the solicitation activities of UBS Warburg LLC and us
referenced above. Accordingly, MBL placed significant reliance on the quality
and thoroughness of the solicitation efforts undertaken by UBS Warburg LLC and
us to support our conclusion that no viable alternative source of financing is
available. Moreover, MBL informed the special committee that it placed
substantially greater reliance on the matters described in clauses (i) through
(v) above than on the various financial analyses performed by MBL. In
particular, MBL informed the special committee that:
while MBL performed a discounted cash flow analysis, such analysis is
of limited utility in valuing enterprises, such as ours, that are in
severe financial distress and that have a demonstrated lack of
financing alternatives; and
while MBL reviewed and analyzed the trading prices of the securities of
other companies that are in certain respects comparable to us, and
reviewed the acquisition prices of certain other companies that have
similarities to us, these analyses are not in MBL's view directly
relevant due to, among other things, (i) the absence of accepted
metrics by which to compare us to such other companies given the early
stage of development of our business, and (ii) the absence of a
sufficient number of directly comparable companies.
In conducting the foregoing review and analysis and in formulating its
opinion, MBL with the special committee's consent assumed and relied upon the
accuracy and completeness of all financial and other information provided to it
(including the matters referred to in clauses (i) through (v) of the second
preceding paragraph) or otherwise publicly available. MBL did not assume any
responsibility for the independent verification of such information. MBL
similarly assumed and relied upon the reasonableness and accuracy of the
financial projections, forecasts and analyses provided to it by us, and assumed
that such projections, forecasts and analyses were reasonably prepared in good
faith and reflect the best currently available judgments and estimates of our
management. MBL expressed no opinion with respect to such projections, forecasts
and analyses or the assumptions upon which they were based.
In addition, MBL assumed that:
in all respects material to its analysis, the representations and
warranties of us and other parties thereto contained in the restructuring
documents are true and correct;
23
we will perform all of the covenants and agreements to be performed by us
under the restructuring documents;
all conditions to our obligation to consummate the transactions
contemplated by the restructuring documents will be satisfied without any
waiver thereof;
all material governmental, regulatory or other approvals and consents
required in connection with the consummation of the transactions
contemplated by the restructuring documents will be obtained;
in connection with obtaining any necessary governmental, regulatory or
other approvals and consents, or any amendments, modifications or waivers
to any agreements, instruments or orders to which we are a party or subject
or by which we are bound, no limitations, restrictions or conditions will
be imposed or amendments, modifications or waivers made that would have a
material adverse effect on us or materially reduce the contemplated
benefits of the recapitalization plan to us; and
the recapitalization plan may be tax-free to us.
In addition, MBL did not review any of our books and records, or assume any
responsibility for conducting a physical inspection of our properties or
facilities, or for making or obtaining an independent valuation or appraisal of
our assets or liabilities, and no such independent valuation or appraisal was
provided to MBL. MBL's opinion was necessarily based on economic and market
conditions and other circumstances as they existed and could be evaluated by MBL
as of the date of such opinion. MBL did not express any opinion as to the prices
at which any of our securities will trade at any time, including following the
consummation of the recapitalization plan.
MBL performed, and reviewed with the special committee at its November 12th
meeting, a discounted cash flow analysis of us. MBL calculated the discounted
cash flow value for us as the sum of the net present values of (i) the estimated
unlevered free future cash flow that we will generate for the period beginning
October 1, 2002 and ending December 31, 2008, plus (ii) our value at the end of
such period. The estimated unlevered free future cash flows were based on the
financial projections for us for the period beginning October 1, 2002 and ending
December 31, 2008, which projections were prepared by our management. MBL used
discount rates ranging from 30% to 50%, which MBL viewed as the appropriate
discount rate for a company with our characteristics. Our terminal values were
calculated based on our projected EBITDA for 2008 and multiples ranging from 7.0
times to 11.0 times trailing EBITDA.
To inform the appropriate range of multiples applicable in calculating
terminal values, MBL analyzed the trading values of the following 26 companies:
Selected Direct Broadcast Satellite Companies
Echostar
Pegasus
XM Radio
Selected Diversified Regional Wireless Companies
ALLTEL
Centennial Communications
nTelos Inc.
Selected Wireless Company Affiliates
AirGate PCS
Alamosa PCS
Dobson Communications
Nextel Partners
Triton PCS
UbiquiTel
US Unwired
Selected National Wireless Companies
AT&T Wireless
Nextel Communications
Sprint PCS
Selected Regional Wireless Companies
Leap Wireless
Rural Cellular
U.S. Cellular
Western Wireless
Selected Cable Companies
Cablevision Systems
Charter Communications
Comcast
Cox Communications
Insight
Mediacom Communications
24
The following table illustrates the range of enterprise valuations yielded
by MBL's discounted cash flow analysis:
Discounted Cash Flow Analysis -- Enterprise Valuation
EBITDA EXIT MULTIPLES:
----------------------------------------------------
7.0X 8.0X 9.0X 10.0X 11.0X
---- ---- ---- ----- -----
(IN MILLIONS)
Discount Rate:
30%................................ $1,002.3 $1,117.0 $1,231.7 $1,346.4 $1,461.1
35%................................ $ 749.5 $ 840.0 $ 930.6 $1,021.2 $1,111.7
40%................................ $ 556.0 $ 628.1 $ 700.3 $ 772.4 $ 844.5
45%................................ $ 406.7 $ 464.6 $ 522.5 $ 580.4 $ 638.4
50%................................ $ 290.6 $ 337.5 $ 384.3 $ 431.2 $ 478.0
Based on this broad valuation range, MBL estimated an enterprise valuation
for us of $600 million to $800 million, corresponding approximately to a
discount rate range of 35% to 45% and a EBITDA exit multiple of between 8.0x
and 10.0x.
MBL noted that the retention by the holders of our common stock, other than
Apollo, Blackstone and Oppenheimer, of approximately 8.0% of the primary common
stock post-transaction represented an estimated value of approximately $56
million. MBL further noted that this estimated value compared favorably to the
pre-transaction value of our common stock that was indicated by its discounted
cash flow analysis, as its analysis indicated a valuation of our common stock of
zero in light of the fact that the total accreted principal and aggregate
liquidation preference of our debt and our preferred stock ($1.2 billion)
substantially exceeded the estimated valuation range produced by MBL's
discounted cash flow analysis.
The foregoing summary describes all analyses and factors that MBL deemed
material in its presentation to the special committee, but is not a
comprehensive description of all analyses performed and factors considered by
MBL in connection with preparing its opinion. The preparation of a fairness
opinion is a complex process involving the application of subjective business
judgment in determining the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, is not readily susceptible to summary description. MBL believes
that its analyses must be considered as a whole and that considering any portion
of such analyses and of the factors considered without considering all analyses
and factors could create a misleading view of the process underlying the
opinion.
In conducting its analyses and arriving at its opinions, MBL utilized a
variety of generally accepted valuation methods. The analyses were prepared
solely for the purpose of enabling MBL to provide its opinion to the special
committee as to the fairness to the holders of our common stock, other than
Apollo, Blackstone and Oppenheimer, from a financial point of view, of the terms
of the recapitalization plan, and does not purport to be an appraisal or to
predict the prices at which businesses or securities actually may be sold.
In connection with its analyses, MBL made, and was provided by our
management with, numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond our control. Analyses based on estimates or forecasts of future results
are not necessarily indicative of actual past or future values or results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond our control or the control of our advisors,
neither we nor MBL nor any other person assumes responsibility if future results
or actual values are materially different from these forecasts or assumptions.
The terms of the recapitalization plan were determined through negotiations
among us and the other parties to the restructuring documents and were approved
by our board of directors. The decision to recommend the recapitalization plan
to our board of directors was solely that of the special committee. As described
above, the opinion and presentation of MBL to the special
25
committee was only one of a number of factors taken into consideration by our
board of directors in making its determination to approve the recapitalization
plan.
The special committee selected MBL as financial advisor in connection with
the recapitalization plan based on MBL's qualifications, expertise, reputation
and experience in restructuring transactions. The special committee retained MBL
pursuant to an engagement letter dated June 5, 2002. As compensation for MBL's
services in connection with the recapitalization plan, MBL received an opinion
fee from us in the amount of $1 million, in addition to monthly cash payments of
$300,000 for the first four months of MBL's engagement as the financial advisor
to the special committee and monthly cash payments of $250,000 for each
additional month thereafter during the term of the engagement. In addition to
these fees, MBL is entitled to be reimbursed by us for reasonable out-of-pocket
expenses, including fees and expenses of counsel, incurred in connection with
its engagement. We have also agreed to indemnify MBL and certain related persons
to the full extent lawful against certain liabilities, including certain
liabilities under the federal securities laws arising out of its engagement or
the recapitalization plan.
MBL is an internationally recognized investment banking firm experienced in
providing advice in connection with restructuring transactions. Pursuant to
MBL's engagement letter, MBL has worked in conjunction with professionals of
Dresdner Kleinwort Wasserstein, Inc. in fulfilling the terms of its engagement.
In the ordinary course of business, Dresdner Kleinwort Wasserstein, Inc. may
actively trade our equity or debt securities for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS OF THE BOARD OF DIRECTORS
At a meeting held on November 18, 2002, our board of directors unanimously
approved the terms of the restructuring and the transactions contemplated
thereby and recommended that our stockholders approve the recapitalization plan
and vote to accept the prepackaged plan. In evaluating the proposed
restructuring, our board of directors identified and considered, among other
things, the following factors:
based on management's financial projections, assuming no financing or
delevering transaction, our projected funding gap prior to our projected
cash flow breakeven is approximately $600 million;
based on management's financial projections, the absence of available
borrowing capacity and our current cash position, if we were to meet all of
our existing payment obligations, including debt service, it would likely
exhaust our cash resources prior to the end of the second quarter of 2003
and we would no longer be able to conduct our operations after such time
without additional financing;
unless we consummate the recapitalization or an alternative cash financing
transaction promptly, it is likely that we will be forced to commence
bankruptcy proceedings;
based on management's financial projections, following the consummation of
the recapitalization, we should have sufficient liquidity to fund expected
negative cash flow from operations and any residual debt service into the
second quarter of 2004 and our projected funding gap prior to our projected
cash flow breakeven should not exceed $75 million;
management and UBS Warburg LLC have aggressively pursued alternative
financing and other transactions with potential strategic and financial
investors, but have not received any meaningful indications of interest for
a transaction that would adequately address our liquidity needs;
the fact that the initial proposal submitted by certain creditors would
have resulted in existing common stockholders retaining no interest in our
company;
that the retention by the existing holders of our common stock of
approximately 8% of the outstanding common stock after the recapitalization
represents the maximum amount of common stock our creditors would agree to
permit such holders to retain in connection with the recapitalization plan;
26
the recommendation of the special committee and the determination of the
special committee that the recapitalization plan is fair to and in the best
interests of our stockholders, other than Apollo, Blackstone and
Oppenheimer;
the opinion of MBL to the special committee that, as of November 12, 2002
and based upon and subject to the matters set forth in such opinion, the
terms of the recapitalization plan were fair from a financial point of view
to the holders of our common stock other than Apollo, Blackstone and
Oppenheimer;
the fact that the lockup agreement may be terminated by us at any time if
our board of directors determines that such termination is in our best
interests;
the significant common stock dilution that will occur as a result of the
transactions contemplated by the recapitalization plan, and the fact that
such transactions will result in our creditors owning a majority of our
common stock; and
the fact that in a non-prepackaged bankruptcy proceeding, it is likely that
our stockholders would receive nothing.
The board of directors did not attempt to quantify, rank or otherwise assign
relative weights to the factors considered in connection with its evaluation of
the restructuring and the transactions contemplated thereby. Furthermore, the
board of directors did not undertake to make any specific determination as to
whether any particular factor was essential to its decision to approve the terms
of the restructuring. Instead, the board of directors conducted an overall
analysis of the factors described above, which included a thorough discussion of
all of the above-listed factors with its legal and financial advisors. The board
of directors relied on the experience and expertise of its financial advisor for
quantitative analysis of the financial terms of the restructuring. In
considering the factors described above, individual directors may have given
different weights to different factors or reached different conclusions as to
whether a specific factor weighed in favor of or against approving the
restructuring.
INTERESTS OF CERTAIN PERSONS IN THE RESTRUCTURING
You should be aware that our directors and executive officers have interests
in the restructuring that are different from, or in addition to, or that might
conflict with, the interests of our stockholders. The special committee and our
board of directors were aware of these interests and conflicts when they
determined to approve the restructuring.
Leon D. Black, a member of our board of directors, is also one of the
founding principals of Apollo Advisors, IV, L.P., one of our large investors and
one of the purchasers in the new equity investment proposed as part of the
restructuring. Peter G. Peterson, a member of our board of directors, is also
the chairman of The Blackstone Group L.P., one of our large investors and one of
the purchasers in the new equity investment. David Margolese, the chairman of
our board of directors and our former Chief Executive Officer, owns a
significant amount of our common stock. For a description of the beneficial
ownership of our common stock, see 'Security Ownership of Certain Beneficial
Owners and Management.' Because of our present financial condition, the interest
of our stockholders and creditors may conflict in certain respects with each
other.
27
THE RESTRUCTURING PROPOSALS
Consummation of the recapitalization plan requires stockholder approval of
each of proposals 1, 2 and 3. The issuance of shares of our common stock in the
restructuring transactions and the election of the new board of directors will
not become effective unless and until the amendment and restatement of our
certificate of incorporation is approved and filed with the Secretary of State
of the State of Delaware and the recapitalization plan is consummated. IF ANY OR
ALL OF PROPOSALS 1, 2 AND 3 ARE NOT APPROVED BY OUR STOCKHOLDERS AT THE SPECIAL
MEETING, THEN NONE OF THEM WILL BECOME EFFECTIVE. If our stockholders approve
our 2003 stock option plan, the 2003 stock option plan will become effective
regardless of whether the recapitalization plan is implemented or any of the
other proposals is approved. However, stockholder approval of our 2003 stock
option plan is not a condition to the consummation of the recapitalization plan.
PROPOSAL 1
ISSUANCE OF OUR COMMON STOCK
IN THE RESTRUCTURING TRANSACTIONS
On November 18, 2002, our board of directors unanimously adopted a
resolution approving, in connection with the transactions contemplated by the
recapitalization plan, the issuance of up to 885,393,009 shares of our common
stock and warrants to purchase an additional 87,577,114 shares of our common
stock pursuant to the debt exchange offer, preferred stock exchange and new
equity investment under the recapitalization plan.
Our board of directors believes it is in our best interest to issue new
shares of our common stock and warrants in the restructuring transactions.
Although the restructuring will result in significant dilution of our common
stockholders, the completion of the restructuring is critical to our continuing
viability. We have significant additional funding needs until we reach cash flow
breakeven and substantial indebtedness which adversely affects our financial
condition. The restructuring will result in the elimination of all or
substantially all of our outstanding indebtedness and all of our preferred stock
and the investment of $200 million cash in new equity capital and provide us
with sufficient cash to cover our estimated funding needs into the second
quarter of 2004. If the restructuring is not completed, we may be forced to
consider an alternative plan of reorganization or liquidation. ANY ALTERNATIVE
PLAN OF REORGANIZATION OR LIQUIDATION MAY RESULT IN OUR STOCKHOLDERS RECOVERING
NOTHING. For a discussion of the factors considered by the special committee of
our board of directors in recommending the recapitalization plan to our board of
directors, see 'Approval of the Recapitalization Plan by the Special Committee'
and for a discussion of the factors considered by MBL in assessing the fairness
from a financial point of view of the terms of the recapitalization plan to
holders of our common stock, other than Apollo, Blackstone and Oppenheimer, see
'The Restructuring -- Opinion of the Financial Advisor to the Special
Committee.'
We are asking you to vote to approve the issuance of our common stock and
warrants in the restructuring transactions because, under the listing rules of
the NASDAQ, we must obtain stockholder approval of any issuance of common stock
that exceeds 20% of our outstanding common stock for less than the greater of
book or market value. Unless we receive the stockholder approval required under
the NASDAQ rules, we will not be able to complete the recapitalization plan.
Specifically, the recapitalization plan contemplates the issuance of new
shares of our common stock and warrants in the following transactions:
the issuance of up to 596,669,765 shares of our common stock in exchange
for all of our outstanding debt securities;
the issuance of an aggregate of 76,992,865 shares of our common stock and
warrants to purchase an additional 87,577,114 shares of our common stock in
exchange for all of our outstanding preferred stock; and
28
the issuance and sale to Apollo, Blackstone and Oppenheimer of an aggregate
of 211,730,379 shares of our common stock for an aggregate purchase price
of $200 million cash in the new equity investment.
Upon consummation of the restructuring, the equity interests of our existing
common stockholders, as a percentage of the total number of the outstanding
shares of our common stock, will be significantly diluted. As of September 30,
2002, there were 76,992,865 shares of our common stock issued and outstanding.
Assuming the restructuring is completed either pursuant to the recapitalization
plan or the prepackaged plan, there would be 962,385,874 shares of our common
stock issued and outstanding and, after giving effect to the restructuring:
holders of our debt securities will hold approximately 62% of our
outstanding common stock;
holders of our preferred stock will hold approximately 8% or our
outstanding common stock and warrants to purchase an additional 9.1% of our
outstanding common stock;
Apollo, Blackstone and Oppenheimer will receive approximately 22% of our
outstanding common stock in exchange for $200 million in cash; and
the existing holders of our common stock will hold approximately 8% of our
outstanding common stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE 'FOR' THIS PROPOSAL.
PROPOSAL 2
AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED SHARES
On November 18, 2002 our board of directors unanimously adopted a resolution
declaring it advisable to amend and restate our certificate of incorporation to
increase the number of shares of common stock that we have authority to issue
from 500,000,000 to 2,500,000,000 shares of common stock, par value $0.001 per
share, and to incorporate all previous amendments to our certificate of
incorporation into one amended and restated certificate. Our board of directors
further directed that this amendment and restatement of our certificate of
incorporation be submitted for consideration by our stockholders. In the event
stockholders approve this proposal, we will file an amended and restated
certificate of incorporation with the Secretary of State of Delaware. This
amendment will become effective at the close of business on the date the
amendment to the certificate of incorporation is accepted for filing by the
Secretary of State of Delaware. At September 30, 2002, there were 84,980,451
shares of our common stock outstanding and reserved for issuance in connection
with options, warrants and convertible securities.
Our board of directors believes that it is in our best interest to increase
the number of authorized but unissued shares of common stock in order to effect
the recapitalization plan and to have additional shares available to meet our
future business needs as they arise. Without the increase in authorized shares,
we will not have a sufficient number of authorized but unissued shares to
complete the restructuring. The consummation of our recapitalization plan will
require the issuance of up to 889,393,009 shares of our common stock in the debt
exchange offer, preferred stock exchange and new equity investment.
Following the restructuring, our board of directors believes the
availability of additional shares will provide us with the flexibility to issue
common stock for a variety of purposes without further action by stockholders,
unless required by law, regulation or the rules of The Nasdaq National Market.
These purposes could include, among other things, the sale of stock to obtain
additional funding, the purchase of property, the acquisition or merger of other
companies, the use of additional shares for various equity compensation and
other employee benefit plans, the declaration of stock splits or distributions,
and other bona fide corporate purposes. The issuance of additional shares of
common stock would have a dilutive effect on a stockholder's voting power.
In addition to our common stock, our certificate of incorporation currently
empowers our board of directors to authorize the issuance of one or more series
of preferred stock without
29
stockholder approval. No change to our preferred stock authorization is
requested by the proposed amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE 'FOR' THIS PROPOSAL.
PROPOSAL 3
ELECTION OF NEW BOARD OF DIRECTORS
Our board of directors currently consists of the following seven members:
Leon D. Black, Joseph P. Clayton, Lawrence F. Gilberti, James P. Holden, David
Margolese, Peter G. Peterson and Joseph V. Vittoria. For a description of our
current board, see 'Management.' Our new seven member board will consist of the
nominees listed below, five of whom serve on our current board of directors:
Joseph P. Clayton
Leon D. Black
Peter G. Peterson
[to be added]
Directors serve until the next annual meeting of stockholders or until the
director is succeeded by another qualified director who has been elected. Each
of the nominated directors has agreed to serve if elected. However, if for some
reason one of them is unable to accept nomination or election, proxies will be
voted for the election of a nominee designated by our board of directors. For
biographical information for each of the five nominees who serve on our current
board of directors, see 'Management.' Biographical information for the other two
nominees is presented below.
[to be added]
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE 'FOR' EACH OF THE
NOMINEES.
PROPOSAL 4
APPROVAL OF THE SIRIUS SATELLITE RADIO
2003 LONG-TERM STOCK INCENTIVE PLAN
On , 2002, our board of directors adopted, subject to the
approval of our stockholders, the Sirius Satellite Radio 2003 Long-Term Stock
Incentive Plan, referred to herein as the 'stock plan.' The following is a
summary of the material features of the stock plan. The stock plan will be the
source of new equity-based awards for employees following the consummation of
the restructuring.
PURPOSES
The purposes of the stock plan are to promote the interests of the company
and its stockholders by (i) attracting and retaining our employees and
consultants; (ii) motivating such individuals by means of performance-related
incentives to achieve longer-range performance goals; and (iii) enabling such
individuals to participate in our long-term growth and financial success.
ADMINISTRATION/ELIGIBLE PARTICIPANTS
The stock plan is administered by a committee, referred to herein as the
'stock plan committee,' which will be comprised of two or more members of our
board of directors designated to administer the stock plan, each of whom is
required to be a `Non-Employee Director' (within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934) and an `outside director'
(within the meaning of section 162(m) of Internal Revenue Code of 1986, as
amended (the 'Code')) to the extent Rule 16b-3 and section 162(m), respectively,
are applicable to us and the stock plan; however, the mere fact that a stock
plan committee member fails to qualify as a Non-Employee Director or outside
director will not invalidate any award made
30
by the stock plan committee which award is otherwise validly made under the
stock plan. Our board of directors intends to designate the compensation
committee to serve as the stock plan committee under the stock plan.
The stock plan committee will determine who will receive awards under the
stock plan, the number of shares underlying the award, the terms and conditions
of the awards, the circumstances under which awards may be settled in cash or
other property, canceled or forfeited, and the circumstances under which awards
may be deferred. The committee will also interpret the plan and all awards,
establish rules of administration and make any other determination necessary for
plan administration.
Any employee of, or consultant to, the company or any of its affiliates
(including any prospective employee) will be eligible to be selected as a
participant under the stock plan. As of October 31, 2002, we had 327 employees.
NUMBER OF SHARES AUTHORIZED UNDER THE STOCK PLAN/TYPES OF AWARDS
The stock plan authorizes the grant of awards to participants of shares of
our common stock, referred to herein as the 'shares,' in an aggregate amount, at
any time, not to exceed 15% of the sum of (i) our issued and outstanding shares,
(ii) any shares which are issuable as a result of any conversion, exchange or
exercise of any preferred stock, warrant or other security of the company which
is outstanding on the date of determination; and (iii) the shares which have
been issued or are issuable to our employees, consultants and directors pursuant
to the stock plan, our 1999 Long-Term Stock Incentive Plan, our Amended and
Restated 1994 Stock Option Plan and our Amended and Restated 1994 Directors'
Nonqualified Stock Option Plan, subject to adjustment to avoid dilution or
enlargement of intended benefits in the event of certain significant corporate
events; provided that the aggregate number of shares with respect to which
options intended to qualify as incentive stock options may be granted will be
40,000,000. Awards may be made in the form of (i) nonqualified stock options;
(ii) stock options intended to qualify as incentive stock options under section
422 of the Code; (iii) stock appreciation rights; (iv) restricted stock and/or
restricted stock units; (v) performance awards and (vi) other stock based
awards; provided that the maximum number of shares with respect to which stock
options and stock appreciation rights may be granted to any participant in the
stock plan in any fiscal year may not exceed 40,000,000 and the maximum number
of shares which may be paid to a participant in the stock plan in connection
with the settlement of any award(s) designated as a `Performance Compensation
Award' (as defined below) in respect of a single performance period will be
40,000,000 or, in the event such Performance Compensation Award is paid in cash,
the equivalent cash value thereof. If, after the effective date of the stock
plan, any shares covered by an award granted under the stock plan, or to which
such an award relates, are forfeited, or if an award has expired, terminated or
been canceled for any reason whatsoever (other than by reason of exercise or
vesting), then the shares covered by such award will again be, or will become,
shares with respect to which awards may be granted under the stock plan.
If the stock plan was in effect on , 2002, shares of
our common stock would have been available for future awards under the stock
plan.
TERMS AND CONDITIONS OF AWARDS UNDER THE STOCK PLAN
Non-qualified and incentive stock options granted under the stock plan will
be subject to such terms and conditions, including exercise price and conditions
and timing of exercise, as may be determined by the stock plan committee and
specified in the applicable award agreement; provided that stock options that
are intended to qualify as incentive stock options will be subject to terms and
conditions that comply with such rules as may be prescribed by section 422 of
the Code. Payment in respect to the exercise of an option granted under the
stock plan may be made in cash or its equivalent, or if, and to the extent
permitted by the stock plan committee, (i) by exchanging shares owned by the
optionee (which are not the subject of any pledge or other security interest and
which have been owned by such optionee for at least six months) or
31
(ii) subject to such rules as may be established by the stock plan committee,
through delivery of irrevocable instructions to a broker to sell the shares
being acquired upon exercise of the option and to deliver promptly to us an
amount equal to the aggregate exercise price, or by a combination of the
foregoing, provided that the combined value of all cash and cash equivalents and
the fair market value of such shares so tendered to us as of the date of such
tender is at least equal to the aggregate exercise price of the option.
Stock appreciation rights granted under the stock plan will be subject to
such terms and conditions, including grant price and the conditions and
limitations applicable to exercise thereof, as may be determined by the stock
plan committee and specified in the applicable award agreement. Stock
appreciation rights may be granted in tandem with another award, in addition to
another award, or freestanding and unrelated to another award. A stock
appreciation right will entitle the participant to receive an amount equal to
the excess of the fair market value of a share on the date of exercise of the
stock appreciation right over the grant price thereof. The stock plan committee
in its sole discretion will determine whether a stock appreciation right shall
be settled in cash, shares or a combination of cash and shares.
Restricted stock and restricted stock units granted under the stock plan
will be subject to such terms and conditions, including, without limitation, the
duration of the period during which, and the conditions, if any, under which,
the restricted stock and restricted stock units may be forfeited to us, as may
be determined by the stock plan committee in its sole discretion. Each
restricted stock unit will have a value equal to the fair market value of a
share of our common stock. Restricted stock units will be paid in cash, shares,
other securities or other property, as determined by the stock plan committee in
its sole discretion, upon the lapse of the restrictions applicable thereto, or
otherwise in accordance with the applicable award agreement. Dividends paid on
any shares of restricted stock may be paid directly to the participant, withheld
by us subject to vesting of the restricted shares, or reinvested in additional
shares of restricted stock or in additional restricted stock units, as
determined by the stock plan committee in its sole discretion.
Performance awards granted under the stock plan will consist of a right
which is (i) denominated in cash or shares, (ii) valued, as determined by the
stock plan committee, in accordance with the achievement of such performance
goals during such performance periods as the stock plan committee will
establish, and (iii) payable at such time and in such form as the stock plan
committee will determine. Subject to the terms of the stock plan and any
applicable award agreement, the stock plan committee will determine the
performance goals to be achieved during any performance period, the length of
any performance period, the amount of any performance award and the amount and
kind of any payment or transfer to be made pursuant to any performance award.
Performance awards may be paid in a lump sum or in installments following the
close of the performance period or, in accordance with procedures established by
the stock plan committee, on a deferred basis.
In addition to the foregoing types of awards, the stock plan committee will
have authority to grant to participants an 'other stock-based award' (as defined
in the stock plan), which will consist of any right which is (i) not a stock
option, stock appreciation right, restricted stock or restricted unit award or
performance award and (ii) an award of shares or an award denominated or payable
in, valued in whole or in part by reference to, or otherwise based on or related
to, shares of our common stock (including, without limitation, securities
convertible into shares of our common stock), as deemed by the stock plan
committee to be consistent with the purposes of the stock plan; provided that
any such rights must comply, to the extent deemed desirable by the stock plan
committee, with Rule 16b-3 and applicable law. Subject to the terms of the stock
plan and any applicable award agreement, the stock plan committee will determine
the terms and conditions of any such other stock-based award, including the
price, if any, at which securities may be purchased pursuant to any other
stock-based award granted under the stock plan.
In the sole discretion of the stock plan committee, an award, whether made
as an other stock-based award or as any other type of award issuable under the
stock plan, may provide the participant with the right to receive dividends or
dividend equivalents, payable in cash, shares, other securities or other
property and on a current or deferred basis.
32
The stock plan committee will also have the discretion to designate any
award as a performance compensation award. While awards in the form of stock
options and stock appreciation rights are intended to qualify as
performance-based compensation under section 162(m) of the Code, provided that
the exercise price or grant price, as the case may be, is established by the
committee to be equal to the fair market value per share as of the date of
grant, this form of award enables the stock plan committee to treat certain
other awards under the stock plan as performance-based compensations and thus
preserve deductibility by us for Federal income tax purposes of such awards
which are made to individuals who are `covered employees' as defined in section
162(m) of the Code. In general, section 162(m) of the Code prevents the
deductibility of compensation in excess of one million dollars paid in any
taxable year to an individual who on the last day of that year is the company's
chief executive officer or is among its four other most highly compensated
executive officers, except that a deduction may be taken for compensation that
qualifies as performance based compensation under section 162(m).
Each performance compensation award will be payable only upon achievement
over a specified performance period of at least one year of pre-established
objective performance goals established by the stock plan committee for such
period. The stock plan committee may designate one or more performance criteria
for purposes of establishing a performance goal, with respect to performance
compensation awards made under the stock plan. The performance criteria that
will be used to establish such performance goals will be based on attainment of
specific levels of performance of the company (or any subsidiary affiliate
division or operational unit of the company) and will be limited to the
following: return on net assets, return on shareholders' equity, return on
assets, return on capital, shareholder returns, profit margin, earnings per
share, net earnings, operating earnings, earnings before interest, taxes,
depreciation and amortization, number of subscribers, growth of subscribers,
operating expenses, capital expenses, subscriber acquisition costs, share price
and sales or market share.
With regard to a particular performance period, the stock plan committee
will have the discretion, subject to the stock plan's terms, to select the
length of the performance period, the types of performance compensation awards
to be issued, the performance goals that will be used to measure performance for
the period and the performance formula that will be used to determine what
portion, if any, of the performance compensation award has been earned for the
period. Such discretion must be exercised by the stock plan committee in writing
no later than 90 days after the commencement of the performance period and
performance for the period will be measured and certified by the stock plan
committee upon the close of the period. In determining entitlement to payment in
respect of a performance compensation award, the stock plan committee may,
through use of negative discretion, reduce or eliminate such award, provided the
exercise of such discretion would not cause the performance compensation award
to fail to qualify as performance-based compensation under section 162(m) of the
Code.
TRANSFERABILITY
Each award, and each right under any award, will be exercisable only by the
participant during the participant's lifetime, or, if permissible under
applicable law, by the participant's guardian or legal representative, and
except as otherwise provided in an applicable award agreement, no award may be
sold, assigned, pledged, attached, alienated or otherwise transferred or
encumbered by a participant, other than by will or by the laws of descent and
distribution, and any such purported sale, assignment, pledge, attachment,
alienation, transfer or encumbrance will be void and unenforceable against us or
any affiliate; provided that the designation of a beneficiary will not
constitute a sale, assignment, pledge, attachment, alienation, transfer or
encumbrance. Notwithstanding the foregoing, the stock plan committee has the
discretion under the stock plan to provide that options granted under the stock
plan that are not intended to qualify as incentive stock options may be
transferred without consideration to certain family members or trusts,
partnerships or limited liability companies whose only beneficiaries or partners
are the original grantee and/or such family members.
33
CHANGE OF CONTROL
In the event of a 'change of control' (as defined in the stock plan), any
outstanding awards then held by a participant which are unexercisable or
otherwise unvested will automatically be deemed exercisable or otherwise vested,
as the case may be, immediately prior to such change of control.
AMENDMENT TO STOCK PLAN
Our board of directors may amend, alter, suspend, discontinue, or terminate
the stock plan or any portion thereof at any time; provided that no such
amendment, alteration, suspension, discontinuation or termination will be made
without stockholder approval if such approval is necessary to comply with any
tax or regulatory requirement applicable to the stock plan, and no such action
that would adversely affect the rights of any participant with respect to awards
previously granted under the stock plan will be effective without the
participant's consent.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO STOCK OPTIONS
The following summary of the Federal income tax consequences of the grant
and exercise of nonqualified and incentive stock options awarded under the stock
plan, and the disposition of shares purchased pursuant to the exercise of such
stock options, is intended to reflect the current provisions of the Code and the
regulations thereunder. This summary is not intended to be a complete statement
of applicable law, nor does it address state and local tax considerations.
No income will be realized by an optionee upon grant of a nonqualified stock
option. Upon exercise of a nonqualified stock option, the optionee will
recognize ordinary compensation income in an amount equal to the excess, if any,
of the fair market value of the underlying stock over the option exercise price,
referred to herein as the 'spread,' at the time of exercise. The spread will be
deductible by us for federal income tax purposes subject to the possible
limitations on deductibility under sections 280G and 162(m) of the Code of
compensation paid to executives designated in those sections. The optionee's tax
basis in the underlying shares acquired by exercise of a nonqualified stock
option will equal the exercise price plus the amount taxable as compensation to
the optionee. Upon sale of the shares received by the optionee upon exercise of
the nonqualified stock option, any gain or loss is generally long-term or
short-term capital gain or loss, depending on the holding period. The optionee's
holding period for shares acquired pursuant to the exercise of a nonqualified
stock option will begin on the date of exercise of such option.
Pursuant to currently applicable rules under section 16(b) of the Securities
Exchange Act of 1934, the grant of an option (and not its exercise) to a person
who is subject to the reporting and short-swing profit provisions under section
16 of the Exchange Act, referred to herein as a 'section 16 person,' begins the
six-month period of potential short-swing liability. The taxable event for the
exercise of an option that has been outstanding at least six months ordinarily
will be the date of exercise. If an option is exercised by a section 16 person
within six months after the date of grant, however, taxation ordinarily will be
deferred until the date which is six months after the date of grant, unless the
person has filed a timely election pursuant to section 83(b) of the Code to be
taxed on the date of exercise. Pursuant to a recent amendment to the rules under
section 16(b) of the Exchange Act, the six month period of potential short-swing
liability may be eliminated if the option grant (i) is approved in advance by
our board of directors (or a committee composed solely of two or more
non-employee directors) or (ii) approved in advance, or subsequently ratified,
by our stockholders no later than the next annual meeting of stockholders.
Consequently, the taxable event for the exercise of an option that satisfies
either of the conditions described in clauses (i) or (ii) above will be the date
of exercise.
The payment by an optionee of the exercise price, in full or in part, with
previously acquired shares will not affect the tax treatment of the exercise
described above. No gain or loss generally will be recognized by the optionee
upon the surrender of the previously acquired shares to us, and shares received
by the optionee, equal in number to the previously surrendered shares, will have
the same tax basis as the shares surrendered to us and will have a holding
period that includes the
34
holding period of the shares surrendered. The value of shares received by the
optionee in excess of the number of shares surrendered to us will be taxable to
the optionee. Such additional shares will have a tax basis equal to the fair
market value of such additional shares as of the date ordinary income is
recognized, and will have a holding period that begins on the date ordinary
income is recognized.
The Code requires that, for incentive stock option treatment, shares
acquired through exercise of an incentive stock option cannot be disposed of
before two years from the date of grant and one year from the date of exercise.
Incentive stock option holders will generally incur no Federal income tax
liability at the time of grant or upon exercise of such options. However, the
spread will be an 'item of tax preference' which may give rise to 'alternative
minimum tax' liability at the time of exercise. If the optionee does not dispose
of the shares before two years from the date of grant and one year from the date
of exercise, the difference between the exercise price and the amount realized
upon disposition of the shares will constitute long-term capital gain or loss,
as the case may be. Assuming both the holding periods are satisfied, no
deduction will be allowable to us for Federal income tax purposes in connection
with the grant or exercise of the option. If, within two years of the date of
grant or within one year from the date of exercise, the holder of shares
acquired through the exercise of an incentive stock option disposes of such
shares, the optionee will generally realize ordinary taxable compensation at the
time of such disposition equal to the difference between the exercise price and
the lesser of the fair market value of the stock on the date of initial exercise
or the amount realized on the subsequent disposition, and such amount will
generally be deductible by us for Federal income tax purposes, subject to the
possible limitations on deductibility under sections 280G and 162(m) of the Code
for compensation paid to executives designated in those sections.
The description of the stock plan is qualified in all respects by the actual
provisions of the plan, which is attached to this Proxy Statement as Exhibit C.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE 'FOR' THIS PROPOSAL.
35
THE PREPACKAGED PLAN
WE HAVE NOT COMMENCED A CASE, WHICH WE REFER TO HEREIN AS A 'REORGANIZATION
CASE', UNDER THE BANKRUPTCY CODE AND HAVE NOT FILED THE PREPACKAGED PLAN IN A
CASE UNDER THE BANKRUPTCY CODE AT THIS TIME. THIS PROXY STATEMENT SOLICITS
ADVANCE ACCEPTANCE OF THE PREPACKAGED PLAN IN THE EVENT THAT A REORGANIZATION
CASE IS COMMENCED AND THE PREPACKAGED PLAN IS FILED, AND CONTAINS INFORMATION
RELEVANT TO A DECISION TO ACCEPT OR REJECT THE PREPACKAGED PLAN. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE TO ACCEPT THE PREPACKAGED PLAN.
THE FOLLOWING SUMMARIES OF THE MATERIAL PROVISIONS OF THE PREPACKAGED PLAN
ARE SUBJECT AND QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO ALL OF THE
PROVISIONS OF THE PREPACKAGED PLAN.
In order to allow us to effect a bankruptcy reorganization in the quickest
and most cost efficient manner, we are soliciting acceptances of the prepackaged
plan from holders of impaired claims and interests under the prepackaged plan.
The prepackaged plan provides for, among other things, the exchange of the debt
securities and our preferred stock for common stock.
We are soliciting acceptances of the prepackaged plan from our common and
preferred stockholders pursuant to this Proxy Statement. We are soliciting
acceptances of the prepackaged plan from the holders of our debt securities
pursuant to the prospectus distributed to them in connection with the exchange
offer.
If the conditions to completion of the recapitalization plan, including the
minimum tender condition of the exchange offer, are not met or waived, but we do
receive the acceptance of the prepackaged plan by those classes of impaired
claims and interests necessary to confirm the plan, we may commence a
reorganization case and, provided that Apollo, Blackstone and Oppenheimer elect
to proceed with the new equity investment, file and seek confirmation of the
prepackaged plan. In connection with the implementation of the prepackaged plan,
we do not currently anticipate that it will be necessary for our subsidiary,
Satellite CD Radio, Inc., to commence a reorganization case under the Bankruptcy
Code.
UNDER THE PREPACKAGED PLAN, THE HOLDERS OF OUR DEBT SECURITIES AND OUR STOCK
(AS WELL AS THE HOLDERS OF ALL OTHER CLAIMS AND INTERESTS) WILL RECEIVE THE SAME
CONSIDERATION IN EXCHANGE FOR THEIR CLAIMS AND INTERESTS AS THEY WOULD RECEIVE
IN THE RECAPITALIZATION PLAN IN THE EVENT THE PREPACKAGED PLAN IS CONFIRMED AND
BECOMES EFFECTIVE. MOREOVER, UPON CONFIRMATION, THE PREPACKAGED PLAN WILL BE
BINDING ON ALL OF OUR CREDITORS REGARDLESS OF WHETHER SUCH CREDITORS VOTED TO
ACCEPT THE PLAN.
If each impaired class of claims or interests under the prepackaged plan
does not accept the prepackaged plan, we may nevertheless seek to have the
prepackaged plan confirmed under the 'cram down' provisions of Section 1129(b)
of the Bankruptcy Code described below. The 'cram down' provisions insure that
holders of junior interests, such as common stockholders, cannot retain any
interest in the debtor under a plan that has been rejected by a senior class of
impaired claims or interests unless such impaired claims or interests are paid
in full. THEREFORE, IN THE EVENT THAT ANY CLASS OF IMPAIRED CLAIMS OR INTERESTS
SENIOR TO OUR STOCKHOLDERS DOES NOT ACCEPT THE PREPACKAGED PLAN AND WE SEEK
CONFIRMATION OF THE PREPACKAGED PLAN UNDER THE CRAM DOWN PROVISIONS, OUR
STOCKHOLDERS COULD RECEIVE NOTHING.
The prepackaged plan is predicated on the completion of the new equity
investment. Apollo, Blackstone and Oppenheimer have the right to terminate their
obligation to purchase common stock in the new equity investment upon the
occurrence of certain events, including in the event we choose to file a
bankruptcy case. Without a new equity investment, we do not believe the
prepackaged plan would meet the requirement for confirmation contained in
Section 1129 of the Bankruptcy Code that the plan be 'feasible.' See
' -- Confirmation of the Prepackaged Plan -- Feasibility of Prepackaged Plan.'
Therefore, in the event that Apollo, Blackstone and Oppenheimer elect to
terminate their obligations to purchase common stock in the new equity
investment, and no suitable alternative new equity investment is located, we do
not plan to seek confirmation of the prepackaged plan and your vote in favor of
the prepackaged plan will be disregarded.
The form of the prepackaged plan is attached to this Proxy Statement as
Exhibit B. The prepackaged plan and this Proxy Statement should be read and
studied in their entirety prior to
36
voting on the prepackaged plan. See 'Risk Factors -- Risks Related to the
Prepackaged Plan' for a discussion of risks associated with the prepackaged plan
and the transactions contemplated thereunder. You are urged to consult your
counsel about the prepackaged plan and its effect on your legal rights before
voting.
ANTICIPATED EVENTS IN A REORGANIZATION CASE
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Pursuant to Chapter 11, a debtor may remain in possession of
its assets and business and attempt to reorganize its business for the benefit
of the debtor, its creditors and other parties in interest.
The commencement of a reorganization case creates an estate comprising all
the legal and equitable interests of a debtor in property as of the date the
petition is filed. Sections 1107 and 1108 of the Bankruptcy Code provide that a
debtor may continue to operate its business and remain in possession of its
property as a 'debtor in possession,' unless the bankruptcy court orders the
appointment of a trustee. The filing of a reorganization case also triggers the
automatic stay provisions of the Bankruptcy Code. Section 362 of the Bankruptcy
Code provides, among other things, for an automatic stay of all attempts to
collect prepetition claims from the debtor or otherwise interfere with its
property or business. Except as otherwise ordered by the bankruptcy court, the
automatic stay generally remains in full force and effect until confirmation of
a plan of reorganization.
The formulation and confirmation of a plan of reorganization is the
principal objective of a Chapter 11 case. The plan sets forth the means for
satisfying the claims against and interests in the debtor. The prepackaged plan
we propose provides for the reorganization of our capital structure, thereby
enabling us to continue as a viable business enterprise.
SOLICITATIONS OF ACCEPTANCES OF THE PREPACKAGED PLAN
Usually, a plan of reorganization is filed and votes to accept or reject the
plan are solicited after the filing of a reorganization case. Nevertheless, a
debtor may solicit votes prior to the commencement of a reorganization case in
accordance with Section 1126(b) of the Bankruptcy Code and Bankruptcy Rule
3018(b). In accordance with such provisions, we are soliciting acceptances from
holders of impaired claims and interests in connection with our reorganization
case.
Bankruptcy Rule 3018(b) requires that:
the plan of reorganization be transmitted to substantially all creditors
and interest holders entitled to vote on the plan;
the time prescribed for voting to reject or accept such plan not be
unreasonably short; and
the solicitation of votes be in compliance with any applicable
nonbankruptcy law, rule or regulation governing the adequacy of disclosure
in such solicitation or, if no such law, rule or regulation exists, votes
be solicited only after the disclosure of adequate information.
Section 1125(a)(1) of the Bankruptcy Code describes adequate information as
information of a kind and in sufficient detail as would enable a hypothetical
reasonable investor typical of holders of claims and interests to make an
informed judgment about the plan. With regard to a solicitation of votes prior
to the commencement of a reorganization case, Bankruptcy Rule 3018(b)
specifically provides that acceptances or rejections of the plan by holders of
claims or interests prior to the commencement of a reorganization case will not
be deemed acceptances or rejections of the plan, if the bankruptcy court
determines, after notice and a hearing, that the plan was not transmitted to
substantially all creditors and equity security holders entitled to vote on the
plan, that an unreasonably short time was prescribed for such creditors and
equity security holders to vote on the plan, or that the solicitation was not
otherwise in compliance with Section 1126(b) of the Bankruptcy Code. If the
conditions of the Bankruptcy Code and Bankruptcy Rules are met, all acceptances
and rejections received prior to the commencement of the reorganization case and
37
within the prescribed solicitation period will be deemed to be acceptances and
rejections of the plan for purposes of confirmation of the plan under the
Bankruptcy Code.
We may file a reorganization case seeking approval of the prepackaged plan
if all the conditions of the recapitalization plan cannot be satisfied and/or
waived on or before March 15, 2003 (or such earlier or later date as we and the
other parties to the lockup agreement may agree), so long as we have received
acceptances from those impaired classes of claims and interests necessary to
confirm the plan.
However, there can be no assurance that the bankruptcy court will conclude
that the requirements of Section 1129 of the Bankruptcy Code for confirmation of
the prepackaged plan have been met. The bankruptcy court may find that the
holders of impaired claims and interests have not accepted the prepackaged plan
if the bankruptcy court finds that the prepackaged plan solicitation did not
comply with all of the applicable provisions of the Bankruptcy Code and the
Bankruptcy Rules (including the requirement under Section 1126(b) of the
Bankruptcy Code that the prepackaged plan solicitation comply with any
applicable nonbankruptcy law, rule or regulation governing the adequacy of
disclosure or that the prepackaged plan solicitation is made after disclosure of
adequate information). In such an event, we may be required to resolicit votes
on the prepackaged plan before seeking confirmation of the prepackaged plan, in
which case confirmation of the prepackaged plan could be delayed and possibly
jeopardized.
Bankruptcy Rule 3016(b) provides that either a disclosure statement under
Section 1125 of the Bankruptcy Code or evidence showing compliance with Section
1126(b) of the Bankruptcy Code shall be filed with the prepackaged plan or
within the time fixed by the court. This Proxy Statement is presented to holders
of our impaired interests to satisfy the requirements of Section 1126(b) of the
Bankruptcy Code and Bankruptcy Rule 3016(b) and 3018(b). We believe that this
Proxy Statement and the solicitation process we undertake will meet these
requirements.
This prepackaged plan solicitation is being conducted at this time to obtain
the acceptance of each impaired class of claims and interests entitled to vote.
If we seek relief under Chapter 11 of the Bankruptcy Code, we will attempt to
use such acceptances to obtain confirmation of the prepackaged plan as promptly
as practicable. If we commence a reorganization case, we will promptly seek to
obtain an order of the bankruptcy court finding that the prepackaged plan
solicitation was in compliance with Section 1126(b) of the Bankruptcy Code and
Bankruptcy Rule 3018(b) and that the acceptance of each class of impaired claims
and interests can be used for purposes of confirmation of the prepackaged plan
under Chapter 11 of the Bankruptcy Code. We reserve the right to use the
acceptances to seek confirmation of any permitted amendment or modification of
the prepackaged plan, provided that we may not make any amendment or
modification to the prepackaged plan prohibited by the prepackaged plan or the
lockup agreement.
As more fully described below, we are soliciting acceptances of the
prepackaged plan from holders of each class of claims and interests in classes
2, 3, 5, 8 and 9.
38
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PREPACKAGED PLAN(1)
APPROXIMATE APPROXIMATE
CLASS OR TYPE OF CLAIM ALLOWED PERCENTAGE
SUBCLASS OR EQUITY INTEREST TREATMENT AMOUNT(2) RECOVERY(3)
-------- ------------------ --------- --------- -----------
-- Administrative Claims Unclassified; paid in $ -- 100%
full in cash on the
distribution date or such
later date that the
claims become due and
owing in the ordinary
course of business.
-- Priority Tax Claims Unclassified; paid in $ -- 100%
full in cash on the
distribution date or such
later date as the claims
become due and owing in
the ordinary course of
business.
1 Other Priority Claims Unimpaired; paid in full $ -- 100%
in cash on the
distribution date or such
later date as the claims
become due and owing in
the ordinary course of
business.
2 Senior Secured Claims
2A Senior Secured Discount Note Impaired; a pro rata $292,581,967 72%
Claims share of 228,067,643
shares of our common
stock, representing 23.7%
of our outstanding common
stock as of the effective
date of the prepackaged
plan.
2B Senior Secured Note Claims Impaired; a pro rata $224,166,667 72%
share of 174,737,417
shares of our common
stock, representing
approximately 18.2% of
our outstanding common
stock as of the effective
date of the prepackaged
plan.
2C Lehman Senior Credit Facility Impaired; Lehman will $155,213,333 72%
Claims receive 120,988,793
shares of our common
stock, representing
approximately 12.6% of
our outstanding common
stock as of the effective
date of the prepackaged
plan.
3 Loral Claims Impaired; Loral will $ 75,644,620 72%
receive 58,964,982 shares
of our common stock,
representing
approximately 6.1% of our
outstanding common stock
as of the effective date
of the prepackaged plan.
39
APPROXIMATE APPROXIMATE
CLASS OR TYPE OF CLAIM ALLOWED PERCENTAGE
SUBCLASS OR EQUITY INTEREST TREATMENT AMOUNT(2) RECOVERY(3)
-------- ------------------ --------- --------- -----------
4 Other Secured Claims Unimpaired; at our $ -- 100%
option, collateral
returned to creditor or
claim cured and
reinstated.
5 Convertible Subordinated Note Impaired; pro rata share $ 17,845,324 72%
Claims of 13,910,430 shares of
our common stock,
representing
approximately 1.4% of our
outstanding common stock
as of the effective date
of the prepackaged plan.
6 Insured Claims Unimpaired; legal, $ -- 100%
equitable and contractual
rights of Insured Claims
are unaffected by the
prepackaged plan.
7 General Unsecured Claims Unimpaired; paid in full $ 40,000,000 100%
in cash, on the
distribution date or such
later date as the claims
become due and owing in
the ordinary course of
business.
8 Preferred Stock Interests
8A Series A Preferred Stock Interests Impaired; pro rata share $196,037,699 [TBA]
of: (a) shares of our
common stock
(representing
approximately % of our
outstanding common stock
as of the effective date
of the prepackaged plan);
plus (b) warrants to
purchase an aggregate of
shares of our common
stock (representing
approximately % of our
outstanding common stock
as of the effective date
of the prepackaged plan).
40
APPROXIMATE APPROXIMATE
CLASS OR TYPE OF CLAIM ALLOWED PERCENTAGE
SUBCLASS OR EQUITY INTEREST TREATMENT AMOUNT(2) RECOVERY(3)
-------- ------------------ --------- --------- -----------
8B Series B Preferred Stock Interests Impaired; pro rata share $ 87,926,437 [TBA]
of: (a) shares of our
common stock
(representing
approximately % of our
outstanding common stock
as of the effective date
of the prepackaged plan);
plus (b) warrants to
purchase an aggregate of
shares of our common
stock (representing
approximately % of our
outstanding common stock
as of the effective date
of the prepackaged plan).
8C Series D Preferred Stock Interests Impaired; pro rata share $263,604,593 [TBA]
of: (a) shares of our
common stock
(representing
approximately % of our
outstanding common stock
as of the effective date
of the prepackaged plan);
plus (b) warrants to
purchase an aggregate of
shares of our common
stock (representing
approximately % of our
outstanding common stock
as of the effective date
of the prepackaged plan).
9 Common Stock Interests Impaired; interest N/A N/A
retained but diluted as a
result of the issuance of
additional shares of our
common stock.
10 Other Interests Unimpaired; holders will N/A 100%
retain their Other
Interests and the legal,
equitable and contractual
rights of such holders
will be unaltered by the
prepackaged plan.
---------
(1) This table is only a summary of the classification and treatment of claims
and interests under the prepackaged plan. Reference should be made to this
Proxy Statement and the prepackaged plan attached to this Proxy Statement as
Exhibit B for a complete description of the classification and treatment of
claims and interests.
(2) The amounts are solely estimates; the actual allowed amounts may vary
materially, depending on the nature and extent of claims actually asserted
and the final reconciliation of all administrative expenses and other
claims.
(footnotes continued on next page)
41
(footnotes continued from previous page)
(3) The approximate percentage recovery for any class is the aggregate value of
all cash, common stock and warrants to be distributed to that class. Solely
for purposes of calculating approximate percentage recovery, the value of
our common stock has been derived from the price at which Oppenheimer has
agreed to purchase common stock in the new equity investment. The warrants
to be distributed to Apollo and Blackstone have an assumed value of $24
million, which was derived using a Black Scholes methodology.
HOLDERS OF CLAIMS ENTITLED TO VOTE; VOTING RECORD DATE
Chapter 11 does not require that each holder of a claim against or interest
in a debtor vote in favor of a plan of reorganization in order for the
bankruptcy court to confirm the plan. At a minimum, however, at least one class
of impaired claims, without including any acceptance of the plan by any insider
of the debtor, under the plan must accept the plan. An impaired class of claims
will be deemed to accept the prepackaged plan if the holders of claims in that
class casting votes in favor of acceptance of the prepackaged plan (1) hold at
least two-thirds in aggregate dollar amount of the claims of the holders in such
class who cast votes with respect to the prepackaged plan, and (2) constitute
more than one-half in number of holders of allowed claims in such class who cast
votes with respect to the prepackaged plan. An impaired class of interests will
be deemed to accept the prepackaged plan if the holders of interests in that
class casting votes in favor of acceptance of the prepackaged plan hold at least
two-thirds in amount of the allowed interests in such class who cast votes with
respect to the prepackaged plan.
Classes of claims or interests that are not 'impaired' under a plan of
reorganization are conclusively presumed to have accepted the plan of
reorganization and are not entitled to vote. By contrast, classes of claims or
interests that do not receive or retain any property under a plan on account of
such claims or interests are deemed to have rejected the plan and do not vote.
Acceptances of the prepackaged plan are being solicited only from those persons
who hold claims or interests in a class which may be impaired under the
prepackaged plan and who are not deemed by the Bankruptcy Code to have rejected
the prepackaged plan. A class of claims or interests is 'impaired' if the legal,
equitable, or contractual rights to which the claims or interests entitle the
holders of claims or interests of that class are altered.
The following classes of claims and interests are impaired under the
prepackaged plan, and all holders of claims and interests in such classes as of
the voting record date are entitled to vote to accept or reject the prepackaged
plan:
CLASS 2 Senior Secured Claims
CLASS 3 Loral Claims
CLASS 5 Convertible Subordinated Note Claims
CLASS 8 Preferred Stock Interests
CLASS 9 Common Stock Interests
CLASSES 1, 4, 6, 7 AND 10 ARE UNIMPAIRED UNDER THE PREPACKAGED PLAN IN
ACCORDANCE WITH SECTION 1124 OF THE BANKRUPTCY CODE AND, ACCORDINGLY, HOLDERS OF
CLAIMS OR INTERESTS IN SUCH CLASSES ARE DEEMED TO HAVE ACCEPTED THE PREPACKAGED
PLAN AND ARE NOT ENTITLED TO VOTE ON THE PREPACKAGED PLAN.
To be entitled to vote to accept or reject the prepackaged plan, a holder of
an allowed claim or interest in any such Class 2, 3, 5, 8 and 9 must have been
the beneficial owner of such claim or interest at the close of business on the
voting record date, regardless of whether such claim is held of record on the
voting record date in such holder's name or in the name of such holder's broker,
dealer, commercial bank, trust company or other nominee. If a claim is held in
the name of a holder's broker, dealer, commercial bank, trust company or other
nominee, the beneficial owner will vote on the prepackaged plan by completing
the information requested on the ballot, voting and signing the ballot and then
providing the ballot to the record holder holding the claim
42
for the beneficial owner's benefit if the ballot has not already been signed by
the beneficial owner's nominee or agent. If the ballot has already been signed
by the beneficial owner's agent or nominee, the beneficial owner can vote on the
prepackaged plan by completing the information requested on the ballot,
indicating their vote on the ballot and returning their ballot in the enclosed,
pre-addressed postage paid envelope so it is actually received by the voting
agent before the solicitation expiration date. No appraisal rights are available
to holders of claims or interests in connection with the prepackaged plan.
Each holder of a claim or interest in an impaired class of claims or
interests should refer to the detailed instructions contained in ' -- The
Prepackaged Plan Solicitation' on page 63 which describes the voting procedures
for such class and in the other materials delivered with this Proxy Statement.
VOTE REQUIRED FOR CLASS ACCEPTANCE OF THE PREPACKAGED PLAN
As a condition to confirmation, the Bankruptcy Code requires that, except to
the extent the prepackaged plan meets the 'nonconsensual confirmation' standards
discussed below under ' -- Confirmation of the Prepackaged Plan without
Acceptance By All Classes of Impaired Claims and Interests,' each impaired class
of claims and interests accept the prepackaged plan.
For a class of impaired claims or interests to accept the prepackaged plan,
Section 1126 of the Bankruptcy Code requires acceptance by:
in the case of claims, holders of claims that hold at least two-thirds in
amount and over one-half in number of holders of the allowed claims of such
class, and
in the case of interests, holders of interests that hold at least
two-thirds in amount of the allowed interests of such class,
in each case counting only those holders who actually vote to accept or reject
the prepackaged plan. Holders of claims or interests which fail to vote or
abstain from voting are not counted as either accepting or rejecting the
prepackaged plan. Accordingly, the prepackaged plan could be approved by any
impaired class of claims with the affirmative vote of significantly less than
two-thirds in amount and one-half in number of the claims in such class and any
impaired class of interests with the affirmative vote of significantly less than
two-thirds in amount of the interests in such class.
If the prepackaged plan is confirmed, each holder of a claim or interest in
a class will receive the same consideration as the other members of the class,
and the prepackaged plan will be binding with respect to all holders of claims
and interests of each class, including members who did not vote or who voted to
reject the prepackaged plan.
CLASSIFICATIONS UNDER THE PREPACKAGED PLAN
The principal provisions of the prepackaged plan are summarized below. This
summary is qualified in its entirety by reference to the prepackaged plan. WE
URGE ALL CLAIM HOLDERS AND OTHER PARTIES IN INTEREST TO READ AND STUDY CAREFULLY
THE PREPACKAGED PLAN.
CLASSIFICATION AND ALLOWANCE OF CLAIMS AND INTERESTS
Section 1123 of the Bankruptcy Code provides that a plan of reorganization
must classify claims against, and interests in, a debtor. Under Section 1122 of
the Bankruptcy Code, a plan of reorganization may classify claims and interests
only into classes containing claims and interests which are substantially
similar to such claims or interests. The prepackaged plan designates seven
classes of claims and three classes of interests.
We believe that we have classified all claims and interests in compliance
with the provisions of Section 1122 of the Bankruptcy Code. However, once our
reorganization case has been commenced, a claim holder or interest holder could
challenge our classification of claims and interests, and the bankruptcy court
could determine that a different classification is required for
43
the prepackaged plan to be confirmed. In such event, it is our intention to seek
to modify the prepackaged plan to provide for whatever classification might be
required by the bankruptcy court and to use the sufficient acceptances received,
to the extent permitted by the bankruptcy court, to demonstrate the acceptance
of the class or classes which are affected. Any such reclassification could
affect a class's acceptance of the prepackaged plan by changing the composition
of such class and the required vote for acceptance of the prepackaged plan and
could potentially require a resolicitation of votes on the prepackaged plan.
The prepackaged plan provides for the classification and treatment of claims
and interests of our creditors and interest holders allowed under Section 502 of
the Bankruptcy Code (each, as the case may be, an 'allowed claim' or an 'allowed
interest'). Only the holder of an allowed claim or an allowed interest is
entitled to receive a distribution under the prepackaged plan.
An allowed claim or allowed interest is a claim or interest:
any claim or interest that is scheduled as liquidated in an amount and not
disputed nor contingent an no objection to the allowance of the claim or
interest or request to estimate the claim or interest, has been interposed
within any time period provided under the plan or under applicable law; or
any disputed claim or disputed interest that has been adjudicated as an
allowed claim or interest; or
any claim or interest that is specified as an allowed claim or allowed
interest under the prepackaged plan or the confirmation order.
A disputed claim or disputed interest is a claim or interest that is not an
allowed claim or allowed interest and:
the claim or interest is not contained on a schedule to the prepackaged
plan;
the claim or interest is scheduled as unliquidated, disputed, contingent or
unknown;
the claim or interest is the subject of a timely objection or request for
estimation in accordance with the Bankruptcy Code, the Bankruptcy Rules,
any applicable order of the Bankruptcy Court, the prepackaged plan or
applicable non-bankruptcy law, which objection or request for estimation
has not been withdrawn or resolved; or
the claim or interest is otherwise specified as 'disputed' as a 'disputed
claim' pursuant to the prepackaged plan.
SUMMARY OF DISTRIBUTIONS UNDER THE PREPACKAGED PLAN
THE FOLLOWING SUMMARY OF DISTRIBUTIONS UNDER THE PREPACKAGED PLAN IS
SUBJECT, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE, TO THE PREPACKAGED PLAN.
The following describes the prepackaged plan's classification of claims
against and interests in us and the treatment that holders of allowed claims and
allowed interests would receive for such allowed claims and allowed interests
under the prepackaged plan. Holders of such allowed claims or allowed interests
can agree to accept less favorable treatment by settlement or otherwise.
If the prepackaged plan is confirmed by the bankruptcy court, each holder of
an allowed claim or allowed interest in a particular class will receive the same
treatment as the other holders in the same class of claims or interests, whether
or not such holder voted to accept the prepackaged plan. Moreover, upon
confirmation, the prepackaged plan will be binding on all of our creditors and
stockholders regardless of whether such creditors or stockholders voted to
accept the prepackaged plan (unless such holder agrees to accept less favorable
treatment). Such treatment will be in full satisfaction, release and discharge
of and in exchange for such holder's claims against or interests in us, except
as otherwise provided in the prepackaged plan.
Treatment of Unclassified Claims. The Bankruptcy Code does not require
classification of certain priority claims against a debtor. In this case, these
unclassified claims include administrative claims and priority tax claims as set
forth below.
44
1. Administrative Claims. An 'administrative claim' is any cost or
expense of administration of our reorganization case allowed under Section
503(b), and referred to in Section 507(a)(1), of the Bankruptcy Code. These
claims include, without limitation:
any actual and necessary costs and expenses of preserving our estate
and operating our business during our reorganization case, including
any indebtedness or obligations incurred or assumed by us as debtor in
possession in connection with our conduct of our business or for the
acquisition or lease of property or for the rendition of services, and
any of our costs and expenses for the management, preservation, sale or
other disposition of assets during our reorganization case, the
administration, prosecution or defense of claims by or against us and
for distributions under the prepackaged plan; and
any allowances of compensation or reimbursement of expenses to the
extent allowed by final order of the bankruptcy court under
Sections 330 and 503(b) of the Bankruptcy Code.
Subject to the bar date provisions contained in the prepackaged plan,
each holder of an allowed administrative claim will, in full satisfaction,
release, and discharge of such allowed administrative claim: (a) to the
extent such claim is due and owing on the effective date of the prepackaged
plan, be paid in full, in cash, on the distribution date; (b) to the extent
such claim is not due and owing on the effective date of the prepackaged
plan, be paid in full, in cash, in accordance with the terms of any
agreement between us and such holder, or as may be due and owing under
applicable nonbankruptcy law or in the ordinary course of business; or
(c) on such other terms and conditions as are acceptable to the parties.
If the bankruptcy court confirms the prepackaged plan within the time
frame anticipated by us, we expect that the amount of administrative claims
will be significantly less than if we had commenced a reorganization case
without prior receipt of the approvals necessary to confirm the prepackaged
plan. In the event the bankruptcy court confirms the prepackaged plan within
45 days after the commencement of our reorganization case, and assuming
there is no significant litigation initiated or objections filed with
respect to the prepackaged plan, we estimate that the aggregate allowed
amount of administrative claims (other than those discharged or to be
satisfied by us in the ordinary course of business) will be approximately
$ as of the date the prepackaged plan becomes effective.
2. Priority Tax Claims. A 'priority tax claim' is that portion of any
claim against us for unpaid taxes which is entitled to priority in right of
payment under Section 507(a)(7) of the Bankruptcy Code. We are now current
and anticipate that we will continue to be current on our tax obligations at
the time we commence our reorganization case. Assuming the bankruptcy court
confirms the prepackaged plan within 45 days after the commencement of our
reorganization case, we estimate that the aggregate allowed amount of
priority tax claims (other than those discharged by us in the ordinary
course of business) will be approximately $ in taxes on the date the
prepackaged plan becomes effective.
Pursuant to the prepackaged plan, each holder of a priority tax claim
that is an allowed claim will, in full satisfaction, release, and discharge
of such allowed priority tax claim: (a) to the extent such claim is due and
owing on the effective date of the prepackaged plan, be paid in full, in
cash, on the distribution date; (b) to the extent such claim is not due and
owing on the effective date of the prepackaged plan, be paid in full, in
cash, in accordance with the terms of any agreement between the parties, or
as may be due and owing under applicable nonbankruptcy law, or in the
ordinary course of business; or (c) on such other terms and conditions as
are acceptable to the parties.
Treatment of Classified Claims. The following describes the prepackaged
plan's classification of the claims and interests that are required to be
classified under the Bankruptcy Code and the treatment that the holders of
allowed claims or allowed interests will receive for such claims or interests:
45
Class 1 -- Other Priority Claims. Class 1 consists of all priority
claims. A priority claim is any claim against us for an amount entitled to
priority under Section 507(a) of the Bankruptcy Code, other than an
administrative claim or a priority tax claim. These claims are primarily for
employee wages, vacation pay, severance pay, contributions to benefit plans
and other similar amounts. We estimate that the aggregate allowed amount of
priority claims will be less than $ on the date the prepackaged plan
becomes effective.
We intend to seek an order approving the pre-effective date payment of
priority claims. To the extent such an order is not entered or such claims
are not paid prior to the date the prepackaged plan becomes effective,
pursuant to the prepackaged plan, the legal, equitable and contractual
rights of the holders of allowed Class 1 claims are unaltered by the plan.
Each holder of an allowed Class 1 claim, will, in full satisfaction of and
in exchange for such allowed Class 1 claim: (a) to the extent such claim is
due and owing on the effective date of the prepackaged plan, be paid in
full, in cash, on the distribution date; (b) to the extent such claim is not
due and owing on the effective date of the prepackaged plan, be paid in
full, in cash, in accordance with the terms of any agreement between the
parties, or as may be due and owing under applicable non-bankruptcy law or
in the ordinary course of business; or (c) on such other terms and
conditions as are acceptable to the parties.
CLASS 1 IS UNIMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 1 ARE
CONCLUSIVELY PRESUMED PURSUANT TO SECTION 1126(F) OF THE BANKRUPTCY CODE TO
HAVE ACCEPTED THE PREPACKAGED PLAN.
Class 2 -- Senior Secured Discount Note Claims. Class 2 consists of all
senior secured claims. The senior secured claims are comprised of the senior
secured discount note claims, senior secured note claims and Lehman senior
credit facility claims, all of which are secured by common collateral.
As to the senior secured discount note claims, our records reflect
approximately beneficial holders and a total obligation at March 15,
2003, which includes principal and accrued interest, of $292,581,967. As to
the senior secured note claims, our records reflect approximately
beneficial holders and a total obligation at March 15, 2003, which includes
principal and accrued interest, of $224,166,667. As to the Lehman senior
term loan claims, our records reflect one beneficial holder, Lehman, and a
total obligation at March 15, 2003, which includes principal and accrued
interest, of $155,213,333.
Each holder of an allowed Class 2 claim will receive a pro rata
distribution of our common stock equal to approximately 779.5 shares for
each $1,000 of principal and interest as of March 15, 2003. For purposes of
calculating that distribution, the prepackaged plan divides Class 2 into
subclasses and provides for a pro rata distribution of the following number
of shares of our common stock for each of the subclasses:
Class 2A (Senior Secured Discount Note Claims) -- 228,067,643 shares
of our common stock.
Class 2B (Senior Secured Note Claims) -- 174,737,417 shares of our
common stock.
Class 2C (Lehman Senior Credit Facility Claims) -- 120,988,793 shares
of our common stock.
CLASS 2 IS IMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 2 ARE ENTITLED
TO VOTE ON THE PREPACKAGED PLAN.
Class 3 -- Loral Claims. Class 3 consists of the senior term loan claims
of Loral. As to the Loral senior term loan claims, our records reflect one
beneficial holder, Loral, and a total obligation at March 15, 2003, which
includes principal and accrued interest, of $75,644,620. Loral, as the
holder of record of the allowed Class 3 claim, on the distribution record
date will receive a total of 58,964,982 shares of our common stock, equal to
approximately 779.5 shares for each $1,000 of principal and interest as of
March 15, 2003, or approximately 6.1% of our common stock as of the
effective date.
CLASS 3 IS IMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 3 ARE ENTITLED
TO VOTE ON THE PREPACKAGED PLAN.
46
Class 4 -- Other Secured Claims. Class 4 consists of all secured claims
other than the claims in Classes 2 and 3. For purposes of the prepackaged
plan each such allowed other secured claim will be deemed a separate
subclass. We estimate that the amount of such claims will not exceed $5
million in the aggregate. At our option, each holder of an allowed Class 4
claim will either (a) have the property that serves as collateral for its
claim returned, or (b) have its claim 'cured and reinstated', in accordance
with Section 1124(2) of the Bankruptcy Code.
CLASS 4 IS UNIMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 4 ARE
CONCLUSIVELY PRESUMED PURSUANT TO SECTION 1126(F) OF THE BANKRUPTCY CODE TO
HAVE ACCEPTED THE PREPACKAGED PLAN AND ARE NOT ENTITLED TO VOTE.
Class 5 -- Convertible Subordinated Note Claims. Class 5 consists of all
convertible subordinated note claims. As to the convertible subordinated
note claims, our records reflect approximately beneficial holders and a
total obligation at March 15, 2003, which includes principal and accrued
interest, of $17,845,324. Each holder of record of an allowed Class 5 claim
on the distribution record date will receive 779.5 shares of our common
stock on account of each $1,000 of principal and interest as of March 15,
2003, for an aggregate distribution of 13,910,430 shares of common stock.
CLASS 5 IS IMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 5 ARE ENTITLED
TO VOTE ON THE PREPACKAGED PLAN.
Class 6 -- Insured Claims. Class 6 consists of all claims that are
covered by insurance policies maintained by or for our benefit, but only to
the extent of insurance coverage under such insurance policies. We are
presently unable to determine the amount of such claims (if any) that will
be asserted in this class. Under the prepackaged plan, holders of insured
claims that become allowed claims will have their legal, equitable and
contractual rights unaltered by the plan.
CLASS 6 IS UNIMPAIRED, AND THE HOLDER OF CLAIMS IN CLASS 6 ARE
CONCLUSIVELY PRESUMED PURSUANT TO SECTION 1126(F) OF THE BANKRUPTCY CODE TO
HAVE ACCEPTED THE PREPACKAGED PLAN AND ARE NOT ENTITLED TO VOTE.
Class 7 -- General Unsecured Claims. Class 7 consists of all unsecured
claims, except for administrative claims, priority tax claims or claims in
Classes 1 through 6, inclusive. General unsecured claims will include trade
and vendor claims. Our records indicate approximately $40 million in
accounts payable that would be included in Class 7. To the extent any
allowed general unsecured claim has not been paid or satisfied by
performance in full prior to the date the prepackaged plan becomes
effective, the legal, equitable and contractual rights of the holders of
allowed Class 7 claims are unaltered by the prepackaged plan. In full
satisfaction of and in exchange for each allowed Class 7 claim, the holder
will: (a) to the extent such claim is due and owing on the effective date of
the prepackaged plan, be paid in full, in cash, on the distribution date;
(b) to the extent such claim is not due and owing on the effective date of
the prepackaged claim, be paid in full, in cash, in accordance with the
terms of any agreement between the parties, or as may be due and owing under
applicable nonbankruptcy law or in the ordinary course of business; or
(c) on such other terms and conditions as are acceptable to the parties.
CLASS 7 IS UNIMPAIRED, AND THE HOLDERS OF CLAIMS IN CLASS 7 ARE
CONCLUSIVELY PRESUMED PURSUANT TO SECTION 1126(F) OF THE BANKRUPTCY CODE TO
HAVE ACCEPTED THE PREPACKAGED PLAN AND ARE NOT ENTITLED TO VOTE.
Class 8 -- Preferred Stock. Class 8 consists of all preferred stock
interests and is divided into three subclasses for the purposes of
calculating distributions.
Class 8A -- Series A Preferred Stock Interests. Class 8A consists of all
interests of holders of our 9.2% Series A Junior Cumulative Convertible
Preferred Stock issued and outstanding on the date the petition for relief
is filed with the bankruptcy court. Apollo is the only holder of a Class 8A
interest. Apollo, as the holder of record of the allowed Class 8A interest
on the distribution record date, will receive an aggregate of newly
issued shares of our
47
common stock and warrants to purchase shares of our common stock.
These warrants will have an exercise price of $ per share and expire two
years from their issue date.
CLASS 8A IS IMPAIRED, AND THE HOLDER OF INTERESTS IN CLASS 8A IS
ENTITLED TO VOTE ON THE PREPACKAGED PLAN.
Class 8B -- Series B Preferred Stock Interests. Class 8B consists of all
interests of holders of our 9.2% Series B Junior Cumulative Convertible
Preferred Stock issued and outstanding on the date the petition for relief
is filed with the bankruptcy court. Apollo is the only holder of a Class 8B
interest. Apollo, as the holder of record of the allowed Class 8B interest
on the distribution record date, will receive an aggregate of newly
issued shares of our common stock and warrants to purchase shares of
our common stock. These warrants will have an exercise price of $ per
share and expire two years from their issue date.
CLASS 8B IS IMPAIRED, AND THE HOLDER OF INTERESTS IN CLASS 8B IS
ENTITLED TO VOTE ON THE PREPACKAGED PLAN.
Class 8C -- Series D Preferred Stock Interests. Class 8 consists of all
interests of holders of our 9.2% Series D Junior Cumulative Convertible
Preferred Stock issued and outstanding on the date the petition for relief
is filed with the bankruptcy court. Blackstone is the only holder of a
Class 8C interest. Blackstone, as the holder of record of the allowed
Class 8C interest on the distribution record date will receive an aggregate
of newly issued shares of our common stock and warrants to purchase
shares of our common stock. These warrants will have an exercise price
of $ per share and expire two years from their issue date.
CLASS 8C IS IMPAIRED, AND THE HOLDER OF INTERESTS IN CLASS 8C IS
ENTITLED TO VOTE ON THE PREPACKAGED PLAN.
Class 9 -- Common Stock Interests. Class 9 consists of all interests of
holders of our common stock issued and outstanding on the date the petition
for relief is filed with the bankruptcy court. We estimate that, as of the
date of this Proxy Statement, there are approximately 75,000 beneficial
holders of Class 9 interests. Each holder of a Class 9 interest will retain
its interest as it existed on the date the petition for relief is filed with
the bankruptcy court; however, the issuance of common stock in exchange for
the impaired classes of claims and interests under the prepackaged plan will
substantially dilute the ownership interest of each holder of a Class 9
interest.
CLASS 9 IS IMPAIRED AND THE HOLDERS OF INTERESTS IN CLASS 9 ARE ENTITLED
TO VOTE ON THE PREPACKAGED PLAN.
Class 10 -- Other Interests. Class 10 consists of all interests of
holders of our warrants and options issued and outstanding on the date the
petition for relief is filed with the bankruptcy court. These other
interests include warrants issued to automotive partners, content providers,
and certain warrants issued in connection with the senior secured notes and
Lehman senior term loans as well as options issued to employees, consultants
and members of our board of directors. See 'Description of Capital Stock and
Warrants.' We estimate that, as of the date of this Proxy Statement, there
are approximately 350 beneficial holders of Class 10 interests. Under the
plan, the other interests will be retained by their holders.
CLASS 10 IS UNIMPAIRED AND THE HOLDERS OF INTERESTS IN CLASS 10 ARE
CONCLUSIVELY PRESUMED PURSUANT TO SECTION 1126(F) OF THE BANKRUPTCY CODE TO
HAVE ACCEPTED THE PREPACKAGED PLAN.
CONFIRMATION OF THE PREPACKAGED PLAN
If we seek to implement the prepackaged plan by commencing a reorganization
case, we will promptly request that the bankruptcy court hold a confirmation
hearing (including a determination that the prepackaged plan solicitation was in
compliance with any applicable nonbankruptcy law, rule or regulation governing
the adequacy of disclosure or, if there is not any such law, rule or regulation,
was made after disclosure of adequate information as defined in the Bankruptcy
Code), upon such notice to parties in interest as is required by the Bankruptcy
Code and the bankruptcy court. Rule 2002(b) of the Bankruptcy Rules requires no
less than 25 days' notice by mail of the
48
time for filing objections to confirmation of the prepackaged plan and of the
time and place of the confirmation hearing, unless the bankruptcy court shortens
or lengthens this period. Parties in interest, including all holders of impaired
claims and interests, will be provided notice by mail, or by publication if
required by the bankruptcy court, of the date and time fixed by the bankruptcy
court for the confirmation hearing. Section 1128(b) of the Bankruptcy Code
provides that any party in interest may object to confirmation of the
prepackaged plan. The bankruptcy court will also establish procedures for the
filing and service of objections to confirmation of the prepackaged plan. Such
procedures will be described to parties in interest in the notice informing them
of the time for filing objections to confirmation of the prepackaged plan.
ANY OBJECTIONS TO CONFIRMATION OF THE PREPACKAGED PLAN MUST BE FILED WITH
THE BANKRUPTCY COURT IN ACCORDANCE WITH APPLICABLE BANKRUPTCY RULES AND ANY
PROCEDURES ESTABLISHED BY THE BANKRUPTCY COURT.
In order for the prepackaged plan to be confirmed, and regardless of whether
all impaired classes of claims and interests vote to accept the prepackaged
plan, the Bankruptcy Code requires that the bankruptcy court determine that the
prepackaged plan complies with the requirements of Section 1129 of the
Bankruptcy Code. Section 1129 of the Bankruptcy Code requires for confirmation,
among other things, that:
except to the extent the prepackaged plan meets the 'nonconsensual
confirmation' standards discussed below under ' -- Confirmation of the
Prepackaged Plan Without Acceptance By All Classes of Impaired Claims and
Interests,' the prepackaged plan be accepted by each impaired class of
claims and interests by the requisite votes of holders of claims or
interests in such impaired classes;
the prepackaged plan is feasible (that is, there is a reasonable
probability that we will be able to perform our obligations under the
prepackaged plan and continue to operate our business without the need for
further financial reorganization) (see ' -- Feasibility of the Prepackaged
Plan'); and
the prepackaged plan meets the requirements of Section 1129(a)(7) of the
Bankruptcy Code, which requires that, with respect to each impaired class,
each holder of a claim or interest in such class either (a) accepts the
prepackaged plan or (b) receives at least as much pursuant to the
prepackaged plan as such holder would receive in our liquidation under
Chapter 7 of the Bankruptcy Code (see ' -- The Best Interests Test').
In addition, we must demonstrate in accordance with Section 1129 of the
Bankruptcy Code that:
the prepackaged plan is proposed in good faith;
the prepackaged plan complies with the Bankruptcy Code;
payments for services or costs and expenses in or in connection with the
case, or in connection with the prepackaged plan, have been approved by or
are subject to the approval of the bankruptcy court;
the individuals to serve as our officers and directors have been disclosed
and their appointment or continuance in such office is consistent with the
interests of creditors and interest holders;
the identity of any insider that will be employed or retained by us is
disclosed, as well as any compensation to be paid to such insider;
all statutory fees have been or will be paid; and
the prepackaged plan provides for the continued maintenance of retiree
benefits, if any, at a certain level.
ACCEPTANCE OF THE PREPACKAGED PLAN
As a condition to confirmation, the Bankruptcy Code requires that each
impaired class of claims or interests accept a plan of reorganization, unless
the 'cramdown' requirements of
49
Section 1129(b) of the Bankruptcy Code are met. Classes of claims or interests
that are not 'impaired' under a plan are deemed to have accepted the plan and
are not entitled to vote.
FEASIBILITY OF THE PREPACKAGED PLAN
The Bankruptcy Code requires that, in order to confirm the prepackaged plan,
the bankruptcy court find that confirmation of the prepackaged plan will not
likely be followed by the liquidation or the need for further financial
reorganization. For the prepackaged plan to meet the 'feasibility test,' the
bankruptcy court must find that we will possess the resources and working
capital necessary to fund our operations and that we will be able to meet our
obligations under the prepackaged plan.
We have analyzed our ability to meet our obligations under the prepackaged
plan. As part of our analysis, we have considered our forecasts of our financial
performance after completion of our reorganization case contained herein. These
projections and the significant assumptions on which they are based are included
in this Proxy Statement. See 'Unaudited Projected Consolidated Financial
Information.' We believe, based on our analysis, that the prepackaged plan
provides a feasible means of reorganization from which there is a reasonable
expectation that, following the effectiveness of the prepackaged plan, we will
possess the resources and working capital necessary to fund our operations and
to meet our obligations under the prepackaged plan.
In connection with confirmation of the prepackaged plan, the bankruptcy
court will have to determine that the prepackaged plan is feasible. There can be
no assurance that the bankruptcy court will agree with our determination. In
particular, there can be no assurance that the bankruptcy court will accept the
projections or the assumptions underlying our determination.
THE BEST INTERESTS TEST
Even if the prepackaged plan is accepted by each impaired class of claims
and interests, Section 1129(a)(7) of the Bankruptcy Code requires that in order
to confirm the prepackaged plan, the bankruptcy court must determine that either
(1) each member of an impaired class of claims or interests has accepted the
prepackaged plan or (2) the prepackaged plan will provide each nonaccepting
member of an impaired class of claims or interests a recovery that has a value
at least equal to the value of the distribution that such member would receive
if we were liquidated under Chapter 7 of the Bankruptcy Code. If all members of
an impaired class of claims or interests accept the prepackaged plan, the best
interests test does not apply with respect to that class.
The first step in meeting the best interests test is to determine the dollar
amount that would be generated from the liquidation of our assets and properties
in the context of a Chapter 7 liquidation case. The total amount available would
be the sum of the proceeds from the disposition of our assets and the cash held
by us at the time of the commencement of the Chapter 7 case. The next step is to
reduce that total by the amount of any claims secured by such assets, the costs
and expenses of the liquidation, and such additional administrative expenses and
priority claims that may result from the termination of our business and the use
of Chapter 7 for the purposes of liquidation. Finally, the present value of that
amount (taking into account the time necessary to accomplish the liquidation) is
allocated to creditors and stockholders in the strict order of priority in
accordance with Section 726 of the Bankruptcy Code which requires that no junior
creditor receive any distribution until all senior creditors are paid in full
and can be compared to the value of the property that is proposed to be
distributed under the prepackaged plan on the date the prepackaged plan becomes
effective.
After consideration of the effects that a Chapter 7 liquidation would have
on the ultimate proceeds available for distribution to creditors in a Chapter 11
case, including:
the increased costs and expenses of a liquidation under Chapter 7 arising
from fees payable to a trustee in bankruptcy and professional advisors to
such trustee;
the erosion in value of assets in a Chapter 7 case in the context of the
expeditious liquidation required under Chapter 7 and the 'forced sale'
atmosphere that would prevail; and
50
substantial increases in claims which would be satisfied on a priority
basis or on a parity with creditors in a Chapter 11 case,
we have determined that confirmation of the prepackaged plan will provide each
creditor and equity holder with a recovery that is not less than it would
receive pursuant to our liquidation under Chapter 7 of the Bankruptcy Code.
Moreover, we believe that the value of any distributions from the liquidation
proceeds to each class of allowed claims and interests in a Chapter 7 case would
be less than the value of distributions under the prepackaged plan because such
distributions in Chapter 7 may not occur for a substantial period of time. In
this regard, it is possible that distribution of the proceeds of the liquidation
could be delayed for a substantial time after the completion of such liquidation
to resolve all objections to claims and prepare for distributions.
LIQUIDATION ANALYSIS
THE FOLLOWING LIQUIDATION ANALYSIS IS AN ESTIMATE OF THE PROCEEDS THAT MAY
BE GENERATED AS A RESULT OF THE HYPOTHETICAL CHAPTER 7 LIQUIDATION OF OUR
ASSETS. THE ANALYSIS IS BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS WHICH ARE
DESCRIBED BELOW. THE LIQUIDATION ANALYSIS DOES NOT PURPORT TO BE A VALUATION OF
OUR ASSETS AND IS NOT NECESSARILY INDICATIVE OF THE VALUES THAT MAY BE REALIZED
IN AN ACTUAL LIQUIDATION.
51
LIQUIDATION ANALYSIS
AS OF MARCH 31, 2003
(UNAUDITED)
(IN MILLIONS)
BOOK VALUE RECOVERY RECOVERY
---------- ----------------- ---------------
LOW HIGH LOW HIGH
PROCEEDS --- ---- --- ----
Cash, cash equivalents and marketable
securities(1).............................. $ 87 $ 87 $ 87 100.0% 100.0%
Prepaid expenses............................. 5 0 0 0.0 0.0
Property and equipment, net(2)
Satellites(3)............................ 869 13 32 1.5 3.7
Terrestrial repeater equipment(4)........ 70 0 0 0.0 0.0
Broadcast studio equipment(5)............ 17 3 5 17.7 29.4
Customer care, billing and conditional
access systems(6)...................... 17 0 0 0.0 0.0
Satellite telemetry, tracking and control
equipment(7)........................... 11 0 0 0.0 0.0
Leasehold improvements................... 20 0 0 0.0 0.0
Furniture, fixtures and equipment........ 13 1 1 7.7 7.7
FCC license(8)............................... 84 0 0 0.0 0.0
-------- ------ ------
Total proceeds....................... $ 1,193 $ 104 $ 125 8.7% 10.5%
-------- ------ ------
-------- ------ ------
LESS
Administrative and priority claims
Severance............................................ $ 3 $ 3
Wind-down operating costs............................ 1 1
Trustee and professional fees........................ 3 3
------ ------
PROCEEDS AVAILABLE FOR DISTRIBUTION...................... $ 97 $ 118
------ ------
------ ------
Secured Claims:
Class 2 (Senior Secured Claims).......... $ 672
Class 3 (Loral Claims)................... 76
Class 4 (Other Secured Claims)........... 1
--------
Total Secured Claims................. $ 749
--------
--------
Class 2 (Senior Secured Debt)
Proceeds from FCC license and spare satellite(9)......... $ 12 $ 31 1.8% 4.6%
Class 2 deficiency claim................................. 660 641
Class 3 (Loral Claims)
Proceeds from terrestrial repeater network(10)........... 0 0 0.0% .00%
Class 3 deficiency claim................................. 76 76
Class 4 (Other Secured Claims) (11)
Proceeds from collateral................................. 1 1 100.0% 100.0%
Class 4 deficiency claim................................. 0 0
Unsecured Claims:
Deficiency Claims:
Class 2 deficiency claim........................... 660 641
Class 3 deficiency claim........................... 76 76
Class 4 deficiency claim........................... 0 0
Class 5 (Convertible Subordinated Note Claims)....... 18 18
Class 7 (General Unsecured Claims)(12)............... 150 150
------ ------
Total unsecured claims........................... $ 904 $ 885
------ ------
------ ------
Proceeds available for distribution to Unsecured Claims
(total proceeds minus distributions to secured
creditors)............................................. 84 86 9.3% 9.7%
Interests (Preferred Stock and Common Stock):
Proceeds available for distribution to Interests......... 0 0 0.0% 0.0%
(footnotes on next page)
52
(footnotes from previous page)
(1) Marketable securities are stated at fair market value and consist of U.S.
government agencies and commercial paper issued by major U.S. corporations
with high credit ratings. These amounts may vary significantly depending on
the number of subscribers acquired and any unforeseen costs.
(2) Property and equipment, net includes leasehold improvements, satellites,
terrestrial repeater equipment, broadcast studio equipment, satellite
telemetry tracking and control, customer care, billing and conditional
access equipment and furniture, fixtures and equipment. The estimated
recovery with respect to these assets is based on management estimates, net
of the costs and expenses associated with the sale of these assets.
(3) We expect to dispose of our three satellites in outer space in accordance
with the North American Space Administration's policy relating to the
disposition of High Earth Orbit satellites. We estimate that our fourth
satellite, currently in storage at Loral's facility in Palo Alto,
California, could be sold for approximately $12 to $31 million of its $90
million purchase price. We estimate that the $15 million of spare parts we
purchased for a fifth satellite could be sold for approximately
$1 million.
(4) We believe the cost of recovering our terrestrial repeater equipment for
salvage will exceed the proceeds from the sale of the equipment.
(5) We believe that the market value of our existing broadcast studio equipment
is approximately 18% to 29% of the net book value of this equipment.
(6) The hardware and software employed by our customer care, billings and
conditional access operations has been developed for use only with our
system. As a result, we do not expect any recovery with respect to such
equipment.
(7) Our satellite telemetry, tracking and control equipment was purchased and
designed for use only with our satellites which, in turn, employ spectrum
licensed by the FCC. We do not expect any potential purchasers of this
equipment in the event we are forced to liquidate.
(8) We do not believe we will be able to find a buyer for our FCC license given
the restrictions and conditions of such license.
(9) The Lehman senior term loans, senior secured discount notes and senior
secured notes are secured equally by a pledge of the stock of Satellite CD
Radio, Inc., our subsidiary that holds our FCC license, and by a lien on
our fourth, spare satellite. The spare parts we purchased for a fifth
satellite are not subject to any liens.
(10) The Loral senior term loans are secured by a lien on our terrestrial
repeater network.
(11) Other Secured Claims consist primarily of secured claims associated with
the financing of furniture, fixtures and equipment. For purposes of this
analysis, we have assumed that the proceeds of furniture, fixtures and
equipment serves as collateral for all Other Secured Claims.
(12) Other unsecured claims consist of amounts related to terminated agreements
and an estimate of accounts payable at March 31, 2003, projected to be
approximately $150 million. We expect our lease rejection claims to
aggregate approximately $7 million, which we expect will be satisfied from
proceeds of our restricted investments.
-------------------
THESE ESTIMATED LIQUIDATION VALUES ARE SPECULATIVE AND COULD VARY
DRAMATICALLY FROM THE AMOUNTS THAT MAY ACTUALLY BE RECOVERED IN AN ACTUAL
LIQUIDATION UNDER CHAPTER 7 OF THE BANKRUPTCY CODE. FURTHER, MANY OF OUR ASSETS,
SUCH AS OUR SATELLITE CONSTELLATION, OUR SPARE SATELLITE, OUR FCC LICENSE AND
SATELLITE TELEMETRY TRACKING AND CONTROL EQUIPMENT, HAVE BEEN DESIGNED, BUILT
AND DEPLOYED FOR USE SOLELY IN A OUR SATELLITE RADIO SYSTEM. IN MANY CASES, OUR
ASSETS MIGHT NOT COMMAND SIGNIFICANT PRICES IF PURCHASED FOR USES OTHER THAN
SATELLITE RADIO.
OUR FCC LICENSE MAY NOT BE TRANSFERRED OR SOLD WITHOUT THE APPROVAL OF THE
FEDERAL COMMUNICATIONS COMMISSION.
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As described above, to estimate the liquidation proceeds we assumed that our
assets are disposed of in a straight liquidation during a three-month wind-down
period.
Our belief that confirmation of the prepackaged plan will provide each
holder of a claim or interest in an impaired class with a recovery at least
equal to the recovery that such holder would receive pursuant to a liquidation
under Chapter 7 of the Bankruptcy Code is based on a comparison of the
liquidation values set forth in the liquidation analysis above with our estimate
of the value of the distributions to the holders of claims pursuant to the
prepackaged plan. In preparing these analyses, we were assisted by UBS Warburg
LLC, our financial advisor in connection with the restructuring.
ALTERNATIVES TO CONFIRMATION OF THE PREPACKAGED PLAN
If the prepackaged plan is not confirmed, we or, subject to further
determination by the bankruptcy court as to extensions of our exclusive period
within which to propose a plan of reorganization (which is the first 120 days
after the commencement of reorganization case, subject to reduction or extension
by the bankruptcy court), any other party in interest in our reorganization case
could attempt to formulate and propose a different plan or plans of
reorganization. Such plans could involve a reorganization and continuation of
our businesses, a sale of our business as a going concern, an orderly
liquidation of our assets, or any combination thereof. If no plan of
reorganization is confirmed by the bankruptcy court, our reorganization case may
be converted to a liquidation case under Chapter 7 of the Bankruptcy Code. In
that event, the bankruptcy court may grant holders of secured claims relief from
the automatic stay to foreclose on their collateral and, accordingly, our
valuable assets may be lost.
We have agreed that, in the event the lockup agreement is terminated by
Apollo, Blackstone or Oppenheimer upon the occurrence of specified events that
constitute a material adverse change, we will grant co-exclusivity to propose a
plan of reorganization to Lehman, Loral and the members of the informal
noteholders committee which negotiated the terms of the restructuring with us.
In a Chapter 7 case, a trustee would be appointed or elected with the
primary duty of liquidating our assets. Typically, in a liquidation assets are
sold for less than their going concern value and, accordingly, the return to
creditors would be reduced. Proceeds from liquidation would be distributed to
our creditors in accordance with the priorities set forth in the Bankruptcy
Code.
Because of the difficulties in estimating what our assets would bring in a
liquidation and the uncertainties concerning the aggregate claims to be paid and
their priority in liquidation, it is not possible to predict with certainty what
return, if any, each class of claims or interests might receive in a
liquidation. Nevertheless, we believe that the most likely result would be the
sale of our assets at a price which is significantly less than needed to pay our
debts in full. We believe that holders of impaired claims and interests would
realize a greater recovery under the prepackaged plan than would be realized
under a Chapter 7 liquidation.
MEANS FOR IMPLEMENTING THE PREPACKAGED PLAN
MANAGEMENT
On the date the prepackaged plan becomes effective, our management, control
and operation will become the general responsibility of our board of directors
in accordance with Delaware law. Our board of directors on the effective date is
described under 'Management.' The prepackaged plan also authorizes us to enter
into new employment agreements with our executive officers, which will become
effective on the date the prepackaged plan becomes effective. For a description
of the directors' and officers' backgrounds, affiliations, salary compensation
and whether or not such persons are also insiders, see 'Management' on page 85.
We will disclose, prior to the hearing on the confirmation of the
prepackaged plan, such additional information as is necessary to satisfy Section
1129(a)(5) of the Bankruptcy Code including (1) the identity and affiliation of
any other individual who is proposed to serve as one of
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our officers or directors, to the extent it is different than disclosed herein,
and (2) the identity of any other insider that will be employed or retained by
us and said insider's compensation.
RESTATED CORPORATE DOCUMENTS
On the date the prepackaged plan becomes effective, our certificate of
incorporation will be amended and restated to include (1) the amendments
necessary to effect the restructuring, including an increase in the number of
authorized shares of our common stock, described under 'The Restructuring -- The
Charter Amendment' and (2) in accordance with Section 1123(a)(6) of the
Bankruptcy Code, a prohibition on the issuance of non-voting equity securities.
CANCELLATION OF EXISTING SECURITIES AND INDEBTEDNESS
As a general matter, on the effective date, all notes, indentures,
instruments and other documents evidencing the claims or interests classified in
Classes 2, 3, 5 and 8 of the prepackaged plan will be cancelled and any
collateral security with respect to such claims will be released. Without
limiting the generality of the foregoing, on the effective date of the plan,
each of the following will be cancelled:
the senior secured discount notes;
the senior secured discount notes indenture;
the senior secured notes;
the senior secured notes indenture;
Lehman credit agreement;
Loral credit agreement;
the convertible subordinated notes;
the convertible subordinated notes indenture;
the collateral agreements relating to our senior secured discount notes;
senior secured notes; Lehman senior term loans and Loral senior term loans;
the series A preferred stock;
the series B preferred stock; and
the series D preferred stock.
NEW EQUITY INVESTMENT
As a condition to the effective date, Apollo, Blackstone and Oppenheimer
will purchase an aggregate of 211,730,379 shares of our common stock for $200
million in cash. The obligation of Apollo, Blackstone and Oppenheimer to
consummate the new equity investment is detailed in the lockup agreement and is
subject to such terms and conditions, including the option of each party to
terminate its obligation to consummate the new equity investment upon the
commencement of our reorganization case.
ISSUANCE OF COMMON STOCK
On the effective date of the prepackaged plan, we will issue, in accordance
with the terms of the prepackaged plan, an aggregate of up to 962,385,874 newly
issued shares of our common stock. All shares to be issued pursuant to the
prepackaged plan will be, upon issuance, fully paid and non-assessable. The
holders of this common stock will have no preemptive or other rights to
subscribe for additional shares. The confirmation order of the bankruptcy court
will provide that the issuance of common stock shall be exempt from the
registration requirements of the Securities Act in accordance with Section 1145
of the Bankruptcy Code.
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MANAGEMENT STOCK OPTION PLAN
We will adopt, as of the effective date of the prepackaged plan, our new
stock option plan through which options for up to 15% of the common stock
outstanding on a fully diluted basis may be granted to our employees and
consultants by our board of directors.
CONFIRMATION OF THE PREPACKAGED PLAN WITHOUT ACCEPTANCE BY ALL CLASSES OF
IMPAIRED CLAIMS AND INTERESTS
The Bankruptcy Code contains provisions for confirmation of a plan even if
the plan is not accepted by all impaired classes, as long as at least one
impaired class of claims has accepted the plan. These 'cram down' provisions are
set forth in Section 1129(b) of the Bankruptcy Code. Under the 'cram down'
provisions, upon the request of a plan proponent, the bankruptcy court will
confirm a plan despite the lack of acceptance by an impaired class or classes if
the bankruptcy court finds that:
the plan does not discriminate unfairly with respect to each non-accepting
impaired class; and
the plan is fair and equitable with respect to each non-accepting impaired
class.
These standards ensure that holders of junior interests, such as
stockholders, cannot retain any interest in the debtor under a plan that has
been rejected by a senior class of impaired claims or interests unless such
impaired claims or interests are paid in full.
As used by the Bankruptcy Code, the phrases 'discriminate unfairly' and
'fair and equitable' have narrow and specific meanings unique to bankruptcy law.
A plan does not 'discriminate unfairly' if claims or interests in different
classes but with similar priorities and characteristics receive or retain
property of similar value under a plan. By establishing separate classes for the
holders of each type of claim or interest and by treating each holder of a claim
or interest in each class identically, the prepackaged plan has been structured
so as to meet the 'unfair discrimination' test of Section 1129(b) of the
Bankruptcy Code.
The Bankruptcy Code sets forth different standards for establishing that a
plan is 'fair and equitable' with respect to a dissenting class, depending on
whether the class is comprised of secured or unsecured claims or interests. In
general, Section 1129(b) of the Bankruptcy Code permits confirmation
notwithstanding non-acceptance by an impaired class if that class and all junior
classes are treated in accordance with the 'absolute priority' rule, which
requires that the dissenting class be paid in full before a junior class may
receive any distributions under the plan. In addition, case law surrounding
Section 1129(b) requires that no class senior to a non-accepting impaired class
receives more than payment in full on its claims.
With respect to a class of unsecured claims that does not accept the
prepackaged plan, we must demonstrate to the Bankruptcy Court that either:
each holder of an unsecured claim in the dissenting class receives or
retains under such plan property of a value equal to the allowed amount of
its unsecured claim; or
the holders of claims or holders of interests that are junior to the claims
of the holders of such unsecured claims will not receive or retain any
property under the prepackaged plan.
Additionally, we must demonstrate that the holders of claims or interests
that are senior to the claims or interests of the dissenting class of unsecured
claims or interests receive no more than payment in full on their claims or
interests under the prepackaged plan.
Neither us nor any of our advisors, including UBS Warburg LLC, have
undertaken to value our assets or our business. We also have not engaged any
person to conduct a valuation of our assets or business in connection with the
prepackaged plan. Our common stock is traded on the Nasdaq National Market, and
a valuation for our company can be derived from trading information relating to
our common stock.
The price at which Apollo and Blackstone have agreed to purchase our common
stock in the restructuring would result in an implied enterprise value of
approximately $1 billion, and the price
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at which Oppenheimer agreed to purchase our common stock in the restructuring
would result in an implied enterprise value of approximately $882 million.
We believe that the prepackaged plan satisfies the 'cram down' requirements
of the Bankruptcy Code. We may seek confirmation of the prepackaged plan over
the objection of individual holders of claims who are members of an accepting
class. However, there can be no assurance that the Bankruptcy Court will
determine that the prepackaged plan meets the requirements of Section 1129(b) of
the Bankruptcy Code.
DISTRIBUTIONS
All distributions required under the prepackaged plan to holders of allowed
claims and interests shall be made by a disbursing agent pursuant to a
disbursing agreement. The disbursing agent may designate, employ or contract
with other entities to assist in or perform the distributions. The disbursing
agent and such other entities will serve without bond.
The distribution date will mean the date, occurring on or as soon as
practicable after the later of:
the effective date; and
the date when a claim becomes an allowed claim or an interest becomes an
allowed interest.
Only holders of record of note and term loan claims as of the distribution
record date shall be entitled to receive the distributions provided for in the
prepackaged plan. As of the close of business on the distribution record date,
the respective transfer ledgers in respect of the notes and term loans will be
closed, for purposes of making the distributions required in accordance with the
provisions of the prepackaged plan. We and the disbursing agent will have no
obligation to recognize any transfer of notes or term loans occurring after the
distribution record date for purposes of such distributions. We and the
disbursing agent will recognize and, for purposes of making such distributions
under the prepackaged plan, deal only with those holders of record reflected on
the transfer ledgers maintained by the registrars for the notes and term loans
as of the close of business on the distribution record date, provided that
nothing contained in the prepackaged plan will be deemed to prohibit or
otherwise restrict the right of any such holder to transfer such securities at
any time.
Distributions to holders of allowed claims and allowed interests will be
made at the address of each such holder as set forth on the schedules filed by
us with the bankruptcy court unless superseded by the address as set forth on
the proofs of claim or proofs of interest filed by such holder or other writings
notifying us of a change of address (or at the last known address of such holder
if no proof of claim or proof of interest is filed or if we have not been
notified in writing of a change of address), or in the case of holders of note
or term loan claims may be made at the addresses of the registered holders
contained in the records of the registrar as of the distribution record date,
except as provided below. If any holder's distribution is returned as
undeliverable, no further distributions to such holder will be made, unless and
until we or the disbursing agent are notified of such holder's then current
address, at which time all missed distributions will be made to such holder
together with any interest or dividends earned thereon. Amounts in respect of
undeliverable distributions made through a disbursing agent will be returned to
such disbursing agent making such distribution until such distributions are
claimed. All claims for undeliverable distributions will be made on or before
the later of the second anniversary of the date the prepackaged plan becomes
effective and the date 90 days after such claim is allowed. After such date all
unclaimed property held by a disbursing agent for distribution to holders will
be returned to us and the claim of any holder with respect to such property will
be discharged and forever barred.
CONDITIONS TO EFFECTIVE DATE OF THE PREPACKAGED PLAN
The effective date of the prepackaged plan will not occur until the
conditions set forth below have been satisfied or waived:
the confirmation order is a final order;
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the new equity investment is funded; and
any waiting period applicable to the consummation of the prepackaged plan
and occurrence of the effective date under the Hart-Scott-Rodino Act shall
have expired or be terminated.
Only the debtor may waive the 'final order' condition in its sole and
absolute discretion, by filing a written waiver. No other condition is waivable
by any party in interest.
MODIFICATION OF PREPACKAGED PLAN
The proponents of the prepackaged plan reserve the right in accordance with
Section 1127(a) of the Bankruptcy Code and Bankruptcy Rule 3019, after hearing
on notice to the indenture trustees and such other entities as are entitled to
such notice pursuant to Bankruptcy Rule 3019, to amend or modify the prepackaged
plan prior to the entry of the confirmation order of the bankruptcy court by
amending or modifying or supplementing the prepackaged plan, the indentures,
instruments or agreements to be executed and delivered pursuant to the
prepackaged plan or any other documents.
WITHDRAWAL OF PREPACKAGED PLAN
We reserve the right to revoke and withdraw the prepackaged plan at any time
prior to the entry of the confirmation order of the bankruptcy court. After
withdrawal, or if entry of the confirmation order of the bankruptcy court does
not occur, the prepackaged plan will be deemed null and void. In that event,
nothing contained in the prepackaged plan or in any letter of transmittal or
ballot shall be deemed to constitute a waiver or release of any claims by or
against or any interests in us, or to prejudice in any manner our rights or the
holders of any claim or interest in any further proceedings.
EFFECTS OF PREPACKAGED PLAN CONFIRMATION
DISCHARGE
The rights afforded in the plan and the treatment of all claims and
interests therein shall be in exchange for and in complete satisfaction,
discharge and release of all claims and interests of any nature, whatsoever,
including any interest accrued on such claims from and after the petition date.
Except as otherwise provided in the plan or the confirmation order, on or after
the effective date: (i) we will be discharged and released to the fullest extent
permitted by section 1141 of the Bankruptcy Code from all claims and interests,
including claims and interests that arose before the effective date and all
debts of the kind specified in sections 502(g), 502(h) or 502(i) of the
Bankruptcy Code whether or not: (a) a proof of claim or proof of interest based
on such debt or interest is filed or deemed filed pursuant to section 501 of the
Bankruptcy Code, (b) a claim or interest based on such debt or interest is
allowed pursuant to section 502 of the Bankruptcy Code, or (c) the holder of a
claim or interest based on such debt or interest has accepted the plan; and
(ii) all persons will be precluded from asserting against us, our successors or
our assets or properties any other or future claims or interests based upon any
act or omission, transaction or other activity of any kind or nature that
occurred before the effective date.
Except as otherwise provided in the plan or the confirmation order and in
addition the injunction provided under Sections 524(a) and 1141 of the
Bankruptcy Code, on and after the effective date of the prepackaged plan, all
persons who have held, currently hold or may hold a debt, claim or interest
discharged under the plan are permanently enjoined from taking any of the
following actions on account of any such discharge, debt, claim or interest:
commencing or continuing in any manner any action or other proceeding
against our successors or our respective properties;
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against us, our successors, or our properties;
creating, perfecting or enforcing any lien or encumbrance against us, our
successors or our properties;
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asserting any setoff, right of subrogation or recoupment of any kind
against any obligation due us, our successors or our properties; and
commencing or continuing any action in any manner, in any place that does
not comply with or is inconsistent with the provisions of the plan or the
confirmation order.
Any person injured by any willful violation of such injunction may recover
actual damages, including costs and attorneys' fees and, in appropriate
circumstances, may recover punitive damages from the willful violator.
REVESTING OF ASSETS AND OPERATIONS OF PROPERTY
As of the effective date, all property of the estate shall revest in us free
and clear of all claims, liens, encumbrances and other interests of the holders
of claims and interests. Without limiting the generality of the foregoing, all
rights, privileges, entitlements, the authorizations, grants, permits, licenses,
easements, franchises, and other similar items which constitute part of, or are
necessary or useful in the operation of our property or business now conducted
by us (including our FCC licenses), will be vested in us on the effective date,
of the prepackaged plan and will thereafter be exercisable and usable by us to
the same and fullest extent they would have been exercisable and usable by us
before the petition date. From and after the effective date, we may operate our
business and use, acquire and dispose of property and settle and compromise
claims or interests without supervision by the Bankruptcy Court and free of any
restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those
restrictions expressly imposed by the plan and the confirmation order.
RETENTION OF CAUSES OF ACTION
Except to the extent such rights, claims, causes of action, defenses, and
counterclaims are expressly and specifically released in connection with the
plan, or in any settlement agreement approved during our reorganization case:
all rights, claims, causes of action, defenses, and counterclaims of or
accruing to us will remain our assets, whether or not litigation relating
thereto is pending on the effective date, and whether or not any such
rights, claims, causes of action, defenses, and counterclaims have been
listed or referred to in the plan, the schedules, or any other document
filed with the Bankruptcy Court, and
we do not waive, relinquish, or abandon (nor will we be estopped or
otherwise precluded from asserting) any right, claim, cause of action,
defense, or counterclaim: (a) whether or not such right, claim, cause of
action, defense, or counterclaim has been listed or referred to in the plan
or the schedules, or any other document filed with the Bankruptcy Court,
(b) whether or not such right, claim, cause of action, defense, or
counterclaim is currently known to us, and (c) whether or not a defendant
in any litigation relating to such right, claim, cause of action, defense,
or counterclaim filed a proof of claim in the reorganization case, filed a
notice of appearance or any other pleading or notice in the reorganization
case, voted for or against the prepackaged plan, or received or retained
any consideration under the prepackaged plan. Without in any manner
limiting the generality of the foregoing, notwithstanding any otherwise
applicable principle of law or equity, including, without limitation, any
principles of judicial estoppel, res judicata, collateral estoppel, issue
preclusion, or any similar doctrine, the failure to list, disclose,
describe, identify, or refer to a right, claim, cause of action, defense,
or counterclaim, or potential right, claim, cause of action, defense, or
counterclaim, in the plan, the schedules, or any other document filed with
the bankruptcy court will in no manner waive, eliminate, modify, release,
or alter our right to commence, prosecute, defend against, settle, and
realize upon any rights, claims, causes of action, defenses, or
counterclaims that we have or may have, as of the confirmation date. We may
commence, prosecute, defend against, settle, and realize upon any rights,
claims, causes of action, defenses, and counterclaims in our sole
discretion, in accordance with what is in our best interests.
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OBJECTIONS TO CLAIMS AND INTERESTS/DISTRIBUTIONS
The prepackaged plan provides that we may object to the allowance of claims
or interests filed with the bankruptcy court and that after the date the
prepackaged plan becomes effective only we may object to the allowance of claims
and interests. Such objections may be resolved by a final order or by compromise
or settlement. We, on the one hand, or the holder of any disputed claim, on the
other hand, may seek resolution and/or enforcement of an unimpaired disputed
claim (other than a claim arising from the rejection of an unexpired lease or
executory contract), if proof of the claim is timely filed, in the bankruptcy
court, or, if no proof of claim is timely filed, in any other court of competent
jurisdiction, either before or after the date the prepackaged plan becomes
effective. Rejection claims may be resolved only in the bankruptcy court
pursuant to the provisions of the prepackaged plan.
At such time as a disputed claim or disputed interest becomes an allowed
claim or allowed interest, in whole or in part, the prepackaged plan provides
that the holder of such claim or interest will receive on the distribution date
the property that would have been distributed to such holder on the date the
prepackaged plan becomes effective if such allowed claim or allowed interest was
an allowed claim or allowed interest on the date the prepackaged plan becomes
effective.
LIMITATION OF LIABILITY
Except as otherwise provided in the plan or the confirmation order, neither
us, the committee established by the bankruptcy court, the informal creditors'
committee, any signatory to the lockup agreement nor any of their respective
officers, directors, members or employees (acting in such capacity), nor any
professional persons employed by any of them shall have or incur any liability
to any entity or person for any action taken or omitted to be taken in
connection with or related to our reorganization case, the formulation,
preparation, dissemination, solicitation, confirmation or consummation of the
prepackaged plan, the lockup agreement, or any other action taken or omitted to
be taken in connection with the plan or the prepetition restructuring efforts;
provided that the foregoing will have no effect on the liability of any entity
that would otherwise result from any such act or omission to the extent that
such act or omission is determined in a final order to have constituted gross
negligence or willful misconduct.
RETENTION OF JURISDICTION
The prepackaged plan provides that the bankruptcy court will retain and have
jurisdiction of all matters arising in, arising under, and related to our
reorganization case and the prepackaged plan pursuant to, and for the purposes
of, Sections 105(a) and 1142 of the Bankruptcy Code.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
On the effective date of the prepackaged plan, and to the extent permitted
by applicable law, all of our executory contracts and unexpired leases will be
assumed in accordance with the provisions of Section 365 and Section 1123 of the
Bankruptcy Code, excluding:
any and all executory contracts or unexpired leases which are the subject
of separate motions filed pursuant to Section 365 of the Bankruptcy Code by
us prior to the commencement of the hearing on confirmation of the
prepackaged plan, and
all executory contracts or unexpired leases rejected prior to the entry of
the confirmation order of the bankruptcy court. Contracts or leases entered
into after the date of commencement of our reorganization case will be
performed by us in the ordinary course of business. In order to assume an
executory contract or unexpired lease, we must, if there has been a default
in such executory contract or unexpired lease, other than a default caused
solely by the filing of our reorganization case, at the time of assumption:
cure, or provide adequate assurance that we will cure such default,
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compensate or provide adequate assurance that we will promptly
compensate, a party to such contract or lease, for any actual pecuniary
loss to such party resulting from such default, and
provide adequate assurance of future performance under such contract or
lease.
Any claims arising out of the rejection of contracts or leases must be filed
with the bankruptcy court within 30 days after the later of (a) the entry of a
final order authorizing such rejection and (b) the confirmation date of the
prepackaged plan, or be forever barred. Each such claim will constitute a
Class 7 claim, to the extent such claim is allowed by the bankruptcy court.
Notwithstanding anything contained in the foregoing paragraph to the
contrary, the prepackaged plan provides that we will assume, on the date the
prepackaged plan becomes effective, our agreement with UBS Warburg LLC
concerning the engagement of UBS Warburg LLC by us to render financial advisory
services to us in connection with the recapitalization plan. We believe that we
will be able to satisfy the requirements for assumption of our agreement with
UBS Warburg LLC on the date the prepackaged plan becomes effective.
If the prepackaged plan is confirmed, we will remain responsible to pay UBS
Warburg LLC, subject to the approval of the bankruptcy court in accordance with
the applicable provisions of the Bankruptcy Code, the transaction fee. We are
also obligated to pay UBS Warburg LLC reasonable out-of-pocket expenses
(including counsel fees) and will retain certain indemnity obligations pursuant
to this agreement. We have paid the monthly fees owing under our agreement with
UBS Warburg LLC and have committed to continue to pay the monthly fees.
We currently intend to assume substantially all other executory contracts
and unexpired leases in accordance with their terms.
MISCELLANEOUS PREPACKAGED PLAN PROVISIONS
UNCLAIMED DISTRIBUTIONS
If any person entitled to receive common stock directly from the disbursing
agent cannot be located on the date the prepackaged plan becomes effective, such
common stock will be set aside and held by us. If such person is located within
two years after the date the prepackaged plan becomes effective, such common
stock will be paid or distributed to such person. If such person cannot be
located within two years after the date the prepackaged plan becomes effective
all unclaimed property held by the disbursing agent for holders of allowed note
and term loan claims will be returned to us, and we will retain such property
representing securities allocable to such holders of note and term loan claims
(excluding such property as may be reserved by any indenture trustee pursuant to
an indenture trustee charging lien pursuant to Section of the prepackaged
plan). All such property which is so returned to us will be canceled, and all
other unclaimed property will be returned to us, and the claim of any holder
with respect to such property will be discharged and forever barred.
SOURCES AND USES OF FUNDS
We estimate that approximately $45 million will be required to make the cash
payments that are to be made pursuant to the provisions of the prepackaged plan,
i.e., the cash required to pay administrative claims, trade claims and employee
expenses during our reorganization case. We estimate that our existing cash will
be sufficient to cover our cash obligations under the prepackaged plan, as well
as provide us with sufficient working capital to meet our ongoing obligations
and any additional cash needs.
TREATMENT OF TRADE CREDITORS AND EMPLOYEES DURING OUR REORGANIZATION CASE
WE INTEND PROMPTLY FOLLOWING THE COMMENCEMENT OF OUR REORGANIZATION CASE TO
SEEK BANKRUPTCY COURT APPROVAL OF VARIOUS MEASURES DESIGNED TO ENSURE THAT OUR
TRADE CREDITORS AND EMPLOYEES ARE UNAFFECTED BY THE FILING.
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We intend to seek the approval of the bankruptcy court, promptly following
the commencement of our reorganization case, to make payments in the ordinary
course of business in respect of claims of trade creditors. There can be no
assurance, however, that the bankruptcy court will permit an early payment of
the claims of trade creditors. IN ANY EVENT, THE PREPACKAGED PLAN PROVIDES THAT
VALID CLAIMS OF TRADE CREDITORS ARE TO BE PAID IN FULL AND THAT THE HOLDERS OF
SUCH CLAIMS WILL NOT BE REQUIRED TO FILE A PROOF OF CLAIM OR TAKE ANY OTHER
FORMAL ACTION TO OBTAIN SUCH PAYMENT.
Salaries, wages, expense reimbursements, accrued paid vacations,
health-related benefits, severance benefits and similar benefits of our
employees will be unaffected by the prepackaged plan. To ensure the continuity
of our work force and to further accommodate the unimpaired treatment of
employee benefits, we intend to seek the approval of the bankruptcy court,
promptly following the commencement of our reorganization case, to pay all
accrued prepetition salaries or wages, expense reimbursements and severance
benefits, to permit employees to utilize their paid vacation time which accrued
prior to the commencement of our reorganization case (so long as they remain our
employees) and to continue paying medical benefits under our health plans. There
can be no assurance that the bankruptcy court will permit early payment of
employee claims and health benefits. IN ANY EVENT, THE PREPACKAGED PLAN PROVIDES
FOR ALL EMPLOYEE CLAIMS AND BENEFITS TO BE PAID OR HONORED NO LATER THAN THE
DATE ON OR AFTER THE DATE THE PREPACKAGED PLAN BECOMES EFFECTIVE WHEN SUCH
PAYMENT OR OTHER OBLIGATION BECOMES DUE AND PERFORMABLE. EMPLOYEES SHALL NOT BE
REQUIRED TO FILE A PROOF OF CLAIM OR TAKE ANY OTHER FORMAL ACTION TO OBTAIN SUCH
PAYMENT.
We estimate that payments to trade creditors and employees will total
approximately $20 million over 45 days.
In addition to any orders relating to the payment of prepetition claims of
trade creditors, customers and employees, before the date the bankruptcy
petition is filed, we intend to seek certain orders very shortly after
commencement of our reorganization case, including the following (if necessary):
an order authorizing the retention of professionals (including accountants,
attorneys and financial advisors) in connection with our reorganization
case;
an order authorizing the retention of ordinary course professionals without
the filing of individual retention applications and affidavits;
an order authorizing us (a) to continue our current cash management system,
(b) to maintain prepetition bank accounts and (c) to continue use of
existing business forms and existing books and records;
an order to permit us to use our current internal financial records and to
be relieved from the filing of certain forms and schedules otherwise
required by the 'United States Trustee Operating Guidelines and Reporting
Requirements' (the 'Guidelines') to the extent the Guidelines are
inconsistent with such current internal financial records;
an order authorizing us to continue our current investment guidelines and
invest our available cash in the customary manner and consistent with past
practices;
an order fixing the dates for the hearings on approval of this Proxy
Statement and the prepackaged plan solicitation and confirmation of the
prepackaged plan;
an order enjoining the continuation of collection or other enforcement
actions against us pending confirmation of the prepackaged plan; and
such other orders as are typical in reorganization cases or that may be
necessary for the preservation of our assets or for confirmation of the
prepackaged plan.
The orders will be sought pursuant to accompanying applications and, if
appropriate, memoranda of law. The foregoing list is subject to change depending
upon our needs in connection with our operations during our reorganization case.
Failure of the bankruptcy court to enter one or more of these orders, or a delay
in doing so, could result in our reorganization case becoming protracted and
could delay, perhaps materially, the hearing on, and the ultimate confirmation
of, the prepackaged plan.
62
TREATMENT OF HOLDERS OF CERTAIN INDEMNITY CLAIMS
We believe that our obligations to indemnify our present and former
directors, controlling persons, officers, affiliates, employees, advisors or
agents against any obligation pursuant to our certificate of incorporation,
bylaws, applicable state law or any specific agreement, or any combination of
the foregoing, would constitute general unsecured claims in Class 7 under the
prepackaged plan, which are unimpaired and which survive the confirmation of the
prepackaged plan. The prepackaged plan provides specifically with regard to such
indemnity claims that they will survive confirmation of the prepackaged plan,
remain unaffected thereby, and not be discharged, regardless of whether
indemnification is owed in connection with an event occurring before or after
the commencement of our reorganization case. We currently have obligations
pursuant to our certificate of incorporation, bylaws and by specific agreement
to indemnify such persons against any and all claims that may be made against
them as a result of their services to us to the extent permitted by the laws of
the State of Delaware. It is our intention that this obligation to indemnify
extend to the fullest extent permitted by Sections 1123 and 1141 of the
Bankruptcy Code. This indemnification is in addition to, and does not supersede,
the 'safe harbor' from liability provided by Section 1125(e) of the Bankruptcy
Code for violation of applicable laws governing the solicitation of votes on a
plan or the offer, issuance, sale or purchase of securities in connection with a
plan.
Pursuant to Section 502(e) of the Bankruptcy Code, the bankruptcy court will
disallow any claim for reimbursement or contribution of an entity that is liable
with the debtor on or has secured the claim of a creditor, to the extent that
such claim is contingent as of the time of allowance or disallowance. Although
we are unaware of any indemnification claims discussed above which may be for
reimbursement or contribution of an entity that is liable with us on or has
secured the claim of a creditor and which are contingent, should any such claims
arise before the commencement of our reorganization case, and should the holder
of any such claim elect to file proof of their claim pursuant to the prepackaged
plan, then such claim should be disallowed if contingent at the time of its
consideration by the bankruptcy court. However, should the holder of any such
claim elect not to file proof of their claim pursuant to the prepackaged plan,
then the holder of such claim will be entitled to enforce their claim outside
bankruptcy court at such time as their claim becomes non-contingent, in which
case the provisions of Section 502(e) of the Bankruptcy Code will have no
application.
THE PREPACKAGED PLAN SOLICITATION
Upon the terms and subject to the conditions set forth herein, we are
soliciting acceptances of the prepackaged plan from beneficial holders on the
voting record date of Classes 2, 3, 5, 8 and 9. Procedures for voting by
beneficial owners of securities in these classes and, if a beneficial owner is
not also the record holder, procedures for voting in conjunction with such
record holder, are discussed below. The term 'beneficial owner' includes any
person who has or shares, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise, the power to vote or
direct the voting of a security or other claim and/or dispose or direct the
disposition of a security even though such person may not be the registered
holder or holder of record on our books as of the close of business on the
'voting record date.' For purposes hereof, 'record holder' means a holder in
whose name a security is registered or held of record on our books as of the
close of business on the voting record date. The voting record date for purposes
of voting on the prepackaged plan is 5:00 p.m., New York City time, on
, , 2002.
VOTING BY HOLDERS
Record holders of the securities in Classes 8 and 9 will receive with this
Proxy Statement a form of ballot to be used for voting to accept or reject the
prepackaged plan. In addition, record holders who are likely to be brokerage
firms, commercial banks, trust companies or other nominees (collectively,
'nominees') will receive a form of master ballot which is to be used by nominees
to record the votes of the beneficial owners for whom they hold the notes.
Beneficial
63
owners who are not the record holders on the voting record date will vote on the
prepackaged plan through their respective record holders by returning to the
nominee a completed ballot for inclusion by such nominee in the total voted by
such nominee on the corresponding master ballot.
Record holders of the securities who are also beneficial owners should
complete the ballot they receive and return it to the voting agent in the
envelope provided so that it is received by the voting agent no later than the
solicitation expiration date.
Nominees will receive, in addition to this Proxy Statement, a form of ballot
which beneficial owners will use to instruct their nominees to cast their votes
for or against the prepackaged plan. Nominees should (a) promptly provide copies
of this Proxy Statement and the ballot to their beneficial owners who are their
customers or who are the beneficial owners for whose account they hold, and (b)
request such beneficial owners to vote on the prepackaged plan and to forward a
properly completed ballot, as instructed by such nominee, to the nominee.
A nominee collecting the ballots of its customers should instruct its
customers to return their ballots to the nominee and should compile the votes of
the beneficial owners who return executed ballots. Any such nominee should
complete a master ballot indicating the total amount of securities and number of
beneficial owners of such securities for which it received ballots, and the
total amount of securities and the number of beneficial owners of such
securities voted to accept or to reject the prepackaged plan, and return such
master ballot to the voting agent, prior to the solicitation expiration date.
The nominee should also retain all ballots it receives from its beneficial
owners for disclosure to the bankruptcy court if necessary. A nominee who is
also the beneficial owner of securities, registered in its own name on the
voting record date, should execute a ballot to cast its own vote and then record
that vote on the master ballot to be returned.
THE DECISION TO VOTE ON THE PREPACKAGED PLAN IS COMPLETELY INDEPENDENT FROM
THE DECISION OF WHETHER TO VOTE IN FAVOR OF THE RESTRUCTURING PROPOSALS. A VOTE
IN FAVOR OF THE RESTRUCTURING PROPOSALS WILL NOT CONSTITUTE AN ACCEPTANCE OR
REJECTION OF THE PREPACKAGED PLAN. THEREFORE, ALL HOLDERS OF OUR COMMON AND
PREFERRED STOCK ARE ENCOURAGED TO VOTE TO ACCEPT OR REJECT THE PREPACKAGED PLAN
REGARDLESS OF WHETHER THEY CHOOSE TO PARTICIPATE IN THE PROXY SOLICITATION.
PLEASE NOTE THAT A VOTE BY A HOLDER OF OUTSTANDING SECURITIES TO ACCEPT THE
PREPACKAGED PLAN OR A FAILURE TO OBJECT TO CONFIRMATION OF THE PREPACKAGED PLAN
DOES NOT CONSTITUTE THE ACCEPTANCE OR ACKNOWLEDGEMENT BY THE HOLDER OF THE
ACCURACY OF ANY OF THE STATEMENTS, REPRESENTATIONS, VALUATIONS, FORECASTS OR
OTHER INFORMATION CONTAINED IN THIS PROXY STATEMENT AND MAY NOT BE USED BY US OR
ANY OTHER PERSON AS AN ADMISSION OF ANY KIND ON THE PART OF THE HOLDER. A VOTE
BY ANY SUCH HOLDER TO ACCEPT THE PREPACKAGED PLAN MAY BE USED BY US SOLELY FOR
PURPOSES OF DETERMINING AND REPRESENTING TO THE BANKRUPTCY COURT THE ACCEPTANCE
OR REJECTION OF THE PREPACKAGED PLAN BY THE CLASS INTO WHICH SUCH HOLDER'S CLAIM
OR INTEREST HAS BEEN PLACED.
Any beneficial owner of a security who acquired such security after the
voting record date and who wishes to vote on the prepackaged plan must arrange
to vote with its transferor by delivery to it of the ballot duly executed in
blank by (or a duly executed proxy from) the beneficial owner of such security
on the voting record date.
Please see the ballots, master ballots and accompanying instructions for
more detailed instructions for completing and executing the ballots and master
ballots.
SOLICITATION EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The solicitation of votes on the prepackaged plan pursuant to this Proxy
Statement will expire on the solicitation expiration date, which is 5:00 p.m.,
New York City time, on ,
64
2003 unless such date is extended as set forth below, in which case the date to
which it is extended shall be the solicitation expiration date. Except to the
extent we so determine and as permitted by the bankruptcy court, ballots that
are received after 5:00 p.m., New York City time, on the solicitation expiration
date will not be accepted or used by us in connection with our request for
confirmation of the prepackaged plan.
We expressly reserve the right, at any time or from time to time, to extend
the period of time for which the solicitation of acceptances of the prepackaged
plan is to remain open by giving oral or written notice to the voting agent of
such extension. Any extension of the expiration of the solicitation period will
be followed by a public announcement thereof prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled solicitation
expiration date. Without limiting the manner in which we may choose to make the
public announcement, we will not have any obligation, unless otherwise required
by law, to publish, advertise or otherwise communicate any such public
announcement other than by making a timely release to the Dow Jones News
Service. There can be no assurance that we will exercise this right to extend
the solicitation period. During any extension of the prepackaged plan
solicitation, all ballots previously given will remain subject to all the terms
and conditions of the prepackaged plan solicitation, including the withdrawal
and revocation rights specified herein.
We expressly reserve the right to amend, at any time and from time to time,
the terms of the prepackaged plan solicitation or to terminate the prepackaged
plan solicitation and not accept any ballots or master ballots. If we make a
material change in the terms of the prepackaged plan solicitation, we will
disseminate additional solicitation materials and will extend the solicitation
period, in each case to the extent required by law.
TERMINATION
Notwithstanding any provisions of the prepackaged plan solicitation, we will
not be required to accept any ballot or master ballot and we may terminate this
prepackaged plan solicitation at our option at any time on or after the date of
the commencement of the prepackaged plan solicitation. Any termination of the
prepackaged plan solicitation prior to the solicitation expiration date will be
followed by a public announcement thereof not later than 9:00 a.m., New York
City time, on the next business day after such termination.
AGREEMENTS UPON FURNISHING BALLOTS
The delivery of a ballot by a beneficial owner or record holder in
accordance with the procedures set forth herein will constitute an agreement
between such person or entity and us to accept all the terms of, and conditions
to, this prepackaged plan solicitation.
In addition, by executing and delivering a ballot to a brokerage firm,
commercial bank, trust company or other nominee for the purpose of reflecting a
vote in such nominee's master ballot, a beneficial owner will authorize and
consent to the delivery of such beneficial owner's ballot to the voting agent by
such brokerage firm, commercial bank, trust company, or other nominee upon the
written request therefor by us or the voting agent.
MISCELLANEOUS
ANY BALLOT THAT IS EXECUTED AND RETURNED BUT DOES NOT INDICATE AN ACCEPTANCE
OR REJECTION OF THE PREPACKAGED PLAN (OR THAT INDICATES BOTH AN ACCEPTANCE AND A
REJECTION OF THE PREPACKAGED PLAN) WILL BE DEEMED TO CONSTITUTE AN ABSTENTION
WITH RESPECT TO THE PREPACKAGED PLAN. FAILURE BY A BENEFICIAL OWNER OR RECORD
HOLDER TO SEND A SIGNED BALLOT WILL ALSO BE DEEMED TO CONSTITUTE AN ABSTENTION
WITH RESPECT TO THE PREPACKAGED PLAN.
ANY BALLOT OR MASTER BALLOT THAT IS EXECUTED, RETURNED AND INDICATES EITHER
AN ACCEPTANCE OR REJECTION OF THE PREPACKAGED PLAN BUT IN WHICH THE INFORMATION
PERTAINING TO THE SECURITIES BEING VOTED HAS BEEN MISSTATED OR IS NOT STATED BY
THE OWNER WILL BE DEEMED TO CONSTITUTE A VOTE OF THE TOTAL AMOUNT OF THE
SECURITIES
65
HELD OF RECORD OR HELD THROUGH A NOMINEE BY THE OWNER AND WHICH COULD VALIDLY
HAVE BEEN VOTED BY SAID BALLOT OR MASTER BALLOT, AS INDICATED.
Unless a ballot or master ballot is completed acceptably and timely
submitted to the voting agent on or prior to the solicitation expiration date,
together with any other documents required by such ballot, we may, unless the
bankruptcy court determines otherwise, in our sole discretion, reject such
ballot or master ballot as invalid and, therefore, decline to utilize it in
connection with seeking confirmation of the prepackaged plan by the bankruptcy
court. For more specific information regarding the address to which the
ballot(s) should be returned, refer to the instructions accompanying the
ballot(s) or master ballot(s) or contact the voting agent at any of its
addresses or phone numbers set forth on the back cover of this Proxy Statement.
IN NO CASE SHOULD A BALLOT BE DELIVERED TO US OR THE INFORMATION AGENT.
IF YOU HAVE ANY QUESTIONS AS TO VOTING ON THE PREPACKAGED PLAN, CONTACT THE
VOTING AGENT OR THE INFORMATION AGENT AT THEIR ADDRESSES OR PHONE NUMBERS SET
FORTH ON THE BACK COVER OF THIS PROXY STATEMENT.
CERTIFICATIONS
By executing and returning a ballot, a person or entity
will certify that such person or entity is the beneficial owner on the
voting record date (or has a duly executed proxy from such beneficial
owner) of the claims or interests being voted and that such person or
entity has full power and authority to vote to accept or to reject the
prepackaged plan;
will certify that such person or entity has received and/or has had an
opportunity to review a copy of this Proxy Statement and the other
applicable solicitation materials and will acknowledge that the prepackaged
plan solicitation is being made pursuant to the terms and conditions set
forth therein;
in the case of a ballot for a class of note claims, will certify that such
person or entity either (a) is not submitting any other ballots with
respect to securities of the same class, held in other accounts or other
record names, or (b) is providing the names of, aggregate number of
accounts with, and principal amount of all notes held by each record holder
on its behalf on the voting record date and the number of ballots submitted
on its behalf, and, in each case, that such person or entity has cast the
same vote on all ballots to be submitted on its behalf with respect to the
securities that it owns within a given class, and acknowledges that its
vote with respect to such securities within a given class will be counted
once in determining whether the requisite number of beneficial owners of
such class voted to accept the prepackaged plan; and
will acknowledge that the submission of a ballot will constitute a request
of the beneficial owner to be treated as the holder of record of the
securities to which such ballot related within the meaning of Bankruptcy
Rule 3018(b).
A broker, dealer, commercial bank, trust company or other nominee which is a
record holder of notes will prepare, execute and deliver master ballot(s) to the
voting agent to reflect the votes of the beneficial owners for whom it holds
securities. By executing and returning a master ballot(s) such nominee:
will certify that each such master ballot is an accurate compilation of the
information included in the completed and executed ballots received from
its beneficial owners;
will certify that such nominee will retain in its files for disclosure to
the bankruptcy court, if ordered, all ballots submitted to it, or copies
thereof, until the earlier to occur of the entry of a final order
confirming the prepackaged plan or the entry of a final decree closing our
reorganization case;
66
will certify that such nominee has provided a copy of the Proxy Statement
and other applicable solicitation materials to each beneficial owner
included in such master ballot and will acknowledge that the solicitation
is subject to all the terms and conditions set forth in the Proxy
Statement;
will certify that such nominee has received a duly completed and executed
ballot, including all certifications required therein, from each beneficial
owner included in such master ballot;
will certify that such nominee is the record holder (or holds a written
proxy to vote on behalf of such record holder) of the securities included
in each such master ballot and/or has full power and authority to vote to
accept or to reject the prepackaged plan and will acknowledge that the
submission of such master ballot will constitute a request of such nominee
to be treated as the holder of record of the securities to which such
master ballot relates within the meaning of Bankruptcy Rule 3018(b); and
will provide the total amount of securities in each respective master
ballot voted to accept and voted to reject the prepackaged plan.
WAIVER OF IRREGULARITIES
Unless otherwise directed by the bankruptcy court, all questions as to the
validity, form, eligibility (including time of receipt), acceptance and
revocation or withdrawal of master ballots or ballots will be determined in our
sole discretion, which determination will be final and binding. We also
expressly reserve the right to reject any and all master ballots or ballots not
in proper form the acceptance of which would, in our opinion or in the opinion
of our counsel, be unlawful. We further expressly reserve the right to waive any
defects or irregularities or conditions of delivery as to any particular master
ballot or ballot. Our interpretation (including of the master ballot or ballot
and the respective instructions thereto), unless otherwise directed by the
bankruptcy court, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with deliveries of master ballots or
ballots must be cured within such time as we (or the bankruptcy court)
determine. Neither we nor any other person will be under any duty to provide
notification of defects or irregularities with respect to deliveries of, nor
notices of revocation or withdrawal of master ballots or ballots, nor will any
of them incur any liabilities for failure to provide such notifications. Unless
otherwise directed by the bankruptcy court, delivery of such master ballots or
ballots will not be deemed to have been made until such irregularities have been
cured or waived. Master ballots or ballots previously furnished (and as to which
any irregularities have not been cured or waived) will be invalidated.
WITHDRAWAL; REVOCATION RIGHTS
Acceptances or rejections may be withdrawn or revoked at any time prior to
the solicitation expiration date by the beneficial owner on the voting record
date who completed the original master ballot or ballot, or by the nominee who
completed the master ballot in such beneficial owner's name, as the case may be.
We do not intend to commence a reorganization case prior to the solicitation
expiration date, although we reserve the right to do so in our sole discretion.
After commencement of our reorganization case, withdrawal or revocation of votes
accepting or rejecting the prepackaged plan may be effected only with the
approval of the bankruptcy court.
Acceptances or rejections in regard to the prepackaged plan may be withdrawn
or revoked prior to commencement of our reorganization case by complying with
the following procedures: (1) a beneficial owner of notes should deliver a
written notice of withdrawal or revocation to such record holder for endorsement
and delivery to the voting agent and (2) a record holder of notes who voted
securities held for their own account should deliver a written notice of
withdrawal or revocation to the voting agent. To be effective, a notice of
revocation and withdrawal must:
be timely received by the voting agent at one of the addresses specified
herein,
specify the name and/or customer account number of the beneficial owner
whose vote on the prepackaged plan is being withdrawn or revoked,
67
contain the description of the claim as to which a vote on the prepackaged
plan is withdrawn or revoked, and
be signed by the beneficial owner of the claim who executed the ballot
reflecting the vote being withdrawn or revoked, or by the nominee who
executed the master ballot reflecting the vote being withdrawn or revoked,
as applicable, in each case in the same manner as the original signature on
the ballot or master ballot, as the case may be.
After the commencement of our reorganization case, a notice of withdrawal of
a previously furnished ballot or master ballot will not be effective without the
approval of the bankruptcy court.
FEES AND EXPENSES
Arrangements may be made with brokerage firms and other custodians, nominees
and fiduciaries to forward the material regarding the prepackaged plan
solicitation to beneficial owners. We will reimburse such agents for reasonable
out-of-pocket expenses incurred by them, but no compensation will be paid for
their services.
The information agent will act as information agent for the prepackaged plan
solicitation and the voting agent will act as ballot agent with respect to votes
by all classes that are voting. The voting agent will receive reasonable and
customary compensation for its services, will be reimbursed for reasonable
out-of-pocket expenses and will be indemnified against certain expenses in
connection therewith. All questions regarding the prepackaged plan solicitation
should be directed to the information agent. All deliveries to the voting agent
relating to the prepackaged plan solicitation should be directed to the address
set forth on the back cover of this Proxy Statement.
REQUESTS FOR INFORMATION OR ADDITIONAL COPIES OF THIS PROXY STATEMENT,
VOTING INSTRUCTIONS, MASTER BALLOTS OR BALLOTS SHOULD BE DIRECTED TO THE
INFORMATION AGENT AT ANY OF ITS ADDRESSES OR PHONE NUMBERS SET FORTH ON THE BACK
COVER OF THIS PROXY STATEMENT.
RESTRICTION ON TRANSFER OF SECURITIES
The securities to be issued pursuant to the prepackaged plan may be freely
transferred by most recipients thereof, and all resales and subsequent
transactions in the new securities will be exempt from registration under
federal and state securities laws, unless the holder is an 'underwriter' with
respect to such securities. Section 1145(b) of the Bankruptcy Code defines four
types of 'underwriters':
(1) persons who purchase a claim against, an interest in, or a claim for
administrative expense against the debtor with a view to distributing
any security received in exchange for such a claim or interest;
(2) persons who offer to sell securities offered under a plan for the
holders of such securities;
(3) persons who offer to buy such securities for the holders of such
securities, if the offer to buy is (a) with a view to distributing such
securities or (b) made under a distribution agreement; and
(4) a person who is an 'issuer' with respect to the securities, as the term
'issuer' is defined in Section 2(11) of the Securities Act.
Under Section 2(11) of the Securities Act, an 'issuer' includes any person
directly or indirectly controlling or controlled by the issuer, or any person
under direct or indirect common control with the issuer.
To the extent that persons deemed to be 'underwriters' receive securities
pursuant to the prepackaged plan, resales by such persons would not be exempted
by Section 1145 of the Bankruptcy Code from registration under the Securities
Act or other applicable law. Persons deemed to be 'underwriters,' however, may
be able to sell such securities without registration, subject to the provisions
of Rule 144 or Rule 148 under the Securities Act, both of which permit the
public sale of securities received pursuant to the prepackaged plan by
'underwriters,' subject
68
to the availability to the public of current information regarding the issuer,
volume limitations and certain other conditions.
Whether or not any particular person would be deemed to be an 'underwriter'
with respect to any security to be issued pursuant to the prepackaged plan would
depend upon various facts and circumstances applicable to that person.
Accordingly, we express no view as to whether any person would be an
'underwriter' with respect to any security to be issued pursuant to the
prepackaged plan.
GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR
PERSON MAY BE AN UNDERWRITER, WE MAKE NO REPRESENTATION CONCERNING THE RIGHT OF
ANY PERSON TO TRADE IN THE COMMON STOCK TO BE DISTRIBUTED PURSUANT TO THE
PREPACKAGED PLAN. WE RECOMMEND THAT POTENTIAL RECIPIENTS OF COMMON STOCK CONSULT
THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY TRADE SUCH SECURITIES FREELY.
SECURITIES LAW MATTERS
To the extent that the issuance, transfer or exchange of the securities to
be issued under the prepackaged plan are not exempt under Section 1145 of the
Bankruptcy Code, the issuance, transfer and exchange of the securities to be
issued under the prepackaged plan will be made by us in reliance upon the
exemption from the registration requirements of the Securities Act, afforded by
Rule 506 under the Securities Act.
CERTAIN TRANSACTIONS BY STOCKBROKERS
Under Section 1145(a)(4) of the Bankruptcy Code, stockbrokers are required
to deliver a copy of the prospectus relating to the exchange offer (and
supplements thereto, if any, if ordered by the bankruptcy court) at or before
the time of delivery of securities issued under the prepackaged plan to their
customers for the first 40 days after the date the prepackaged plan becomes
effective. This requirement specifically applies to trading and other
aftermarket transactions in such securities.
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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated historical financial data shown below as of and
for the years ended December 31, 1997, 1998, 1999, 2000 and 2001 are derived
from our respective audited consolidated financial statements. The selected
consolidated historical financial data shown below as of and for the nine months
ended September 30, 2001 and 2002 are derived from our unaudited consolidated
financial statements. In the opinion of management, the unaudited selected
consolidated financial statements include all adjustments, consisting of normal
recurring adjustments that are necessary for a fair presentation of our
consolidated financial position and results of operations for these periods. The
selected consolidated historical financial data includes certain
reclassifications to conform to our current presentation. The selected
consolidated historical data should be read together with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the consolidated financial statements and related notes from our annual report
on Form 10-K for the year ended December 31, 2001 and our quarterly report on
Form 10-Q for the quarter ended September 30, 2002, both incorporated by
reference in this Proxy Statement.
NINE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- -------------------------
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues(1)........... $ -- $ -- $ -- $ -- $ -- $ -- $ 120
Operating expenses(2)........... (6,865) (39,079) (63,518) (125,634) (168,456) (116,618) (222,451)
Operating loss.................. (6,865) (39,079) (63,518) (125,634) (168,456) (116,618) (222,331)
Net loss(3)..................... (4,737) (48,396) (62,822) (134,744) (235,763) (163,057) (300,395)
Preferred stock dividends....... (2,338) (19,380) (30,321) (39,811) (41,476) (30,724) (33,494)
Preferred stock deemed
dividends(4)(5)................ (51,975) (11,676) (3,535) (8,260) (680) (509) (513)
Accretion of dividends in
connection with the issuance of
warrants on preferred stock.... -- (6,501) (303) (900) -- -- --
Net loss applicable to common
stockholders................... (59,050) (85,953) (96,981) (183,715) (277,919) (194,290) (334,402)
Net loss per share applicable to
common stockholders............ $ (5.08) $ (4.79) $ (3.96) $ (4.72) $ (5.30) $ (3.77) $ (4.41)
Weighted average common shares
outstanding (basic and
diluted)....................... 11,626 17,932 24,470 38,889 52,427 51,575 75,820
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents....... $ 900 $150,190 $ 81,809 $ 14,397 $ 4,726 $ 27,790 $ 63,966
Marketable securities(6)........ 169,482 115,433 317,810 121,862 304,218 335,310 184,732
Restricted investments(7)....... -- -- 67,454 48,801 21,998 28,419 7,200
Working capital................. 170,894 180,996 303,865 143,981 275,732 363,850 171,911
Total assets.................... 323,808 643,880 1,206,612 1,323,582 1,527,605 1,570,674 1,433,545
Short-term notes payable........ -- 70,863 114,075 -- -- -- --
Current portion of long-term
debt........................... -- -- -- -- 15,000 -- 41,500
Deferred satellite payments and
accrued interest............... -- 31,324 55,140 60,881 67,201 65,548 72,354
Long-term debt.................. 131,387 153,033 488,690 472,602 589,990 642,885 569,768
10 1/2% Series C Preferred
Stock.......................... 176,025 156,755 149,285 -- -- -- --
9.2% Series A Junior Cumulative
Convertible Preferred Stock.... -- 137,755 148,894 162,380 177,120 173,277 189,030
9.2% Series B Junior Cumulative
Convertible Preferred Stock.... -- -- 64,238 70,507 77,338 75,559 82,843
9.2% Series D Junior Cumulative
Convertible Preferred Stock.... -- -- -- 210,125 230,710 225,408 247,302
Accumulated deficit............. (23,273) (71,669) (134,491) (269,235) (504,998) (432,292) (805,393)
Stockholders' equity............ 15,980 77,953 134,179 290,483 322,649 344,047 170,404
---------
(1) We were a development stage company until we entered commercial operations
on February 14, 2002.
(2) Operating expenses include non-cash stock compensation expense of $ -- ,
$104, $1,206, $7,176, $14,044, $3,374 and a non-cash stock compensation
benefit of $7,995 for the years ended
(footnotes continued on next page)
70
(footnotes continued from previous page)
December 31, 1997, 1998, 1999, 2000 and 2001, and for the nine months ended
September 30, 2001 and 2002, respectively.
(3) Included in the 1998 net loss of $48,396 is $25,682 of special charges
related primarily to the termination of launch and orbit related contracts
required when we decided to enhance our satellite delivery system to include
a third in-orbit satellite.
(4) The deemed dividend in 1997 relates to the discount feature associated with
our former 5% Delayed Convertible Preferred Stock and the deemed dividend in
1998 relates primarily to the conversion feature associated with our 9.2%
Series A Junior Cumulative Convertible Preferred Stock. We computed these
deemed dividends in accordance with the SEC's position on accounting for
preferred stock which is convertible at a discount to the market price.
(5) Preferred stock deemed dividends for the years ended December 31, 1999 and
2000 relate primarily to the conversions of our 10 1/2% Series C Convertible
Preferred Stock for shares of our common stock.
(6) Marketable securities are stated at market and consist of fixed income
securities with a maturity at the time of purchase of greater than three
months.
(7) Restricted investments are stated at amortized cost and include securities
held by the trustee of our senior secured notes to pay interest in full on
those notes through May 15, 2002 and certificates of deposit pledged to
secure or reimbursement obligations under letters of credit required by
lessors and other creditors.
71
CAPITALIZATION
The following table sets forth our cash, restricted investments and
capitalization as of September 30, 2002 (1) on an actual basis and (2) as
adjusted to give effect to:
the recapitalization plan; and
the payment of related fees and expenses of $18.2 million, of which $3.5
million was paid before September 30, 2002.
To better understand this table, you should review 'Selected Consolidated
Historical Financial Data' and 'Unaudited Pro Forma Consolidated Financial Data'
in this Proxy Statement and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the consolidated financial statements
and related notes from our annual report on Form 10-K for the year ended
December 31, 2001 and our quarterly report on Form 10-Q for the quarter ended
September 30, 2002, both incorporated by reference in this Proxy Statement. The
'as adjusted' data assumes that 100% of our outstanding debt securities and
preferred stock are exchanged for common stock.
AS OF SEPTEMBER 30, 2002
-------------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(IN THOUSANDS)
Cash, cash equivalents and marketable securities(1)......... $ 248,698 $ 433,998
---------- ----------
---------- ----------
Restricted investments(2)................................... $ 7,200 $ 7,200
---------- ----------
---------- ----------
Debt securities:
Senior secured discount notes........................... $ 273,073 $ --
Senior secured notes.................................... 178,618 --
Lehman senior term loans(3)............................. 143,116 --
Loral senior term loans................................. 72,354 --
Convertible subordinated notes.......................... 16,461 --
---------- ----------
Total debt securities............................... 683,622 --
---------- ----------
9.2% Series A Junior Cumulative Convertible Preferred
Stock..................................................... 189,030 --
9.2% Series B Junior Cumulative Convertible Preferred
Stock..................................................... 82,843 --
9.2% Series D Junior Cumulative Convertible Preferred
Stock..................................................... 247,302 --
Stockholders' equity
Common stock, at par value, $0.001 per share(4)......... 77 962
Additional paid-in capital(4)........................... 975,057 2,162,217
Accumulated other comprehensive income.................. 663 663
Accumulated deficit(5).................................. (805,393) (608,451)
---------- ----------
Total capitalization................................ $1,373,201 $1,555,391
---------- ----------
---------- ----------
---------
(1) Marketable securities are stated at market value and consist of fixed income
securities with a maturity at the time of purchase of greater than three
months.
(2) Restricted investments include certificates of deposit pledged to secure our
reimbursement obligations under letters of credit required by lessors and
other creditors.
(3) The book value, as shown above, includes the current and long-term portions
of the Lehman senior term loans and excludes the unamortized value of the
warrants issued in connection with the Lehman senior term loans.
(4) Actual numbers exclude: (a) 12,974,163 shares of common stock issuable upon
the exercise of outstanding and unexercised options as of September 30,
2002, (b) 8,000,000 shares of common stock issuable upon the exercise of
warrants held by Ford Motor Company and DaimlerChrysler Corporation,
(c) 2,100,000 shares of common stock issuable upon the exercise of warrants
held by Lehman, (d) 4,233,389 shares of common stock issuable upon the
exercise of other warrants, (e) 578,341 shares of common stock issuable upon
the conversion of our convertible subordinated notes and (f) 15,304,976
shares of common stock issuable upon
(footnotes continued on next page)
72
(footnotes continued from previous page)
conversion of our preferred stock. Our convertible subordinated notes and
all shares of our preferred stock are expected to be exchanged for common
stock in the restructuring. As a result, as adjusted numbers include common
stock issuable in the exchange offer in respect of our convertible
subordinated notes and preferred stock but exclude the other shares itemized
in the first sentence of this footnote.
(5) The accumulated deficit has been adjusted due to an estimated gain on the
exchange of debt for common stock. We have estimated the gain on the
exchange of debt to be $196,942, based on the assumption that the market
value of our common stock on the closing date of the restructuring will be
$0.77, the closing market price on October 21, 2002. See 'Accounting
Treatment of the Restructuring -- Exchange of Debt Securities for Common
Stock' for further discussion regarding the calculation of the gain on the
exchange of debt for common stock.
73
UNAUDITED PRO FORMA FINANCIAL DATA
The following pro forma consolidated financial data for the year ended
December 31, 2001 and as of and for the nine months ended September 30, 2002 has
been derived by the application of pro forma adjustments to our historical
consolidated financial statements incorporated by reference in this Proxy
Statement. The pro forma consolidated financial data is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had the
recapitalization occurred at the beginning of the periods presented, nor is it
indicative of our future financial position or results of operations. The
historical consolidated financial data includes certain reclassifications to
conform to our current presentation.
The pro forma consolidated balance sheet as of September 30, 2002 gives
effect to the recapitalization plan and the payment of related fees and expenses
as if each had occurred on the date of the consolidated balance sheet.
The pro forma consolidated statements of operations for the year ended
December 31, 2001, and the nine months ended September 30, 2002, give effect to
the recapitalization plan and the payment of related fees and expenses as if
each had occurred at the beginning of each period presented and excludes the
effects of non-recurring adjustments relating to the restructuring.
We have prepared the pro forma consolidated financial data assuming that the
restructuring will occur either by means of the recapitalization plan or the
prepackaged plan.
The pro forma consolidated financial data does not purport to represent what
our interim consolidated financial position or results of operations would have
actually been had the recapitalization plan in fact been completed on that date,
or to project our results of operations for any future period. The pro forma
consolidated financial data is unaudited and based on assumptions that we
believe are reasonable and should be read in conjunction with 'Capitalization'
on page 72, and our consolidated financial statements and related notes from our
annual report on Form 10-K for the year ended December 31, 2001 and our
quarterly report on Form 10-Q for the quarter ended September 30, 2002, both
incorporated by reference in this Proxy Statement. The pro forma consolidated
financial data assumes that 100% of our outstanding debt securities and
preferred stock are exchanged for common stock.
74
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2002
(IN THOUSANDS)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 63,966 $ (8,985)(1) $ 249,266
(1,210)(2)
200,000 (3)
(4,505)(3)
Marketable securities, at market................... 184,732 -- 184,732
Prepaid expense.................................... 20,813 -- 20,813
Other current assets............................... 1,985 (1,595)(3) 390
---------- ---------- ----------
Total current assets................................... 271,496 183,705 455,201
Property and equipment, net........................ 1,056,932 -- 1,056,932
FCC license........................................ 83,654 -- 83,654
Restricted investments, long-term.................. 7,200 -- 7,200
Other long-term assets............................. 14,263 (13,765)(1) 498
---------- ---------- ----------
Total assets........................................... $1,433,545 $ 169,940 $1,603,485
---------- ----------
---------- ---------- ----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............. $ 44,435 $ -- $ 44,435
Accrued interest................................... 12,250 (12,250)(1) --
Satellite construction payable..................... 1,400 -- 1,400
Current portion of long-term debt.................. 41,500 (41,500)(1) --
---------- ---------- ----------
Total current liabilities.............................. 99,585 (53,750) 45,835
Long-term debt..................................... 569,768 (569,768)(1) --
Deferred satellite payments........................ 72,354 (72,354)(1) --
Other long-term liabilities........................ 2,259 -- 2,259
---------- ---------- ----------
Total liabilities...................................... 743,966 (695,872) 48,094
Commitments and contingencies
9.2% Series A Junior Cumulative Convertible
Preferred Stock.................................. 189,030 (189,030)(2) --
9.2% Series B Junior Cumulative Convertible
Preferred Stock.................................. 82,843 (82,843)(2) --
9.2% Series D Junior Cumulative Convertible
Preferred Stock.................................. 247,302 (247,302)(2) --
Stockholders' equity:
Common stock....................................... 77 596 (1) 962
77 (2)
212 (3)
Additional paid-in capital......................... 975,057 475,584 (1) 2,162,217
517,888 (2)
193,688 (3)
Accumulated other comprehensive income............. 663 -- 663
Accumulated deficit................................ (805,393) 196,942 (1) (608,451)
---------- ---------- ----------
Total stockholders' equity............................. 170,404 1,384,987 1,555,391
---------- ---------- ----------
Total liabilities and stockholders' equity............. $1,433,545 $ 169,940 $1,603,485
---------- ---------- ----------
---------- ---------- ----------
75
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2002
(IN THOUSANDS)
(1) The pro forma adjustments related to the exchange of our outstanding debt
securities for common stock assume 100% of our outstanding debt securities
are exchanged and the market value of our common stock on the closing date
of the restructuring is $0.77, the closing market price on October 21, 2002.
The pro forma gain on the exchange of our senior secured discount notes,
senior secured notes and the term loans is calculated as the difference
between the carrying value of these debt securities, including accrued
interest, and the fair market value of the common stock issued on the
closing date, net of unamortized debt issuance costs and direct costs of
$8,985 associated with the exchange of these debt securities, excluding
$1,905 of expenses recorded in the third quarter. The pro forma gain on our
senior secured discount notes, senior secured notes and term loans is offset
by a pro forma loss on the exchange of our convertible subordinated notes.
The pro forma loss on the exchange of our convertible subordinated notes was
calculated as the difference between the fair market value of the common
stock issued on the closing date and the fair market value of the common
stock which would have been issued under the original conversion ratio,
adjusted for unamortized debt issuance costs and accrued interest. The
reconciliation of the gain on the exchange of our outstanding debt
securities is as follows:
Adjustments to assets:
Cash paid for expenses on closing date................ $ (8,985)
Adjustment to unamortized debt issuance costs......... (13,765)
Adjustment to liabilities:
Accrued interest...................................... 12,250
Current portion of long-term debt..................... 41,500
Long-term debt........................................ 569,768
Deferred satellite payments........................... 72,354
Adjustments to stockholders' equity:
Common stock.......................................... (596)
Additional paid-in capital............................ (475,584)
--------
Gain on exchange of our debt securities................... $196,942
--------
--------
The actual gain that will be recognized on the exchange of our outstanding
debt securities will vary from the pro forma gain and will be dependent upon
the market value of our common stock on the closing date of the restructuring
and the actual cost of exchanging our outstanding debt securities. See
'Accounting Treatment of the Restructuring -- Exchange of Debt Securities for
Common Stock' on page 80 for further discussion regarding the calculation of
the gain on the exchange of our outstanding debt securities.
(2) The pro forma adjustments related to the exchange of our outstanding
preferred stock for common stock assume 100% of our outstanding preferred
stock is exchanged. The pro forma deemed dividends of $78,367 resulting from
the exchange of our outstanding preferred stock for common stock are not
included in the pro forma adjustments as deemed dividends are not included
in the calculation of net loss. The pro forma deemed dividends assume that
the direct cost of exchanging our outstanding preferred stock is $1,210 and
that the market value of our common stock on the closing date of the
restructuring is $0.77, the closing market price on October 21, 2002. Deemed
dividends resulting from the exchange of our outstanding preferred stock for
common stock are calculated as the difference between the fair market value
of the common stock and warrants issued on the closing date and the fair
market value of the common stock which would have been issued under the
original conversion ratio, net of unamortized issuance costs and direct
costs associated with the exchange.
The actual deemed dividends that will be recorded on the exchange of our
outstanding preferred stock will vary from the pro forma deemed dividends
and will be dependent upon
76
the market value of our common stock on the closing date of the
restructuring and the actual cost of exchanging our outstanding preferred
stock. See 'Accounting Treatment of the Restructuring -- Exchange of
Preferred Stock for Common Stock' on page 80 for further discussion
regarding the calculation of the deemed dividend resulting from the exchange
of our outstanding preferred stock.
(3) The pro forma adjustments assume that we will receive gross proceeds of
$200,000 from the new equity investment, net of direct expenses estimated to
be $6,100, including $1,595 of which had been paid before September 30,
2002. The reconciliation of the net proceeds is as follows:
Gross proceeds from new equity investment................. $200,000
Cash paid for expenses on closing date.................... (4,505)
Expenses paid in advance of closing date.................. (1,595)
--------
Net proceeds resulting from the new equity investment..... $193,900
--------
--------
The actual net proceeds resulting from the new equity investment will be
dependent upon the actual cost of the restructuring. See 'Accounting
Treatment of the Restructuring -- Issuance of Common Stock for the New Equity
Investment' on page 80 for further discussion regarding the calculation of
net proceeds resulting from the new equity investment.
77
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
Revenue:
Subscription revenue, net of rebates................ $ -- $ -- $ --
Advertising revenue, net of agency fees............. -- -- --
Other revenue....................................... -- -- --
--------- -------- ---------
Total revenue........................................... -- -- --
Operating expenses:
Cost of services (excludes depreciation expense
shown separately below):
Satellite and transmission...................... 30,583 -- 30,583
Programming and content......................... 9,462 -- 9,462
Customer service center and billing............. 6,539 -- 6,539
Sales and marketing................................. 21,246 -- 21,246
General and administrative.......................... 29,926 -- 29,926
Research and development............................ 47,604 -- 47,604
Depreciation expense................................ 9,052 -- 9,052
Non-cash stock compensation expense (benefit)....... 14,044 -- 14,044
--------- -------- ---------
Total operating expenses................................ 168,456 -- 168,456
--------- -------- ---------
Loss from operations.................................... (168,456) -- (168,456)
Other income (expense):
Interest and investment income...................... 17,066 -- 17,066
Interest expense, net............................... (89,686) 76,118(1) (13,568)
Gain on extinguishment of debt...................... 5,313 -- 5,313
--------- -------- ---------
Total other income (expense)............................ (67,307) 76,118 8,811
Net loss................................................ (235,763) 76,118 (159,645)
Preferred stock dividends............................... (41,476) 41,476(2) --
Preferred stock deemed dividends........................ (680) 680(3) --
--------- -------- ---------
Net loss applicable to common stockholders.............. $(277,919) $118,274 $(159,645)
--------- -------- ---------
--------- -------- ---------
Net loss per share applicable to common stockholders
(basic and diluted)................................... $ (5.30) $ (0.17)
--------- ---------
--------- ---------
Weighted average common shares outstanding
(basic and diluted)................................... 52,427 937,820
--------- ---------
--------- ---------
---------
(1) Elimination of interest expense related to our debt securities.
(2) Elimination of preferred stock dividends related to all of our preferred
stock.
(3) Elimination of preferred stock deemed dividends related to all of our
preferred stock.
(4) The pro forma adjustments do not include any gain or deemed dividends
resulting from the exchange of our debt securities and preferred stock for
common stock, respectively, because these adjustments are non-recurring and
attributable to the restructuring.
78
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
Revenue:
Subscription revenue, net of rebates................ $ 3 $ -- $ 3
Advertising revenue, net of agency fees............. 111 -- 111
Other revenue....................................... 6 -- 6
--------- -------- ---------
Total revenue........................................... 120 -- 120
Operating expenses:
Cost of services (excludes depreciation expense
shown separately below):
Satellite and transmission...................... 25,347 -- 25,347
Programming and content......................... 12,107 -- 12,107
Customer service center and billing............. 5,579 -- 5,579
Sales and marketing................................. 79,874 -- 79,874
General and administrative.......................... 24,249 -- 24,249
Research and development............................ 23,699 -- 23,699
Depreciation expense................................ 59,591 -- 59,591
Non-cash stock compensation expense (benefit)....... (7,995) -- (7,995)
--------- -------- ---------
Total operating expenses................................ 222,451 -- 222,451
--------- -------- ---------
Loss from operations.................................... (222,331) -- (222,331)
Other income (expense):
Expense associated with restructuring............... (1,905) -- (1,905)
Interest and investment income...................... 4,530 -- 4,530
Interest expense, net............................... (80,689) 70,401(1) (10,288)
--------- -------- ---------
Total other income (expense)............................ (78,064) 70,401 (7,663)
Net loss................................................ (300,395) 70,401 (229,994)
Preferred stock dividends............................... (33,494) 33,494(2) --
Preferred stock deemed dividends........................ (513) 513(3) --
--------- -------- ---------
Net loss applicable to common stockholders.............. $(334,402) $104,408 $(229,994)
--------- -------- ---------
--------- -------- ---------
Net loss per share applicable to common stockholders
(basic and diluted)................................... $ (4.41) $ (0.24)
--------- ---------
--------- ---------
Weighted average common shares outstanding
(basic and diluted)................................... 75,820 961,213
--------- ---------
--------- ---------
---------
(1) Elimination of interest expense related to our debt securities.
(2) Elimination of preferred stock dividends related to all of our preferred
stock.
(3) Elimination of preferred stock deemed dividends related to all of our
preferred stock.
(4) The pro forma adjustments do not include a gain of $196,942 or deemed
dividends of $78,367 resulting from the exchange of our debt securities and
preferred stock for common stock, respectively, because these adjustments
are non-recurring and attributable to the restructuring.
79
ACCOUNTING TREATMENT OF THE RESTRUCTURING
EXCHANGE OF DEBT SECURITIES FOR COMMON STOCK
The exchange of our debt for our common stock will be accounted for as a
troubled debt restructuring pursuant to Statement of Financial Accounting
Standard No. 15, 'Accounting by Debtors and Creditors for Troubled Debt
Restructurings' ('SFAS No. 15'). Our outstanding debt will be exchanged for
596,669,765 shares of our common stock and will be removed from our consolidated
balance sheet. The carrying value of our debt represents the face value of the
debt adjusted for unamortized original issue discounts, unamortized debt
issuance costs and the unamortized value of warrants issued in connection with
the debt. In accordance with SFAS No. 15, we will record a gain on the exchange
of our senior secured discount notes, senior secured notes and term loans as the
difference between the carrying value of these debt securities, including
accrued interest, and the fair market value of the common stock issued on the
closing date, net of unamortized debt issuance costs and direct costs associated
with the exchange of these debt securities. In addition, we will record a loss
on the restructuring as the difference between the fair market value of the
common stock issued in exchange for our convertible subordinated notes on the
closing date of the restructuring and the fair market value of the common stock
which would have been issued under the original conversion ratio, adjusted for
unamortized debt issuance costs, accrued interest and direct costs associated
with the exchange of our convertible subordinated notes.
EXCHANGE OF PREFERRED STOCK FOR COMMON STOCK AND WARRANTS
Our preferred stock will be exchanged for 76,992,865 shares of our common
stock and warrants to purchase 87,577,114 shares of our common stock, and will
be removed from the consolidated balance sheet. We will record a deemed dividend
on preferred stock as the difference between the fair market value of the common
stock and warrants issued in exchange for our preferred stock on the closing
date of the restructuring and the fair market value of the common stock which
would have been issued under the original conversion ratio, net of direct costs
associated with the exchange of our preferred stock.
ISSUANCE OF COMMON STOCK FOR THE NEW EQUITY INVESTMENT
In addition to the common stock that will issued in exchange for our debt
and preferred stock, on the closing of the restructuring 211,730,379 shares of
our common stock will be sold to Apollo, Blackstone and Oppenheimer for $200
million cash. The par value of newly issued common stock in the restructuring
will be credited to the common stock account and the excess of the total fair
value of the common stock on the closing date of the restructuring will be
credited to paid-in capital, net of issuance costs.
UNAUDITED PROJECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are financial projections with respect to the estimated
effect of the transactions contemplated by the restructuring on our results of
operations and cash flows for the years ending December 31, 2002, 2003, 2004,
2005 and 2006. We do not, as a matter of course, publicly disclose projections
as to our future revenues, earnings or cash flow. In connection with our
consideration of the restructuring, certain projections of our future financial
performance of our operating businesses were prepared. Accordingly, we do not
intend to review, update or otherwise revise the projections. Significant
assumptions underlying the financial projections are set forth below and should
be read in conjunction with 'Unaudited Pro Forma Consolidated Financial Data.'
THE PROJECTIONS ARE BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS. ACTUAL
OPERATING RESULTS WILL VARY.
We prepared these projections to analyze our ability to meet our obligations
under the restructuring and to assist each holder of a claim and interest in
determining whether to vote to
80
accept or reject the prepackaged plan. These projections are contained in this
Proxy Statement as required in connection with the filing of the prepackaged
plan, and, accordingly, should not be taken into account in making your decision
to vote in favor of the restructuring proposals. The projections were not
prepared to conform to the guidelines established by the American Institute of
Certified Public Accountants regarding financial forecasts and were neither
audited, compiled nor reviewed by our independent public auditors. While
presented with numerical specificity, these projections are based upon a variety
of assumptions (which we believe are reasonable), and are subject to significant
business, economic, and competitive uncertainties and contingencies, many of
which are beyond our control. Consequently, the inclusion of the projections
should not be regarded as a representation by us (or any other person) that the
projections will be realized, and actual results will vary materially from those
presented below. Due to the fact that such projections are subject to
significant uncertainty and are based upon assumptions which may not prove to be
correct, neither we nor any other person assumes any responsibility for their
accuracy or completeness. See 'Risk Factors' beginning on page 8. The financial
projections should not be regarded as representations by us, our advisors,
including UBS Warburg LLC, or any other person that the projections will be
achieved. You are cautioned not to place undue reliance on these financial
projections.
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
2002 2003 2004 2005 2006
---- ---- ---- ---- ----
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues.................................... $ 2 $ 32 $ 146 $ 418 $ 819
Operating expenses.................................... (315) (425) (559) (631) (793)
------ ------ ------ ------ -----
Income (loss) from operations......................... (313) (393) (413) (213) 26
Restructuring of debt................................. (9) 246 -- -- --
Interest and investment income........................ 5 1 -- -- 2
Interest expense...................................... (107) (20) -- -- --
Preferred dividends................................... (46) (88) -- -- --
------ ------ ------ ------ -----
Net income (loss) applicable to common stockholders... $ (470) $ (254) $ (413) $ (213) $ (28)
Net income (loss) per share applicable to common
stockholders........................................ $(6.18) $(0.34) $(0.43) $(0.22) $0.03
Weighted average common shares outstanding............ 76 758 963 964 965
EBITDA................................................ $ (238) $ (295) $ (312) $ (112) $ 127
STATEMENT OF CASH FLOW DATA:
Cash and cash equivalents -- beginning of period...... $ 309 $ 146 $ 58 $ (75) $ 56
Cash flows from operating activities.................. (257) (264) (125) 145 388
Cash flows from investing activities.................. (42) (17) (8) (14) (23)
Cash flows from financing activities.................. 136 193 -- -- --
------ ------ ------ ------ -----
Cash and cash equivalents -- end of period............ $ 146 $ 58 $ (75) $ 56 $ 421
------ ------ ------ ------ -----
SUMMARY OF SIGNIFICANT ASSUMPTIONS
We have developed the projections to assist holders of our debt and equity
securities in their evaluation of the prepackaged plan and to analyze its
feasibility. The projections are based upon a number of significant assumptions
described below.
ACTUAL OPERATING RESULTS AND CASH FLOWS WILL VARY MATERIALLY FROM THOSE
PROJECTED. IN ADDITION, WE ARE ACTIVELY EXPLORING INITIATIVES TO REDUCE
OPERATING EXPENSES AND INCREASE OPERATING REVENUES. THESES INITIATIVES, IF
IMPLEMENTED, COULD HAVE A SIGNIFICANT EFFECT ON THE PROJECTIONS CONTAINED IN
THIS PROSPECTUS AND COULD AFFECT THE VALIDITY OF THE ASSUMPTIONS DESCRIBED
BELOW.
81
CLOSING DATE
Our projections assume the restructuring closes on March 15, 2003. If the
restructuring does not close by March 15, 2003, additional bankruptcy-related
expenses will be incurred until such time as a new plan of reorganization is
confirmed. These expenses could significantly impact our results of operations
and cash flows.
OPERATING REVENUES
We recognize revenue from subscription fees, activation fees, and
advertising we sell on our non-music channels. Our projected operating revenues
are based upon the assumptions described below as to subscription revenue,
subscriber acquisition, deactivations, activation revenue and advertising
revenue.
SUBSCRIPTION REVENUE
Our subscription fee is currently $12.95 per month. If a consumer prepays
for a multi-year subscription they currently receive a discount on the
subscription price. We project that our average revenue per subscriber will
increase over time as we identify new revenue streams, such as premium
offerings.
SUBSCRIBERS
Our projections assume that our gross additional subscribers will be 30,000
in 2002, 300,000 in 2003, 1.0 million in 2004, 1.7 million in 2005 and 2.3
million in 2006.
DEACTIVATIONS, OR CHURN
Our projections assume that our churn will be approximately 1.5% of our
subscriber base per month for monthly, quarterly, and semi-annual subscriptions
through 2005, increasing to 2.0% of our subscriber base per month thereafter. We
have assumed that our churn will increase as the price of our radios to
consumers decrease.
In preparing the projections, we also have assumed that 10% of all
multi-year prepaid subscribers deactivate our service at the end of their
respective terms through 2005. Commencing in 2006, we have assumed that
approximately 13% of all multi-year prepaid subscribers deactivate our service
at the end of their respective terms. For the prepaid subscribers who continue
with our service after their term is complete, we assume approximately 60% renew
subscriptions on a multi-year basis.
ACTIVATION FEES
We receive a one-time activation fee of $15 for the majority of our
subscribers. Our projections assume that the majority of our future subscribers
will continue to pay this one-time activation fee.
ADVERTISING REVENUE
We receive advertising revenue from the sale of spot announcements to
advertisers on our non-music channels as the announcements are broadcast, less
any agency fees associated with the sale of each spot. Agency fees are
calculated based on a stated percentage applied to gross billing revenue for our
advertising inventory. The projections are based on the assumption that the unit
rate and sell out ratio for our advertising inventory significantly increase
each year as our subscriber base increases.
82
OPERATING EXPENSES
Operating expenses include both variable and fixed expenses. Fixed expenses
include general and administrative costs, overhead, sales and marketing
arrangements with radio manufacturers, retailers and OEMs, research and
development expenses and license fees we pay to third parties that provide our
non-music content. We project that our fixed operating expenses will increase
approximately 5% per year.
Our variable expenses are based on the number of subscribers and include
various items related to our business such as the following: hardware and
chipset subsidies, sales commissions and manufacturing and development funds,
which we call subscriber acquisition costs, that we pay in connection with the
acquisition of a subscriber; the costs we incur for customer care agents to
assist our subscribers; the costs associated with the maintenance of the
subscriber management system; the percentage of revenues we pay for music
royalties to performing rights organizations, such as The American Society of
Composers, Authors, and Publishers and The Recording Industry Association of
America; transaction fees we incur to credit card companies; the payments we
make to our automaker partners that are calculated on the volume of vehicles
they manufacture which are equipped with our radios; the per subscriber payments
we make to retailers and certain radio manufacturers; and the portion of
advertising spots we share with our non-music content providers. Although we
have assumed that subscriber acquisition costs decrease on a per subscriber
basis over time, we have assumed that our variable costs in the aggregate
increase in relation to our subscriber base.
INTEREST EXPENSE
We assume that following the consummation of the restructuring, all of our
outstanding debt will be exchanged for common stock. As a result, we have
eliminated all interest expense in our projections with respect to our Lehman
senior term loans, Loral senior term loans, senior secured discount notes,
senior secured notes and convertible subordinated notes following the closing of
the restructuring on March 15, 2003.
RESTRUCTURING OF DEBT
The estimated gain on the extinguishment of debt assumes the market price of
our common stock on October 21, 2002, $0.77 per share, to be the market price on
the closing date of the restructuring. In addition, our projections assume that
all of our outstanding debt will be exchanged for common stock following the
consummation of the restructuring. All costs related to the restructuring of our
debt will be expensed in the period in which they are incurred. See 'Accounting
Treatment of the Restructuring -- Exchange of Debt Securities for Common Stock'
for further discussion regarding the calculation of the gain on the
extinguishment of debt.
PREFERRED STOCK DEEMED DIVIDENDS
The estimated preferred stock deemed dividend resulting from the exchange of
preferred stock for our common stock and warrants to purchase shares of our
common stock assumes the market price of our common stock on the closing of the
restructuring will be $0.77 per share, the closing market price on October 21,
2002, and the total value of the warrants to be $24.0 million on the closing
date of the restructuring. In addition, our projections assume that all of the
outstanding preferred stock will be exchanged for common stock following the
consummation of the restructuring. Based on these assumptions, we estimated the
preferred stock deemed dividend resulting from this transaction to be $79.3
million. See 'Accounting Treatment of the Restructuring -- Exchange of Preferred
Stock for Common Stock and Warrants' for further discussion regarding the
calculation of the preferred stock deemed dividend.
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WEIGHTED AVERAGE COMMON SHARES
We have assumed an increase in our weighted average common shares
outstanding as a result of the conversion of our debt securities and preferred
stock into common shares in the restructuring. In addition, commencing in 2003,
we have assumed that our weighted average common shares outstanding increase as
a result of issuing shares of our common stock to an employee benefits plan.
EBITDA
We define EBITDA as earnings before interest, taxes, depreciation,
amortization, non-cash compensation and restructuring of debt. We have included
EBITDA data because it commonly used as a measure of performance. EBITDA is not,
and should not be used as, an indicator or alternative to operating income
(loss), net income (loss) or cash flow as reflected in the company's
consolidated financial statements. EBITDA is not a measure of financial
performance under accounting principles generally accepted in the United States
and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with accounting principles generally accepted
in the United States.
CASH FLOW FROM OPERATING ACTIVITIES
We have assumed an increase over time in the percentage of subscribers
electing to prepay for multi-year subscriptions as well as improvement in
payment terms to various third parties, such as radio manufacturers and
retailers. Currently, approximately 35% of our subscribers pay monthly,
approximately 2.5% pay quarterly, approximately 2.5% pay semi-annually, and
approximately 60% pay once per year. Beginning in 2004, our projections assume a
greater shift toward multi-year subscriptions, particularly with respect to
subscriptions sold in our OEM and dealer aftermarket channels, when we expect
that subscriptions will be bundled into the financing and leases of a vehicle.
CASH FLOW FROM INVESTING ACTIVITIES
Cash flow from investing activities represents additions to property, plant
and equipment. Our projections assume that we make investments to replace our
terrestrial repeater equipment in the ordinary course of business and make other
investments in broadcast and satellite operations equipment. The balance of our
capital expenditures are projected to consist of investments in website
development and enhancements, and development and license fees related to our
subscriber management system.
CASH FLOW FROM FINANCING ACTIVITIES
In January 2002, we sold 16,000,000 shares of our common stock for net
proceeds of $147.5 million. Upon completion of the restructuring in 2003, we
expect to receive $200 million in gross proceeds, or approximately $194 million
in net proceeds, from the sale of newly issued common stock in the new equity
investment.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our current executive officers and directors are described below.
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
Joseph P. Clayton............................ 53 President and Chief Executive Officer and a
Director
Guy D. Johnson............................... 42 Executive Vice President, Sales and Marketing
Mary Patricia Ryan........................... 46 Executive Vice President, Marketing
John J. Scelfo............................... 45 Executive Vice President and Chief Financial
Officer
Patrick L. Donnelly.......................... 40 Executive Vice President, General Counsel and
Secretary
Michael S. Ledford........................... 53 Senior Vice President, Engineering
David Margolese.............................. 45 Chairman of the Board of Directors and a
Director
Leon D. Black................................ 51 Director
Lawrence F. Gilberti(1)(2)(3)................ 52 Director
James P. Holden(1)(3)........................ 51 Director
Peter G. Peterson(2)(3)...................... 76 Director
Joseph V. Vittoria(1)(2)..................... 67 Director
---------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Finance Committee.
JOSEPH P. CLAYTON has served as President and Chief Executive Officer since
November 2001. Mr. Clayton served as Vice Chairman of Global Crossing Ltd., a
global internet and long distance services provider, and President, Global
Crossing North America, from September 1999 until November 2001. On January 28,
2002, Global Crossing Ltd. and certain of its affiliates filed petitions for
relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York. From August 1997
to September 1999, Mr. Clayton was President and Chief Executive Officer of
Frontier Corporation, a Rochester-based national provider of local telephone,
long distance, data, conferencing and wireless communications services, which
was acquired by Global Crossing in September 1999. Prior to joining Frontier,
Mr. Clayton was Executive Vice President, Marketing and Sales -- Americas and
Asia, of Thomson S.A., a leading consumer electronics company. Mr. Clayton is a
member of the board of directors of Transcend Services Inc., a trustee of
Bellarmine College and The Rochester Institute of Technology and a member of the
advisory board of the Indiana University School of Business.
GUY D. JOHNSON has served as Executive Vice President, Sales and Marketing,
since January 2002. From 1999 until January 2002, Mr. Johnson was a senior
strategic consultant to Thomson S.A., a leading consumer electronics company.
Prior to 1999, he was Senior Vice President, Sales and Product
Management -- Americas, for Thomson S.A.
MARY PATRICIA RYAN has served as Executive Vice President, Marketing, since
June 2002. From September 1999 to June 2002, Ms. Ryan was Executive Vice
President, Worldwide Marketing, of IMAX, Ltd., one of the world's leading film
and digital imaging technologies companies. From September 1998 to July 1999,
she was Executive Vice President, Marketing, of Lifetime Entertainment Services,
a cable television network, and prior to that she was Executive Vice President,
Marketing and Programming, of U.S. Satellite Broadcasting Company, the satellite
television service that was acquired by DirecTV in 1999.
JOHN J. SCELFO has served as Executive Vice President and Chief Financial
Officer since April 2001. From November 1999 to April 2001, Mr. Scelfo was Vice
President, Finance, for the Asian operations of Dell Computer Corporation, the
leading direct global computer systems company. Prior to Dell, he spent
19 years with Mobil Oil Corporation, an integrated energy operator,
85
including as its Corporate Assistant Treasurer, Vice President of Global Risk
Management, and Chief Financial Officer of its operations in Japan and
Singapore.
PATRICK L. DONNELLY has served as Executive Vice President, General Counsel
and Secretary since May 1998. From June 1997 to May 1998, he was Vice President
and deputy general counsel of ITT Corporation, a hotel, gaming and entertainment
company that was acquired by Starwood Hotels & Resorts Worldwide, Inc. in
February 1998. From October 1995 to June 1997, he was assistant general counsel
of ITT Corporation. Prior to October 1995, Mr. Donnelly was an associate at the
law firm of Simpson Thacher & Bartlett.
MICHAEL S. LEDFORD has served as Senior Vice President, Engineering, since
September 2001. From July 2000 to September 2001, Mr. Ledford was Vice President
of Automotive Strategy at Wingcast, a joint venture between Ford Motor Company
and Qualcomm developing advanced wireless vehicle applications, or telematics.
Prior to Wingcast, he was the Executive Director of Telematics at Ford, and
prior to that was Corporate Executive Director for Process Engineering
responsible for overseeing Ford's worldwide introduction of new technologies.
DAVID MARGOLESE has served as Chairman of our board of directors since
August 1993, and as a director since August 1991. From August 1993 to October
2001, Mr. Margolese served as our Chief Executive Officer. Prior to his
involvement with us, Mr. Margolese proposed and co-founded Cantel Inc., Canada's
national cellular telephone carrier, which was acquired by Rogers Communications
Inc. in 1989, and Canadian Telecom Inc., Canada's national paging company,
serving as that company's president until its sale in 1987. Mr. Margolese
resigned as our Chief Executive Officer in October 2001. Mr. Margolese has been
inducted into NASA's Space Technology Hall of Fame and was nominated by Harvard
Business School as Entrepreneur Of The Year in 1999.
LEON D. BLACK has been a director since June 2001. Mr. Black is one of the
founding principals of Apollo Advisors, L.P and Lion Advisors, L.P, which manage
investment capital on behalf of institutions. He is also the founder of Apollo
Real Estate Advisors, L.P. From 1977 to 1990, Mr. Black worked at Drexel Burnham
Lambert Incorporated, where he served as Managing Director, head of the Mergers
& Acquisitions Group and co-head of the Corporate Finance Department. Mr. Black
is a director of Samsonite Corporation, Vail Resorts, Inc., Sequa Corporation,
United Rentals, Inc., Allied Waste Industries, Inc., AMC Entertainment Inc. and
Wyndham International, Inc. Mr. Black is a trustee of The Museum of Modern Art,
Mt. Sinai Hospital, The Metropolitan Museum, Lincoln Center for The Performing
Arts, Prep for Prep, The Jewish Museum, the Cardozo School of Law, The Asia
Society, Spence School and the Vail Valley Foundation.
LAWRENCE F. GILBERTI has been a director since September 1993 and served as
our Secretary from November 1992 until May 1998. Since December 1992, he has
been the Secretary and sole director, and from December 1992 to September 1994
was the President of Satellite CD Radio, Inc., our subsidiary which holds our
FCC license. Since June 2000, Mr. Gilberti has been a partner in the law firm of
Reed Smith LLP; from May 1998 through May 2000, he was of counsel to that firm.
From August 1994 to May 1998, Mr. Gilberti was a partner in the law firm of
Fischbein Badillo Wagner & Harding. Mr. Gilberti has provided legal services to
us since 1992.
JAMES P. HOLDEN has been a director since August 2001. From October 1999
until November 2000, Mr. Holden was the President and Chief Executive Officer of
DaimlerChrysler Corporation, a subsidiary of DaimlerChrysler AG, one of the
world's largest automakers. Prior to being appointed President in 1999,
Mr. Holden held numerous senior positions within Chrysler Corporation during his
19-year career at the company.
PETER G. PETERSON has been a director since June 2001. Mr. Peterson has been
chairman of The Blackstone Group L.P, an investment bank, since 1985. Prior to
his involvement with Blackstone, Mr. Peterson served as chairman and chief
executive officer of Lehman Brothers, Kuhn, Loeb, Inc., the investment bank, for
eleven years. He was Secretary of Commerce in 1972 and 1973 after serving as
Assistant to the President for International Economic Affairs and Executive
Director of the Council on Economic Policy in 1971 and 1972. Prior to his
government
86
service, Mr. Peterson was with Bell & Howell Company for thirteen years,
beginning as an executive vice president and director and later as chief
executive officer. Mr. Peterson is a director of Sony Corp. He is chairman of
the board of The Federal Reserve Bank of New York, the Council on Foreign
Relations and Institute for International Economics, founding president of The
Concord Coalition and a trustee of the Committee for Economic Development, the
National Bureau of Economic Research and The Museum of Modern Art. Mr. Peterson
has been a director of 3M, RCA, General Foods, Federated Department Stores,
Continental Group, Black & Decker and Cities Services.
JOSEPH V. VITTORIA has been a director since April 1998. From 1997 until
February 2000, Mr. Vittoria was Chairman and Chief Executive Officer of Travel
Services International, Inc., a travel services distributor. Mr. Vittoria has
served as a member of the Board of Overseers of Columbia Business School since
1988. From September 1987 to February 1997, Mr. Vittoria was the Chairman and
Chief Executive Officer of Avis Inc., one of the world's largest rental car
companies. Mr. Vittoria is a director of ResortQuest International, Inc. and is
Chairman of Transmedia Asia Pacific, Inc. and Puradyn Filter Technologies, Inc.
-------------------
For a description of our new board of directors following the restructuring
and biographical information for those new directors who do not currently serve
as our directors, see 'The Restructuring Proposals -- Proposal 3 Election of New
Board of Directors.'
87
EXECUTIVE COMPENSATION
The table below shows the compensation for the last three years for our
President and Chief Executive Officer and the five next highest paid executive
officers at the end of 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-------------------------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCKS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS COMPENSATION($)(1)
--------------------------- ---- --------- -------- --------------- --------- ------- ------------------
Joseph P. Clayton (2) ...... 2001 61,538 -- -- -- 750,000 --
President and Chief 2000 -- -- -- -- -- --
Executive Officer 1999 -- -- -- -- -- --
David Margolese (3) ........ 2001 435,417 -- 6,066(4) -- 1,500,000 10,500
Chairman of the Board and 2000 500,000 500,000(5) -- -- -- 10,500
Chief Executive Officer 1999 450,000 -- -- -- 2,500,000 10,000
John J. Scelfo (6) ......... 2001 225,000 225,000 -- -- 300,000 10,500
Executive Vice President 2000 -- -- -- -- -- --
and Chief Financial Officer 1999 -- -- -- -- -- --
Patrick L. Donnelly ........ 2001 325,000 225,000 -- -- 100,000 10,500
Executive Vice President, 2000 310,417 323,000(5) -- -- 75,000 10,500
General Counsel and 1999 277,500 -- -- -- 215,000 10,000
Secretary
Michael S. Ledford (7) ..... 2001 99,167 100,000 -- 200,000(8) 300,000 --
Senior Vice President, 2000 -- -- -- -- -- --
Engineering 1999 -- -- -- -- -- --
Joseph S. Capobianco (9) ... 2001 291,667 75,000 -- -- -- 10,500
Senior Vice President, 2000 269,135 275,000(5) -- -- 50,000 10,500
Content 1999 241,667 -- -- -- 100,000 10,000
---------
(1) Represents matching contributions by us under our 401(k) Savings Plan. These
amounts were paid in the form of common stock.
(2) Mr. Clayton became our President and Chief Executive Officer on
November 26, 2001.
(3) Mr. Margolese resigned as our Chief Executive Officer on October 16, 2001.
Mr. Margolese remains a director and non-executive chairman of our board of
directors.
(4) Represents commuting costs reimbursed by us.
(5) In addition, in February 2000, we also paid Mr. Margolese a bonus of
$500,000, Mr. Capobianco a bonus of $150,000 and Mr. Donnelly a bonus of
$290,000 in recognition of the executives' efforts in securing our alliances
with DaimlerChrysler and BMW.
(6) Mr. Scelfo became our Executive Vice President and Chief Financial Officer
in April 2001.
(7) Mr. Ledford became our Senior Vice President, Engineering, on September 17,
2001.
(8) On September 17, 2001, we granted Mr. Ledford 50,000 restricted shares of
our common stock. The restrictions applicable to these shares of common
stock lapse in equal increments over the next four years. Amount represents
the value of the restricted stock (calculated by multiplying the closing
price of our common stock on September 17, 2001, $4.00 per share, by the
number of shares awarded, 50,000).
(9) Mr. Capobianco ceased to be an executive officer on October 1, 2002.
88
STOCK OPTION GRANTS
The following table sets forth certain information for the fiscal year ended
December 31, 2001, with respect to options granted to individuals named in the
Summary Compensation Table above.
OPTION GRANTS IN 2001
POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS EXERCISE OF STOCK PRICE APPRECIATION
OPTIONS GRANTED TO PRICE EXPIRATION ---------------------------
NAME GRANTED EMPLOYEES ($/SHARE) DATE 5%($) 10%($)
---- ------- --------- --------- ---- ----- ------
Joseph P. Clayton.............. 750,000 17.7% 5.25 11/26/11 2,476,273 6,275,361
David Margolese................ 1,500,000 35.4 12.67 05/11/11 11,952,142 30,289,075
John J. Scelfo................. 300,000 7.1 6.91 04/04/11 1,303,699 3,303,828
Patrick L. Donnelly............ 100,000 2.4 7.61 05/01/11 478,589 1,212,838
Michael S. Ledford............. 300,000 7.1 4.00 09/17/11 754,674 1,912,491
EXERCISES OF STOCK OPTIONS
The following table shows the aggregate exercises of options to purchase our
common stock and sets forth certain information with respect to the number of
shares covered by both exercisable and unexercisable stock options held by the
individuals named in the Summary Compensation Table as of December 31, 2001.
Also reported are the values for 'in-the-money' stock options that represent the
positive spread between the respective exercise prices of outstanding stock
options and the fair market value of our common stock as of December 31, 2001
($11.63 per share).
NUMBER OF NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR END FISCAL YEAR END($)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
Joseph P. Clayton (1)... -- -- 750,000 -- 4,785,000 --
David Margolese......... -- -- 4,700,000 -- 3,216,000 --
John J. Scelfo.......... -- -- 75,000 225,000 354,000 1,062,000
Patrick L. Donnelly..... -- -- 500,000 -- 2,054,000 --
Michael S. Ledford...... -- -- -- 300,000 -- 2,289,000
Joseph S. Capobianco.... -- -- 131,500 118,500 543,095 489,405
---------
(1) Under his employment agreement, we are obligated to issue Mr. Clayton
options to purchase up to 750,000 shares of our common stock at an exercise
price of $5.25 per share on each of November 26, 2002, November 26, 2003 and
November 26, 2004. These options will be exercisable on the date of grant.
REPRICINGS OF STOCK OPTIONS
The following table sets forth certain information with respect to stock
options held by our executive officers that were repriced during the year ended
December 31, 2001.
89
10-YEAR OPTION REPRICINGS
NUMBER OF LENGTH OF
SECURITIES ORIGINAL OPTION
UNDERLYING MARKET PRICE EXERCISE PRICE TERM REMAINING
OPTIONS OF STOCK AT TIME AT TIME OF NEW AT DATE OF
REPRICED OR OF REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED AMENDMENT($)(1) AMENDMENT($) PRICE($) AMENDMENT
---- ---- ------- --------------- ------------ -------- ---------
Patrick L. Donnelly ..... April 9, 2001 110,000 $7.60 $33.50 $7.50 7 years, 1 month
Executive Vice 90,000 7.60 23.75 7.50 7 years, 11 months
President, General 125,000 7.60 30.50 7.50 8 years, 8 months
Counsel and Secretary 25,000 7.60 40.875 7.50 8 years, 9 months
50,000 7.60 21.50 7.50 9 years, 8 months
Joseph S. Capobianco .... April 9, 2001 50,000 7.60 13.00 7.50 6 years
Senior Vice President, 25,000 7.60 15.375 7.50 7 years
Content 25,000 7.60 14.50 7.50 7 years
40,000 7.60 23.75 7.50 8 years, 2 months
60,000 7.60 30.50 7.50 8 years, 8 months
50,000 7.60 21.50 7.50 9 years, 8 months
---------
(1) The revised exercise price was determined by the Compensation Committee of
our board of directors based on the five day average of our common stock
immediately prior to the repricing.
EMPLOYMENT AGREEMENTS
We are a party to an employment agreement with Joseph P. Clayton, Guy D.
Johnson, Mary Patricia Ryan, John J. Scelfo, Patrick L. Donnelly and Michael S.
Ledford. The recapitalization plan will not constitute a change of control for
purposes of these employment agreements.
EMPLOYMENT AGREEMENT WITH JOSEPH P. CLAYTON
On November 26, 2001, we entered into an employment agreement with Joseph P.
Clayton to serve as our President and Chief Executive Officer for three years.
This agreement provides for an annual base salary of $600,000, subject to
increase from time to time by our board of directors. We have also agreed to
reimburse Mr. Clayton for the reasonable costs of an apartment in New York City
and for the reasonable costs of commercial travel to and from his home in
Rochester, New York, to our headquarters in New York City. Mr. Clayton is
guaranteed a bonus with respect to 2002 in an amount at least equal to 50% of
his base salary, and may earn a bonus in an amount greater than this, based upon
performance criteria established by our board of directors. In connection with
this agreement, we agreed to grant Mr. Clayton options to purchase 3,000,000
shares of our common stock at an exercise price of $5.25 per share. 750,000 of
these options were issued and became exercisable on November 26, 2001. The
remaining options will be issued and become exercisable in increments of 750,000
on November 26, 2002, November 26, 2003 and November 26, 2004.
Under the terms of this agreement, if Mr. Clayton's employment is terminated
without cause or he terminates his employment for good reason (as defined in the
employment agreement), then he is entitled to receive a lump sum amount equal to
(1) his base salary in effect from the termination date through December 31,
2004 and (2) any annual bonuses, at a level equal to 75% of his base salary,
that would have been customarily paid during the period from the termination
date through December 31, 2004; provided that in no event shall this amount be
less than 1.75 times his base salary. In the event Mr. Clayton's employment is
terminated without cause or he terminates his employment for good reason, we are
also obligated to continue his medical and life insurance benefits until
December 31, 2004.
If, following the occurrence of a 'change of control', Mr. Clayton is
terminated without cause or he terminates his employment for good reason, we are
obligated to pay to Mr. Clayton an amount equal to 5.25 times his base salary
and continue his medical and life insurance benefits
90
until the third anniversary of his termination date. If, in the opinion of a
nationally recognized accounting firm, a 'change of control' would require Mr.
Clayton to pay an excise tax under the United States Internal Revenue Code on
any amounts received by him, we have agreed to pay Mr. Clayton the amount of
such taxes and such additional amount as may be necessary to place him in the
exact same financial position that he would have been in if the excise tax was
not imposed. Under the terms of the employment agreement, Mr. Clayton may not
disclose any of our proprietary information or, during his employment with us
and for three years thereafter, engage in any business involving the
transmission of radio entertainment programming in North America.
EMPLOYMENT AGREEMENT WITH GUY D. JOHNSON
On January 7, 2002, we entered into an employment agreement with Guy D.
Johnson to serve as our Executive Vice President, Sales and Marketing, for three
years. This agreement provides for an annual base salary of $400,000, subject to
increase from time to time by our board of directors. We have also agreed to
reimburse Mr. Johnson for his living expenses in New York City, up to $6,000 per
month, and for the reasonable costs of commercial travel to and from his home in
British Columbia to our headquarters in New York City. Mr. Johnson is guaranteed
a bonus with respect to 2002 in an amount at least equal to 50% of his base
salary, and may earn a bonus in an amount greater than this, based upon
performance criteria established by our board of directors. In connection with
this agreement, we agreed to grant Mr. Johnson options to purchase 500,000
shares of our common stock at an exercise price of $9.46 per share. Options with
respect to 125,000 of these shares became exercisable immediately. The remaining
options become exercisable in increments of 125,000 on January 7, 2003,
January 7, 2004 and January 7, 2005. We also granted Mr. Johnson 100,000
restricted shares of common stock. The restrictions applicable to 34,000 of
these shares will lapse on January 7, 2003 if the average price of our common
stock during the twenty trading days preceding January 7, 2003 equals or exceeds
$15.00; the restrictions applicable to 33,000 of these shares will lapse on
January 7, 2004 if the average price of our common stock on the twenty trading
days preceding January 7, 2004 equals or exceeds $20.00; and the restrictions
applicable to the remaining 33,000 shares will lapse on January 7, 2005 if the
average price of our common stock on the twenty trading days preceding
January 7, 2005 equals or exceeds $25.00. Any shares of restricted stock which
do not vest on January 7, 2003, January 7, 2004 or January 7, 2005 will be
forfeited.
Under the terms of this agreement, if Mr. Johnson's employment is terminated
without cause or he terminates his employment for good reason (as defined in the
employment agreement), then he is entitled to receive a lump sum amount equal to
(1) his base salary in effect from the termination date through January 6, 2005
and (2) any annual bonuses, at a level equal to 75% of his base salary, that
would have been customarily paid during the period from the termination date
through January 6, 2005; provided that in no event shall this amount be less
than 1.00 times his base salary. In the event Mr. Johnson's employment is
terminated without cause or he terminates his employment for good reason, we are
also obligated to continue his medical and life insurance benefits until
January 6, 2005.
If, following the occurrence of a 'change of control', Mr. Johnson is
terminated without cause or he terminates his employment for good reason, we are
obligated to pay to Mr. Johnson an amount equal to 1.75 times his base salary
and continue his medical and life insurance benefits until the third anniversary
of his termination date. If, in the opinion of a nationally recognized
accounting firm, a 'change of control' would require Mr. Johnson to pay an
excise tax under the United States Internal Revenue Code on any amounts received
by him, we have agreed to pay Mr. Johnson the amount of such taxes and such
additional amount as may be necessary to place him in the exact same financial
position that he would have been in if the excise tax was not imposed.
Under the terms of the agreement, Mr. Johnson may not disclose any of our
proprietary information or, during his employment with us and for two years
thereafter, engage in any business involving the transmission of radio
entertainment programming in North America.
91
EMPLOYMENT AGREEMENT WITH MARY PATRICIA RYAN
On May 3, 2002, we entered into an employment agreement with Mary Patricia
Ryan to serve as our Executive Vice President, Marketing, for three years. This
agreement provides for an annual base salary of $320,000, subject to increase
from time to time by our board of directors. Under this agreement, we paid Ms.
Ryan a $25,000 starting bonus and have guaranteed her a bonus of $160,000 with
respect to 2002, although she may earn a larger bonus based upon performance
criteria established by our board of directors. In connection with this
agreement, we also granted Ms. Ryan options to purchase 240,000 shares of our
common stock at an exercise price of $3.67 per share. Options with respect to
60,000 of these shares became exercisable upon execution of the agreement and
the remaining options become exercisable in increments of 60,000 on June 10,
2003, June 10, 2004 and June 10, 2005.
Under the terms of this agreement, if Ms. Ryan's employment is terminated
without cause or she terminates her employment for good reason (as defined in
the employment agreement), we are obligated to pay Ms. Ryan an amount equal to
the sum of her annual salary and the annual bonus last paid to her or, in the
event her employment is terminated prior to January 1, 2003, $160,000.
If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Ms. Ryan to pay an excise tax under the United States
Internal Revenue Code on any amounts received by her, we have agreed to pay
Ms. Ryan the amount of such taxes and such additional amount as may be necessary
to place her in the exact same financial position that she would have been in if
the excise tax was not imposed.
Under the terms of the agreement, Ms. Ryan may not disclose any of our
proprietary information or, during her employment with us and for two years
thereafter (or one year thereafter if Ms. Ryan's employment is terminated
without cause or she terminates her employment for good reason), enter into the
employment of, render services to, or otherwise assist our competitors.
EMPLOYMENT AGREEMENT WITH JOHN J. SCELFO
On March 7, 2001, we entered into an employment agreement with John J.
Scelfo to serve as our Executive Vice President and Chief Financial Officer for
three years. This agreement provides for an annual base salary of $300,000,
subject to increase from time to time by our board of directors. On January 1,
2002, our board of directors increased Mr. Scelfo's salary to $345,000 per year.
In connection with this agreement, we granted Mr. Scelfo options to purchase
300,000 shares of our common stock at an exercise price of $6.91 per share.
Options with respect to 75,000 shares became exercisable on each of October 4,
2001, April 4, 2002 and October 4, 2002, and the remaining options become
exercisable on April 4, 2003.
Under the terms of this agreement, if Mr. Scelfo's employment is terminated
without cause or he terminates his employment for good reason (as defined in the
employment agreement), we are obligated to pay Mr. Scelfo an amount equal to the
sum of his annual salary and the annual bonus last paid to him.
If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Mr. Scelfo to pay an excise tax under the United States
Internal Revenue Code on any amounts received by him, we have agreed to pay Mr.
Scelfo the amount of such taxes and such additional amount as may be necessary
to place him in the exact same financial position that he would have been in if
the excise tax was not imposed.
Under the terms of the agreement, Mr. Scelfo may not disclose any of our
proprietary information or, during his employment with us and for two years
thereafter (or one year thereafter if Mr. Scelfo's employment is terminated
without cause or he terminates his employment for good reason), enter into the
employment of, render services to, or otherwise assist our competitors.
92
EMPLOYMENT AGREEMENT WITH PATRICK L. DONNELLY
On March 28, 2000, we entered into an employment agreement with Patrick L.
Donnelly to serve as our Executive Vice President, General Counsel and Secretary
for three years. Pursuant to this agreement, in 2001 we paid Mr. Donnelly an
annualized base salary of $325,000. This base salary is subject to increase from
time to time by our board of directors. On January 1, 2002, our board of
directors increased Mr. Donnelly's salary to $345,000 per year.
Under the terms of this agreement, if Mr. Donnelly's employment is
terminated without cause or he terminates his employment for good reason (as
defined in the employment agreement), we are obligated to pay Mr. Donnelly an
amount equal to the sum of his annual salary and the annual bonus last paid to
him.
If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Mr. Donnelly to pay an excise tax under the United States
Internal Revenue Code on any amounts received by him, we have agreed to pay Mr.
Donnelly the amount of such taxes and such additional amount as may be necessary
to place him in the exact same financial position that he would have been in if
the excise tax was not imposed.
Under the terms of the agreement, Mr. Donnelly may not disclose any of our
proprietary information or, during his employment with us and for two years
thereafter (or one year thereafter if Mr. Donnelly's employment is terminated
without cause or he terminates his employment for good reason), enter into the
employment of, render services to, or otherwise assist our competitors.
EMPLOYMENT AGREEMENT WITH MICHAEL S. LEDFORD
On August 29, 2001, we entered into an employment agreement with Michael S.
Ledford to serve as our Senior Vice President, Engineering, for three years.
This agreement provides for an annual base salary of $340,000, subject to
increase from time to time by our board of directors. In connection with this
agreement, we granted Mr. Ledford options to purchase 300,000 shares of our
common stock at an exercise price of $4.00 per share. These options become
exercisable in increments of 100,000 shares on September 17, 2002,
September 17, 2003 and September 17, 2004. We also granted Mr. Ledford 50,000
restricted shares of common stock. The restrictions applicable to these shares
of common stock lapse on September 17, 2002, September 17, 2003, September 17,
2004 and September 17, 2005 in equal increments of 12,500 shares.
Under the terms of this agreement, if Mr. Ledford's employment is terminated
without cause or he terminates his employment for good reason (as defined in the
employment agreement), we are obligated to pay Mr. Ledford an amount equal to
his annual salary.
If, in the opinion of a nationally recognized accounting firm, a 'change of
control' would require Mr. Ledford to pay an excise tax under the United States
Internal Revenue Code on any amounts received by him, we have agreed to pay Mr.
Ledford the amount of such taxes and such additional amount as may be necessary
to place him in the exact same financial position that he would have been in if
the excise tax was not imposed.
Under the terms of the agreement, Mr. Ledford may not disclose any of our
proprietary information or, during his employment with us and for two years
thereafter (or one year thereafter if Mr. Ledford's employment is terminated
without cause or he terminates his employment for good reason), enter into the
employment of, render services to, or otherwise assist our competitors.
93
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of
our common stock as of September 30, 2002 and after giving effect to the
restructuring, assuming that all of our debt securities are exchanged for common
stock, by (1) each person known by us to be the beneficial owner of more than 5%
of the outstanding common stock, (2) each of our directors, (3) each of our
executive officers and (4) all directors and executive officers as a group.
Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below, based on information furnished by these owners, have
sole investment and voting power with respect to these shares, except as
otherwise provided by community property laws where applicable.
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED AS OF OWNED AFTER
SEPTEMBER 30, 2002 THE RESTRUCTURING
NAME AND ADDRESS OF BENEFICIAL ----------------------- ------------------------
OWNER OF COMMON STOCK(1) NUMBER PERCENT(2) NUMBER PERCENT(2)
------------------------ ------ ---------- ------ ----------
OppenheimerFunds, Inc.(3) ...................... 13,258,200 17.2% 225,443,878 23.4%
498 Seventh Avenue
New York, New York 10018
Lehman Commercial Paper Inc.(4) ................ 2,100,000 2.7% 126,800,370 13.1%
745 Seventh Avenue
New York, New York 10019
Apollo Investment Fund IV, L.P.(5).............. 9,413,533 11.0% [to be added] %
Apollo Overseas Partners IV, L.P.
Two Manhattanville Road
Purchase, New York 10577
Blackstone Management Associates III 6,891,444 8.2% [to be added] %
L.L.C.(6) ....................................
345 Park Avenue
New York, New York 10154
Space Systems/Loral, Inc.(7) ................... -- -- 58,964,982 6.1%
3825 Fabian Way
Palo Alto, California 94303
Continental Casualty Company(8) ................ -- -- 54,632,378 5.7%
333 South Wabash Avenue
Chicago, Illinois 60685
David Margolese(9).............................. 6,300,000 7.7% 6,300,000 *
Joseph P. Clayton(10)........................... 760,000 1.0% 760,000 *
Guy D. Johnson(11).............................. 260,548 * 260,548 *
Leon D. Black(12)............................... -- * -- *
Lawrence F. Gilberti(13)........................ 65,000 * 65,000 *
James P. Holden(14)............................. 40,000 * 40,000 *
Peter G. Peterson(15)........................... -- * -- *
Joseph V. Vittoria(16).......................... 65,000 * 65,000 *
Patrick L. Donnelly(17)......................... 504,534 * 504,534 *
Michael S. Ledford(18).......................... 137,941 * 137,941 *
John J. Scelfo(19).............................. 326,316 * 326,316 *
All Executive Officers and Directors as a Group
(11 persons)(20).............................. 8,459,339 10.2% 8,459,339 *
---------
* Less than one percent.
(1) This table is based upon information supplied by directors, officers and
principal stockholders and information derived from the lockup agreement.
Unless otherwise indicated, the address of the beneficial owner is Sirius
Satellite Radio Inc., 1221 Avenue of the Americas, 36th Floor, New York,
New York 10020.
(2) Determined as provided by Rule 13d-3 under the Exchange Act. Under this
rule, a person is deemed to be the beneficial owner of securities that can
be acquired by this person within 60 days from the date of determination
upon the exercise of options, and each beneficial owner's
(footnotes continued on next page)
94
(footnotes continued from previous page)
percentage ownership is determined by assuming that options that are held
by this person (but not those held by any other person) and that are
exercisable within 60 days from the date of determination have been
exercised.
(3) This information is based upon a letter dated October 16, 2002 from
Oppenheimer to us, indicating that Atlas Global Growth Fund owns 55,100
shares of our common stock, Clarington Global Equity Fund owns 44,100
shares of our common stock, Security Benefit Life Global Series Fund owns
39,500 shares of our common stock, Security Benefit Life Worldwide Equity
Series D/VA owns 213,700 shares of our common stock, CUNA Global Series
Fund/VA owns 4,700 shares of our common stock, JNL/Oppenheimer Global
Growth Series VA owns 19,100 shares of our common stock, Oppenheimer Global
Fund owns 3,502,500 shares of our common stock, Oppenheimer Global
Securities Fund/VA owns 879,500 shares of our common stock and Oppenheimer
Global Growth & Income Fund owns 8,500,000 shares of our common stock.
Oppenheimer is an investment adviser registered under the Investment
Advisers Act of 1940. Upon consumation of the restructuring, Oppenheimer
and its affiliates will acquire an additional 163,609,837 shares of common
stock for $150 million cash and an additional 48,575,841 shares of common
stock in exchange for $27.5 million in principal amount at maturity of
senior secured discount notes and $30 million in principal amount of senior
secured notes.
(4) Represents warrants to purchase 2,100,000 shares of common stock at a
purchase price of $15.00 per share, all of which are immediately
exercisable. Upon consummation of the restructuring, Lehman will acquire an
additional 124,700,370 shares of common stock in exchange for the Lehman
senior term loans and $4.2 million in principal amount of senior secured
notes.
(5) Represents 1,742,512 shares of 9.2% Series A Junior Cumulative Convertible
Preferred Stock and 781,548 shares of 9.2% Series B Junior Cumulative
Convertible Preferred Stock, which are immediately convertible into
8,413,533 shares of our common stock, and 1,000,000 shares of common stock.
(6) Represents 2,343,091 shares of 9.2% Series D Junior Cumulative Convertible
Preferred Stock, which are immediately convertible into 6,891,444 shares of
our common stock.
(7) Upon consummation of the restructuring, Loral will acquire 58,964,982
shares of common stock in exchange for the Loral senior term loans.
(8) Upon consummation of the restructuring, Continental will acquire 54,632,378
shares of common stock in exchange for $30 million in principal amount at
maturity of senior secured discount notes and $34.605 million in principal
amount of senior secured notes.
(9) Includes 4,700,000 shares of common stock issuable under stock options that
are exercisable within 60 days and 1,600,000 shares owned by Mr. Margolese.
(10) Represents 750,000 shares of common stock issuable under stock options
exercisable within 60 days and 10,000 shares owned by Mr. Clayton.
(11) Includes 35,000 shares owned by Mr. Johnson, 100,000 restricted shares of
common stock, 548 shares of common stock acquired under our 401(k) Plan and
125,000 shares of common stock issuable under stock options exercisable
within 60 days. Does not include 375,000 shares issuable under stock
options that are not exercisable within 60 days.
(12) Mr. Black is the founding partner of Apollo Management, L.P., an affiliate
of Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.
Mr. Black disclaims beneficial ownership of all shares of our common stock
in excess of his pecuniary interest, if any.
(13) Represents 65,000 shares of common stock issuable under stock options
exercisable within 60 days.
(footnotes continued on next page)
95
(footnotes continued from previous page)
(14) Represents 40,000 shares of common stock issuable under stock options
exercisable within 60 days.
(15) Mr. Peterson is the founder and chairman of The Blackstone Group L.P. Mr.
Peterson disclaims beneficial ownership of all shares of our common stock
owner by Blackstone and its affiliated funds.
(16) Represents 65,000 shares of common stock issuable under stock options
exercisable within 60 days.
(17) Includes 4,534 shares of common stock acquired under our 401(k) Plan and
500,000 shares of common stock issuable under stock options exercisable
within 60 days.
(18) Includes 37,500 restricted shares of common stock, 441 shares of common
stock acquired under our 401(k) Plan and 100,000 shares of common stock
issuable under stock options exercisable within 60 days. Does not include
200,000 shares issuable under stock options that are not exercisable within
60 days.
(19) Includes 500 shares of common stock owned by Mr. Scelfo, 816 shares of
common stock acquired under our 401(k) Plan and 325,000 shares of common
stock issuable under stock options exercisable within 60 days. Does not
include 75,000 shares issuable under stock options that are not exercisable
within 60 days.
(20) Includes 6,670,000 shares of common stock issuable under stock options
exercisable within 60 days. Does not include 650,000 shares issuable under
stock options that are not exercisable within 60 days.
96
STOCKHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
To be eligible for inclusion in our proxy statement and form of proxy for
next year's annual meeting, stockholder proposals must be submitted in writing
by the close of business on January 20, 2003 to Patrick L. Donnelly, Executive
Vice President, General Counsel and Secretary, Sirius Satellite Radio Inc., 36th
Floor, 1221 Avenue of the Americas, New York, New York 10020.
If any proposal that is not submitted for inclusion in next year's proxy (as
described in the preceding paragraph) is instead sought to be presented directly
at next year's annual meeting, the proxies may vote in their discretion if (a)
we receive notice of the proposal before the close of business on January 20,
2003 and advise stockholders in next year's proxy statement about the nature of
the matter and how management intends to vote on such matter or (b) we do not
receive notice of the proposal prior to the close of business on January 20,
2003. Notices of intention to present proposals at next year's annual meeting
should be addressed to Patrick L. Donnelly, Executive Vice President, General
Counsel and Secretary, Sirius Satellite Radio Inc., 1221 Avenue of the Americas,
36th Floor, New York, New York 10020.
INCORPORATION BY REFERENCE
The SEC allows us to 'incorporate by reference' in this Proxy Statement
other information we file with it, which means that we can disclose important
information to you by referring you to those documents. This Proxy Statement
incorporates important business and financial information about us that is not
included in or delivered with this Proxy Statement. The information we file
later with the SEC will automatically update and supersede the information
included in and incorporated by reference in this Proxy Statement. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until
the date of the special meeting.
1. Our Annual Report on Form 10-K for the year ended December 31, 2001,
as amended by a Form 10-K/A dated April 30, 2002.
2. Our Quarterly Reports on Form 10-Q for the quarters ended after
December 31, 2001.
3. Our Current Reports on Form 8-K dated January 3, 2002, April 11, 2002
and October 22, 2002.
4. The description of our common stock contained in our Registration
Statement on Form 8-A filed pursuant to Section 12(b) of the Exchange Act.
We have filed each of these documents with the SEC. You may read and copy
any of these reports, statements or other information at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549 or at its
regional offices. You can request copies of those documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. Our SEC filings are also
available to the public at the SEC's internet site at http://www.sec.gov. You
may also request a copy of these filings, at no cost, by writing or calling us
at the following address or telephone number:
Patrick L. Donnelly
Executive Vice President, General Counsel and Secretary
Sirius Satellite Radio Inc.
1221 Avenue of the Americas, 36th floor
New York, New York 10020
(212) 584-5100
You should rely only on the information incorporated by reference or
provided in this Proxy Statement. We have not authorized anyone else to provide
you with different information.
97
OTHER MATTERS
Our board of directors does not intend to present, or have any reason to
believe other will present, any items of business other than those stated above.
If other matters are properly brought before the special meeting, the persons
named in the accompanying proxy will vote the shares represented by it in
accordance with the recommendation of our board of directors.
By Order of the Board of Directors,
PATRICK L. DONNELLY
Executive Vice President,
General Counsel and Secretary
New York, New York
December , 2002
98
EXHIBIT A
November 12, 2002
Independent Committee of the Board of Directors
of Sirius Satellite Radio Inc.
c/o Sirius Satellite Radio Inc.
1221 Avenue of the Americas
New York, NY 10020
Members of the Independent Committee:
We understand that Sirius Satellite Radio Inc. (the 'Company') proposes to
undertake the series of transactions described below for the purpose of
restructuring its existing debt and equity securities and obtaining new equity
financing (collectively, the 'Proposed Recapitalization'). The elements of the
Proposed Recapitalization are as follows:
The Company will make an offer to the holders of its 14 1/2% Senior Secured
Notes due 2009, 15% Senior Secured Discount Notes due 2007 and 8 3/4%
Convertible Subordinated Notes due 2009 (collectively, the 'Notes') and
term loans issued under the Term Loan Agreement, dated as of June 1, 2000
(as amended, the 'Term Loan Agreement'), between the Company and Lehman
Commercial Paper Inc. ('Lehman') and the term loans issued under the
Deferral Credit Agreement, dated as of April 15, 1999 (as amended, the
'Deferral Credit Agreement'), between the Company and Space Systems/Loral,
Inc. ('Loral') (collectively, the 'Term Loans'), which Notes and Term Loans
had an accreted principal amount of approximately $710 million as of
September 30, 2002, to exchange the Notes and the Term Loans for an
aggregate of up to approximately 597 million shares of the Company's common
stock, par value $0.01 per share (the 'Common Stock'), such consideration
to be ratably adjusted in the event the offer is not fully subscribed
(collectively, the 'Exchange Offer');
Pursuant to the lock-up agreement, dated as of October 17, 2002 (the
'Lock-Up Agreement'), among the Company, affiliates of Apollo Management,
L.P. ('Apollo'), affiliates of The Blackstone Group L.P. ('Blackstone', and
together with Apollo, the 'Sponsors'), OppenheimerFunds, Inc., as
investment adviser for its affiliates ('Oppenheimer'), Lehman, Loral and
certain holders of the Notes, the Company will issue to the Sponsors
(i) an aggregate of approximately 77 million shares of Common Stock and
(ii) warrants for approximately an additional 88 million shares of Common
Stock (the 'Warrants'), in consideration of the cancellation of the
Company's 9.2% Series A Junior Cumulative Convertible Preferred Stock, 9.2%
Series B Junior Cumulative Convertible Preferred Stock and 9.2% Series D
Junior Cumulative Convertible Preferred Stock having an aggregate
liquidation preference of approximately $519 million as of September 30,
2002, beneficially owned by the Sponsors (the 'Preferred Conversion');
Pursuant to the Lock-Up Agreement, the Company will issue and sell to the
Sponsors an aggregate of approximately 48 million shares of Common Stock
for aggregate consideration of $50,000,000 in cash (the 'Sponsors' New
Money Investment'); and
Pursuant to the Lock-Up Agreement, the Company will issue and sell to
Oppenheimer an aggregate of approximately 164 million shares of Common
Stock for aggregate consideration of $150,000,000 in cash (the 'Oppenheimer
New Money Investment', together with the Sponsors' New Money Investment,
the 'New Money Component').
As a result of the foregoing transactions, the outstanding Common Stock
owned by the Company's existing holders of Common Stock will be reduced to
approximately 8.0% (or approximately 7.3% on a fully diluted basis, giving
effect to the shares of Common Stock issuable under the Warrants to be issued to
the Sponsors in connection with the Preferred Conversion).
You have requested our opinion as to the fairness, from a financial point of
view, of the Proposed Recapitalization to the existing holders of Common Stock
other than the Sponsors and Oppenheimer (collectively, the 'Non-Participating
Stockholders').
A-1
In connection with rendering our opinion, we have reviewed the Lock-Up
Agreement and drafts of the exchange offer documents and consent solicitation
materials for the Proposed Recapitalization; for the purposes this opinion we
have assumed that the final forms of any such documents that we have reviewed in
draft form will not differ in any material respect from the drafts provided to
us. We have also reviewed and analyzed certain publicly available business and
financial information relating to the Company for recent years and interim
periods to date, as well as certain internal financial and operating
information, including financial forecasts, analyses and projections prepared by
or on behalf of the Company and provided to us for the purposes of our analysis.
We have also met with the management of the Company to review and discuss such
information and, among other matters, the Company's past and current business,
operations, assets, liabilities, financial condition and prospects, including
management's view of the risks and uncertainties associated with not pursuing
the Proposed Recapitalization. In addition, we have had numerous discussions
with the Company and its financial advisor, UBS Warburg LLC ('UBS'), concerning
the process, status and prospects of the Company's solicitation of alternative
sources of financing and other potential strategic alternatives, including the
identity of the third parties contacted and the discussions between the Company
and UBS and such third parties.
We have also reviewed and considered certain financial and stock market data
relating to the Company, compared that data with similar data for certain other
companies, the securities of which are publicly traded, that we believe are
comparable in certain respects to the Company, and performed such other
financial studies, analyses and investigations and reviewed such other
information as we considered appropriate for purposes of this opinion.
In evaluating the Company's financial condition and prospects, we have been
advised by the Company that:
(i) based on the Company's financial projections, assuming no financing
or delevering transaction, the Company's projected funding gap prior to its
projected cash flow breakeven will be approximately $600 million;
(ii) based on the Company's financial projections, the absence of
available borrowing capacity and its current cash position, if the Company
were to meet all its existing payment obligations, including debt service,
the Company would exhaust its cash resources prior to the end of the second
quarter of the Company's 2003 fiscal year and would no longer be able to
conduct its operations after such date without additional financing;
(iii) unless the Company enters into the Proposed Recapitalization or an
alternative cash financing transaction within the next six months, it will
be forced to commence bankruptcy proceedings;
(iv) the Company and UBS have aggressively solicited indications of
interest for a new capital investment in the Company from numerous strategic
and financial investors (including from holders of the Notes and Term Loans)
but have not received any indications of interest for a transaction that
would adequately address the Company's liquidity needs; and
(v) based on the Company's financial projections, following the
consummation of the Proposed Recapitalization the Company will have
sufficient liquidity to fund expected negative cash flow from operations and
any residual debt service through the end of the first quarter of the
Company's 2004 fiscal year and the Company's projected funding gap prior to
its projected cash flow break-even should not exceed $75 million.
As you know, we did not participate in, or otherwise independently verify,
the solicitation activities referenced above. Accordingly, with your consent, we
have placed significant reliance on the quality and thoroughness of the
solicitation efforts undertaken by the Company and UBS to support the Company's
conclusion that no viable alternative source of financing is available.
Moreover, we have placed substantially greater reliance on the matters described
in clauses (i) through (v) above than on the financial analysis that we have
performed as a result of our belief that (a) our discounted cash flow analysis
is of limited utility in valuing enterprises in severe financial distress that
have a demonstrated lack of financing alternatives and (b) our analysis of
trading prices of the securities of other companies and our analysis of
acquisitions of other companies cannot yield directly relevant findings due to,
among other things, (1) the absence of
A-2
accepted metrics by which to compare the Company to such other companies given
the early stage of development of the Company's business and (2) the absence of
a sufficient number of directly comparable companies.
In our review and analysis and in formulating our opinion, we have with your
consent assumed and relied upon the accuracy and completeness of all financial
and other information provided to us (including the matters referred to in
clauses (i) through (v) of the second preceding paragraph) or otherwise publicly
available, and we have not assumed any responsibility for the independent
verification of such information. We have similarly assumed and relied upon the
reasonableness and accuracy of the financial projections, forecasts and analyses
provided to us, and we have assumed that such projections, forecasts and
analyses were reasonably prepared in good faith and reflect the best currently
available judgements and estimates of the Company's management. We express no
opinion with respect to such projections, forecasts and analyses or the
assumptions upon which they are based. Moreover, we have not reviewed any of the
books and records of the Company, or assumed any responsibility for conducting a
physical inspection of the properties or facilities of the Company, or for
making or obtaining an independent valuation or appraisal of the assets or
liabilities of the Company, and no such independent valuation or appraisal was
provided to us. Our opinion is necessarily based on economic and market
conditions and other circumstances as they exist and can be evaluated by us as
of the date hereof. We are not expressing any opinion herein as to the prices at
which any securities of the Company will actually trade at any time.
We are acting as financial advisor to the Independent Committee of the Board
of Directors of the Company in connection with the Proposed Recapitalization and
will receive a fee for our services, as well as a fee for rendering this
opinion. Pursuant to our engagement agreement dated June 5, 2002 with the
Independent Committee and the Company, we have, from time to time, worked in
conjunction with professionals of Dresdner Kleinwort Wasserstein, Inc. ('DrKW')
in fulfilling the terms of our engagement. In the ordinary course of business,
DrKW may actively trade the equity or debt securities of the Company for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
This opinion only addresses the fairness, from a financial point of view, to
the Non-Participating Stockholders of the Proposed Recapitalization. This
opinion does not address the Company's underlying business decision to effect
the Proposed Recapitalization, the price of the New Money Component, the prices
implied by the conversion of obligations and interests under the Proposed
Recapitalization, whether any other transaction might have been available as an
alternative to the Proposed Recapitalization, or the terms upon which any such
alternative transaction could be or would have been achieved. In addition, this
opinion does not address the solvency of the Company following consummation of
the Proposed Recapitalization or at any other time.
It is understood that this opinion is for the benefit and use of the
Independent Committee of the Board of Directors of the Company in its
consideration of the Proposed Recapitalization and may not be relied upon by any
other person. This opinion may be reproduced in full in any proxy statement
mailed to stockholders of the Company in connection with the Proposed
Recapitalization but may not otherwise be quoted, referred to or reproduced at
any time or in any manner without our prior written consent. This opinion does
not constitute a recommendation to any stockholder or any other person as to how
such holder or person should vote with respect to the Proposed Recapitalization,
and should not be relied upon by any stockholder or other person as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the terms of the Proposed Recapitalization are fair to the Non-Participating
Stockholders from a financial point of view.
Very truly yours,
/s/ MILLER BUCKFIRE LEWIS & CO., LLC
A-3
EXHIBIT B
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------
In re: |
|
|
| Chapter 11
Sirius Satellite Radio Inc.,Debtor. | Case No.
|
---------------------------------------------
DEBTOR'S PREPACKAGED PLAN OF REORGANIZATION
( , 2003)
TUTMAN, TREISTER & GLATT P.C.
Frank A. Merola, Eric D. Goldberg
3699 Wilshire Blvd., Suite 900
Los Angeles, California 90010
(213) 251-5100
-and-
SIMPSON THACHER & BARTLETT
Gary L. Sellers, Michele C. David
425 Lexington Avenue
New York, NY 10017-3954
(212) 455-2000
Attorneys for Sirius Satellite Radio Inc.
Debtor and Debtor in Possession
New York, New York
____________________, 2003
NO CHAPTER 11 CASE HAS BEEN COMMENCED AT THIS TIME. THE SOLICITATION MATERIALS
ACCOMPANYING THIS PLAN OF REORGANIZATION HAVE NOT BEEN APPROVED BY THE
BANKRUPTCY COURT AS CONTAINING 'ADEQUATE INFORMATION' WITHIN THE MEANING OF
BANKRUPTCY CODE SECTION 1125(a). FOLLOWING THE COMMENCEMENT OF ITS CHAPTER 11
CASE, THE DEBTOR EXPECTS TO PROMPTLY SEEK AN ORDER OF THE BANKRUPTCY COURT
(1) APPROVING THE SOLICITATION OF VOTES AS HAVING BEEN IN COMPLIANCE WITH
BANKRUPTCY CODE SECTION 1126(b); AND (2) CONFIRMING THE PLAN OF REORGANIZATION
PURSUANT TO BANKRUPTCY CODE SECTION 1129.
B-1
Sirius Satellite Radio Inc., a Delaware corporation (the 'Debtor'), hereby
submits the following 'Debtor's Prepackaged Plan of Reorganization
( , 2003)' (the 'Plan') and requests confirmation of the Plan pursuant
to section 1129 of the Bankruptcy Code. All Holders of Claims and Interests are
encouraged to read the Plan and the accompanying solicitation materials in their
entirety before voting to accept or reject the Plan. No materials other than the
accompanying solicitation materials and any exhibits and schedules attached
thereto or referenced therein have been authorized by the Debtor for use in
soliciting acceptances or rejections of the Plan.
ARTICLE I
DEFINITIONS, RULES OF INTERPRETATION,
AND COMPUTATION OF TIME
A. DEFINITIONS
As used in the Plan, the following terms shall have the following meanings:
1.1 'ADMINISTRATIVE CLAIM' means an Unsecured Claim: (a) for costs and
expenses of administration of the Reorganization Case incurred prior to
the Effective Date and allowable under Bankruptcy Code section 503(b) or
507(b); and (b) Professional Fee Claims.
1.2 'AGGREGATE LIQUIDATION PREFERENCE' means the aggregate liquidation
preferences for any class of Preferred Stock as listed in the Schedules.
1.3 'ALLOWED CLAIM' means:
(a) any Claim that is Scheduled by the Debtor as liquidated in amount and
not disputed nor contingent and no objection to the allowance of the
Claim, or request to estimate the Claim, has been interposed within
any time period provided under the Plan or under applicable law; or
(b) any Disputed Claim, the amount of which Claim has been determined by
a Final Order; or
(c) any Claim that is specified as an Allowed Claim under the Plan or the
Confirmation Order.
1.4 'ALLOWED INTEREST' means:
(a) any Interest that is Scheduled by the Debtor as liquidated in amount
and not disputed nor contingent and no objection to the allowance of
the Interest, or request to estimate the Interest, has been
interposed within any time period provided under the Plan or under
applicable law; or
(b) any Disputed Interest, the amount of which Disputed Interest has been
determined by a Final Order; or
(c) any Interest that is specified as an Allowed Interest under the Plan
or the Confirmation Order.
1.5 'ALLOWED CLAIM' or 'ALLOWED INTEREST' means an Allowed Claim or
Allowed Interest: (a) in the specified Class (as described in the Plan);
or (b) of the type of unclassified Claim that is specified.
1.6 'ANNEX' means an Annex to the Plan.
1.7 'ANNEX FILING DATE' means a Business Day selected by the Debtor for
Filing all Annexes to the Plan, which day shall not be less than seven
(7) days prior to the Confirmation Hearing.
1.8 'BALLOT RECORD DATE' means , 2003.
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1.9 'BANKRUPTCY CODE' means the Bankruptcy Reform Act of 1978, as codified
in title 11 of the United States Code, 11 U.S.C. 'SS'SS' 101 et seq., as
now in effect or hereafter amended (to the extent any such amendments
apply to this Reorganization Case).
1.10 'BANKRUPTCY COURT' means the United States Bankruptcy Court for the
Southern District of New York, or any other court with jurisdiction
over this Reorganization Case.
1.11 'BANKRUPTCY RULES' means, collectively, the (a) Federal Rules of
Bankruptcy Procedure and (b) Local Rules of the Bankruptcy Court, all
as now in effect or hereafter amended (to the extent any such
amendments apply to this Reorganization Case).
1.12 'BNY' means The Bank of New York, a bank duly organized and existing
under the laws of the State of New York and any successor thereto.
1.13 'BUSINESS DAY' means any day, excluding Saturdays, Sundays or 'legal
holidays' as defined in Bankruptcy Rule 9006(a).
1.14 'CASH' means legal tender of the United States of America.
1.15 'CLAIM' means a 'claim', as defined in Bankruptcy Code section 101(5),
against the Debtor.
1.16 'CLASS' means one of the classes of Claims or Interests listed in
Article II.
1.17 'COMMITTEE' means the official committee or committees, if any,
appointed in the Reorganization Case pursuant to Bankruptcy Code
section 1102 as such committee or committees may be reconstituted from
time to time.
1.18 'COMMON STOCK' means the common stock, par value $0.001 per share, of
the Debtor.
1.19 'CONFIRMATION' means the Bankruptcy Court's confirmation of the Plan
pursuant to Bankruptcy Code section 1129.
1.20 'CONFIRMATION DATE' means the day on which the Confirmation Order is
entered by the Bankruptcy Court on its docket.
1.21 'CONFIRMATION HEARING' means the hearing held pursuant to Bankruptcy
Rule 3020(b)(2), including any adjournments thereof, at which the
Bankruptcy Court will consider Confirmation of the Plan.
1.22 'CONFIRMATION ORDER' means the Order of the Bankruptcy Court approving
Confirmation of the Plan.
1.23 'CONVERTIBLE SUBORDINATED NOTE CLAIM' means all Claims arising under or
related to the Convertible Subordinated Notes or the Convertible
Subordinated Notes Indenture.
1.24 'CONVERTIBLE SUBORDINATED NOTES' means the 8 3/4% Convertible
Subordinated Notes due 2009, in a currently outstanding aggregate
principal amount of $16,461,000, issued by the Debtor pursuant to the
Convertible Subordinated Notes Indenture.
1.25 'CONVERTIBLE SUBORDINATED NOTES INDENTURE' means the Indenture and the
First Supplemental Indenture (as amended, modified or supplemented from
time to time), each dated as of September 29, 1999, between the Debtor
and BNY (as successor to U.S. Trust Company of Texas, N.A.), as
trustee.
1.26 'CONVERTIBLE SUBORDINATED NOTES INDENTURE TRUSTEE' means BNY or any
successor trustee under the Convertible Subordinated Notes Indenture.
1.27 'CORPORATE DOCUMENTS' means, as applicable, the certificate of
incorporation and by-laws (or any other applicable organizational
documents) of the Debtor in effect as of the Petition Date.
1.28 'DEBTOR' means Sirius Satellite Radio Inc., formerly known as CD Radio
Inc.
1.29 'DEBTOR IN POSSESSION' means the Debtor when acting in the capacity of
representative of its Estate in the Reorganization Case.
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1.30 'DISALLOWED CLAIM' or 'Disallowed Interest' means any Claim against, or
Interest in, the Debtor that has been disallowed, in whole or in part,
by a Final Order, or which has been withdrawn, in whole or in part, by
the Holder thereof.
1.31 'DISBURSING AGENT' means the Reorganized Debtor and/or one or more
parties designated by the Debtor or Reorganized Debtor, in its sole
discretion, to serve as a disbursing agent under the Plan.
1.32 'DISPUTED CLAIM' means a Claim as to which any one of the following
applies:
(a) the Claim is not Scheduled;
(b) the Claim is Scheduled as unliquidated, disputed, contingent or
unknown;
(c) the Claim is the subject of a timely objection or request for
estimation in accordance with the Bankruptcy Code, the Bankruptcy
Rules, any applicable order of the Bankruptcy Court, the Plan or
applicable non-bankruptcy law, which objection or request for
estimation has not been withdrawn or determined by a Final Order;
or
(d) the Claim is otherwise treated as a 'Disputed Claim' pursuant to
the Plan.
1.33 'DISPUTED INTEREST' means an Interest as to which any one of the
following applies:
(a) the Interest is not Scheduled;
(b) the Interest is Scheduled as unliquidated, disputed, contingent or
unknown;
(c) the Interest is the subject of a timely objection or request for
estimation in accordance with the Bankruptcy Code, the Bankruptcy
Rules, any applicable order of the Bankruptcy Court, the Plan or
applicable non-bankruptcy law, which objection or request for
estimation has not been withdrawn or determined by a Final Order;
or
(d) the Interest is otherwise treated as a 'Disputed Interest' pursuant
to the Plan.
1.34 'DISPUTED RESERVE' means the reserve established pursuant to section
VI.N.2 hereof to hold the Cash, New Common Stock or New Warrants that
would be distributed to the Holder of a Disputed Claim or Disputed
Interest upon becoming an Allowed Claim or Allowed Interest.
1.35 'DISTRIBUTION DATE' means, with respect to distributions under the Plan
to Holders of Allowed Claims or Allowed Interests, the date, occurring
on or as soon as practicable after the later of:
(a) the Effective Date;
(b) the date when a Claim becomes an Allowed Claim or an Interest
becomes an Allowed Interest, as applicable; and
(c) the date when the Disbursing Agent can make a distribution to a
Holder of Allowed Claims and Allowed Interests as provided in
Article VI hereof.
1.36 'DISTRIBUTION RECORD DATE' means the record date for purposes of making
distributions under the Plan on account of Allowed Claims or Allowed
Interests, which date shall be the Effective Date.
1.37 'EFFECTIVE DATE' has the meaning ascribed to it in Article VIII hereof.
1.38 'ESTATE' means the estate of the Debtor in the Reorganization Case as
created under Bankruptcy Code section 541.
1.39 'FCC' means the Federal Communications Commission.
1.40 'FCC LICENSES' means all licenses, permits and authorizations issued by
the FCC or any department, division or bureau of the FCC that are held
by the Debtor or its subsidiary as of the Petition Date.
1.41 'FILE' or 'FILED' means file or filed with the Clerk of the Bankruptcy
Court, as applicable.
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1.42 'FINAL ORDER' means an Order of the Bankruptcy Court or other
applicable court of competent jurisdiction, as entered on its docket,
which has not been reversed, stayed, modified, or amended, that is in
full force and effect, and as to which:
(a) the time to seek a rehearing, to appeal or seek certiorari has
expired and no request for rehearing, appeal or petition for
certiorari has been timely filed; or
(b) any rehearing or appeal that has been or may be taken or any
petition for certiorari that has been or may be filed has been
resolved by the highest court (or any other tribunal having
appellate jurisdiction over the order or judgment) to which the
order or judgment was reheard, appealed or from which certiorari
was sought.
1.43 'GENERAL UNSECURED CLAIM' means any Unsecured Claim against the Debtor
that is not (a) included in Classes 1 through 6, inclusive, (b) an
Administrative Claim; or (c) a Priority Tax Claim.
1.44 'HOLDER' means any individual, corporation, limited or general
partnership, limited liability company, joint venture, association,
joint stock company, estate, trust, trustee, unincorporated
organization, government, governmental entity, agency or political
subdivision thereof.
1.45 'IMPAIRED' means, when used with reference to a Claim or Interest, a
Claim or Interest that is impaired within the meaning of Bankruptcy
Code section 1124.
1.46 'INDENTURES' means, collectively, the Senior Secured Discount Notes
Indenture, the Senior Secured Notes Indenture and the Convertible
Subordinated Notes Indenture.
1.47 'INDENTURE TRUSTEE' means, collectively, the Senior Secured Notes
Indenture Trustee; the Senior Discount Notes Indenture Trustee and the
Convertible Subordinated Notes Indenture Trustee.
1.48 'INFORMAL CREDITORS' COMMITTEE' means the informal committee of
creditors that negotiated the Lock Up Agreement with the Debtor,
consisting of LCPI, SS/L and the following Noteholders: Continental
Casualty Company, Stonehill Capital Management LLC, Redwood Asset
Management, Farallon Capital Management, LLC, Dreyfus and The Huff
Alternative Fund, L.P.
1.49 'INSTRUMENT' means any share of stock, security, promissory note, bond,
or any other 'Instrument,' as that term is defined in section 9-102(47)
of the Uniform Commercial Code in effect in the state of New York on
the Petition Date.
1.50 'INSURED CLAIMS' means any Claims that are covered by insurance
policies maintained by or for the benefit of the Debtor, but only to
the extent of insurance coverage under such insurance policies.
1.51 'INTEREST' means an 'equity security', as defined in Bankruptcy Code
section 101(16), of the Debtor.
1.52 'LCPI' means Lehman Commercial Paper Inc.
1.53 'LEHMAN' means, collectively, Lehman Brothers Inc. and LCPI.
1.54 'LEHMAN CREDIT FACILITY' means that certain existing $150,000,000
senior secured credit facility evidenced by the Term Loan Agreement (as
amended, modified or supplemented from time to time), dated as of
June 1, 2000, among the Debtor, as borrower, the several lenders from
time to time parties thereto, Lehman Brothers Inc., as arranger, and
LCPI, as syndication agent and administrative agent.
1.55 'LEHMAN SENIOR CREDIT FACILITY CLAIMS' means all Claims (both Secured
Claims and Unsecured Claims) arising out of or related to the Lehman
Credit Facility.
1.56 'LOCK UP AGREEMENT' means the Lock Up Agreement, dated as of
October 17, 2002, as amended from time to time, including the
schedules, annexes and exhibits thereto, among the Debtor, Apollo
Investment Fund IV, L.P., a Delaware limited partnership ('AIF'),
Apollo Overseas Partners IV, L.P., a Cayman Islands limited partnership
('AOP', and
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together with AIF, 'Apollo'), Blackstone CCC Capital Partners L.P., a
Delaware limited partnership ('BCC'), Blackstone CCC Offshore Capital
Partners L.P., a Cayman Islands limited partnership ('BCO'), Blackstone
Family Investment Partnership III L.P., a Delaware limited partnership
('BF'), LJH Partners, L.P., a Delaware limited partnership ('LJH'),
Robert C. Fanch Revocable Trust ('Fanch'), BCI Investments II, LLC, a
Delaware limited liability company ('BCI', and together with BCC, BCO,
BF, LJH and Fanch, 'Blackstone'), SS/L, LCPI, and the beneficial owners
(or investment managers or advisors for the beneficial owners) of the
Notes identified on Schedule A to such agreement on the date thereof
and each other beneficial owner (or investment managers or advisors for
the beneficial owners) of Notes that executes a counterpart signature
page to such agreement, or enters into a joinder agreement, after the
date of such agreement.
1.57 'LOCK UP SIGNATORY' means all entities that have or will execute the
Lock Up Agreement, or a joinder agreement relating to the Lock Up
Agreement, prior to the Confirmation Date, other than the Debtor.
1.58 'NEW A WARRANTS' means warrants to purchase 52,546,269 shares of New
Common Stock at an exercise price of $1.04 per share.
1.59 'NEW B WARRANTS' means warrants to purchase 35,030,846 shares of New
Common Stock at an exercise price of $.92 per share.
1.60 'NEW COMMON STOCK' means the Common Stock of the Reorganized Debtor to
be issued on the Effective Date pursuant to Article VI.H. hereof.
1.61 'NEW EQUITY INVESTMENT' means the purchase of New Common Stock for $200
million in Cash as provided for in Article V.F. hereof.
1.62 'NEW WARRANTS' means, collectively, the New A Warrants and New B
Warrants to be issued on the Effective Date to purchase an aggregate of
87,577,115 shares of New Common Stock. The New Warrants shall expire on
the second anniversary of the Effective Date.
1.63 'NOTES' means, collectively, the Senior Secured Discount Notes, the
Senior Secured Notes and the Convertible Subordinated Notes.
1.64 'OLD COMMON STOCK' means the Common Stock of the Debtor issued and
outstanding as of the Petition Date.
1.65 'OPPENHEIMER' means OppenheimerFunds, Inc.
1.66 'ORDER' means an order or judgment of the Bankruptcy Court as entered
on the docket.
1.67 'OTHER INTERESTS' means all Interests in the Debtor as of the Petition
Date that are not included in Classes 8 and 9, inclusive. Other
Interests shall include the Interests of Holders of warrants to
purchase Old Common Stock issued and outstanding on the Petition Date
and options to purchase Old Common Stock issued and outstanding on the
Petition Date.
1.68 'OTHER PRIORITY CLAIM' means a Claim entitled to priority under
Bankruptcy Code sections 507(a)(2),(3),(4),(5),(6),(7) and/or (9).
1.69 'OTHER SECURED CLAIM' means any Secured Claim against the Debtor, other
than Claims in Classes 2 and 3. Each Other Secured Claim shall be
classified in its own Subclass and be subject to treatment as set forth
in Article III.C.3.
1.70 'PETITION DATE' means the date on which the Debtor files its voluntary
petition commencing the Reorganization Case.
1.71 'PLAN' means this plan of reorganization, as it may be amended,
modified, or supplemented from time to time.
1.72 'PLAN DOCUMENTS' means the documents contemplated by or executed in
connection with the Plan.
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1.73 'PREFERRED STOCK' means, collectively, Series A Preferred Stock, Series
B Preferred Stock and Series D Preferred Stock.
1.74 'PREPETITION COLLATERAL AGREEMENTS' means, collectively, the Second
Amended and Restated Pledge Agreement, dated as of March 7, 2001, among
the Debtor, as pledgor, BNY, as trustee and collateral agent, United
States Trust Company of New York, as trustee, and LCPI, as
administrative agent, and the Collateral Agreement, dated as of
March 7, 2001, between the Debtor, as borrower, and BNY, as collateral
agent.
1.75 'PREPETITION RESTRUCTURING EFFORTS' means the exchange offer, proxy
solicitation, or any other act the Debtor undertook, to restructure its
outstanding indebtedness after the date of the Lock Up Agreement but
prior to the Petition Date.
1.76 'PRIORITY TAX CLAIM' means a Claim that is entitled to priority under
section 507(a)(8) of the Bankruptcy Code.
1.77 'PROFESSIONAL FEE CLAIMS' means the Claims of Professional Persons for
compensation or reimbursement of costs and expenses relating to
services performed after the Petition Date and to and including the
Effective Date.
1.78 'PROFESSIONAL PERSON' means a professional person, as that term is used
in sections 327, 328, 330, 331, 503(b)(2) and/or 1103 of the Bankruptcy
Code, who is employed by the Debtor or the Committee directly in
connection with the Reorganization Case.
1.79 'PRO RATA' means proportionately so that the ratio of
(a) the amount of consideration (such as New Common Stock) distributed
on account of a particular Allowed Claim or Allowed Interest to
(b) the amount of such Allowed Claim or Allowed Interest, is the same
as the ratio of:
(x) the amount of consideration distributed on account of all Allowed
Claims or Allowed Interests of that Class to
(y) the amount of all Allowed Claims or Allowed Interests of that
Class.
1.80 'REORGANIZATION CASE' means the bankruptcy case of the Debtor commenced
under chapter 11 of the Bankruptcy Code, captioned In re Sirius
Satellite Radio Inc. (Case No. ).
1.81 'REORGANIZED DEBTOR' means the Debtor as revested with the property of
the Estate on and after the Effective Date.
1.82 'RESTATED CORPORATE DOCUMENTS' means as applicable, the amended and
restated certificate of incorporation and by-laws (or any other
applicable organizational documents) of the Reorganized Debtor in
effect on the Effective Date, a copy of which will be filed as an Annex
to the Plan on or before the Annex Filing Date.
1.83 'SCHEDULED' means set forth on the Schedules.
1.84 'SCHEDULES' means the Schedules of Assets and Liabilities that have
been filed by the Debtor with the Bankruptcy Court pursuant to
Bankruptcy Rule 1007(b), as the same may be amended from time to time.
1.85 'SECURED CLAIM' means any Claim that is a secured claim within the
meaning of, and to the extent allowable as a secured claim under,
section 506 of the Bankruptcy Code.
1.86 'SENIOR SECURED CLAIMS' means, collectively, the:
(a) Senior Secured Discount Notes Claims;
(b) Senior Secured Notes Claims;
(c) Lehman Senior Credit Facility Claims.
All of the Senior Secured Claims are secured by the Prepetition
Collateral Agreements.
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1.87 'SENIOR SECURED DISCOUNT NOTES CLAIMS' means all Claims (both Secured
Claims and Unsecured Claims) arising out of or related to the Senior
Secured Discount Notes or the Senior Secured Discount Notes Indenture.
1.88 'SENIOR SECURED DISCOUNT NOTES' means the 15% Senior Secured Discount
Notes due 2007, in the aggregate principal amount at maturity of
$280,430,000, issued by the Debtor pursuant to the Senior Secured
Discount Notes Indenture.
1.89 'SENIOR SECURED DISCOUNT NOTES INDENTURE' means the Indenture (as
amended, modified or supplemented from time to time), dated as of
November 26, 1997, between the Debtor, as issuer, and BNY (as successor
to IBJ Schroder Bank & Trust Company), as trustee.
1.90 'SENIOR SECURED DISCOUNT NOTES INDENTURE TRUSTEE' means BNY or any
successor trustee under the Senior Secured Discount Notes Indenture.
1.91 'SENIOR SECURED NOTES' means the 14 1/2% Senior Secured Notes due 2009,
in the aggregate principal amount of $200,000,000, issued by the Debtor
pursuant to the Senior Secured Notes Indenture.
1.92 'SENIOR SECURED NOTES CLAIMS' means all Claims (both Secured Claims and
Unsecured Claims) arising out of or related to the Senior Secured Notes
or the Senior Secured Notes Indenture.
1.93 'SENIOR SECURED NOTES INDENTURE' means the Indenture (as amended,
modified or supplemented from time to time), dated as of May 15, 1999,
between the Debtor, as issuer, and BNY (as successor to United States
Trust Company of New York), as trustee.
1.94 'SENIOR SECURED NOTES INDENTURE TRUSTEE' means BNY or any successor
trustee under the Senior Secured Notes Indenture.
1.95 'SERIES A PREFERRED STOCK' means the Debtor's 9.2% Series A Junior
Cumulative Convertible Preferred Stock issued and outstanding as of the
Petition Date.
1.96 'SERIES B PREFERRED STOCK' means the Debtor's 9.2% Series B Junior
Cumulative Convertible Preferred Stock issued and outstanding as of the
Petition Date.
1.97 'SERIES D PREFERRED STOCK' means the Debtor's 9.2% Series D Junior
Cumulative Convertible Preferred Stock issued and outstanding as of the
Petition Date.
1.98 'SS/L' means Space Systems/Loral, Inc., a Delaware corporation.
1.99 'SS/L CLAIMS' means Claims (both Secured Claims and Unsecured Claims)
arising out of or related to the SS/L Credit Agreement.
1.100 'SS/L CREDIT AGREEMENT' means the Deferral Credit Agreement (as
amended, modified or supplemented from time to time), dated as of
April 15, 1999, by and between the Debtor and SS/L, as lender.
1.101 'STIPULATED DISTRIBUTION BASIS' means, in relation to any Class or
Subclass of Claims, the sum of: (a) the aggregate face amount of all
outstanding debt classified therein; and (b) the aggregate amount of
regular Cash interest payments that are accrued but unpaid as of
March 15, 2003, which amounts were agreed to by the Debtor and the
Informal Creditors' Committee.
1.102 'SUBCLASS' means a subdivision of any Class described herein (whether
for purposes of voting or distribution).
1.103 'UNSECURED CLAIM' means any Claim against the Debtor that is not an
Other Priority Claim, Priority Tax Claim or Secured Claim.
1.104 'U.S. TRUSTEE' means the Office of the United States Trustee.
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B. INTERPRETATION, RULES OF CONSTRUCTION, COMPUTATION OF TIME, AND GOVERNING
LAW.
1. DEFINED TERMS.
Any term used in the Plan that is not defined in the Plan, either in
section I.A or elsewhere, but that is used in the Bankruptcy Code or the
Bankruptcy Rules has the meaning ascribed to that term in the Bankruptcy
Code or the Bankruptcy Rules.
2. RULES OF INTERPRETATION.
For purposes of the Plan: (a) whenever from the context it is
appropriate, each term, whether stated in the singular or the plural, shall
include both the singular and the plural; (b) any reference in the Plan to a
contract, Instrument, release or other agreement or document being in a
particular form or on particular terms and conditions means that such
document shall be substantially in such form or substantially on such terms
and conditions, but if there exists any inconsistency between a summary of,
or reference to, any document in the Plan or Confirmation Order and the
document itself, the terms of the document as of the Effective Date shall
control; (c) any reference in the Plan to an existing document or Annex
Filed or to be Filed means such document or Annex, as it may have been or
may subsequently be amended, modified or supplemented; (d) unless otherwise
specified in a particular reference, all references in the Plan to
'section,' 'article' and 'Annex' are references to a section, article and
Annex of or to the Plan; (e) the words 'herein,' 'hereof,' 'hereto,'
'hereunder,' and other words of similar import refer to the Plan in its
entirety rather than to only a particular portion of the Plan; (f) captions
and headings to articles and sections are inserted for convenience or
reference only and are not intended to be a part of or to affect the
interpretation of the Plan; and (g) the rules of construction set forth in
Bankruptcy Code section 102 shall apply.
3. TIME PERIODS.
In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply.
4. GOVERNING LAW.
Except to the extent that the Bankruptcy Code or Bankruptcy Rules are
applicable, and subject to the provisions of any contract, Instrument,
release, or other agreement or document entered into in connection with the
Plan, the rights and obligations arising under the Plan shall be governed
by, and construed and enforced in accordance with, the laws of the State of
New York.
ARTICLE II
DESIGNATION OF CLAIMS AND INTERESTS
The following is a designation of the Classes of Claims and Interests under
the Plan. In accordance with Bankruptcy Code section 1123(a)(1), Administrative
Claims and Priority Tax Claims have not been classified and are excluded from
the following Classes. A Claim or Interest is classified in a particular Class
only to the extent that the Claim or Interest is within the description of that
Class and is classified in another Class to the extent that any remainder of the
Claim or Interest qualifies within the description of such other Class or
Classes. A Claim or Interest is classified in a particular Class only to the
extent that the Claim or Interest is an Allowed Claim or Allowed Interest and
has not be paid, released or otherwise satisfied before the Effective Date.
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A. CLASS 1 (OTHER PRIORITY CLAIMS).
Class 1 consists of all Other Priority Claims.
B. SECURED CLAIMS.
1. CLASS 2 (SENIOR SECURED CLAIMS).
Class 2 consists of all Senior Secured Claims.
2. CLASS 3 (SS/L CLAIMS).
Class 3 consists of all SS/L Claims.
3. CLASS 4 (OTHER SECURED CLAIMS).
Class 4 consists of all Other Secured Claims. Each Other Secured Claim
shall be classified in its own Subclass.
C. UNSECURED CLAIMS.
1. CLASS 5 (CONVERTIBLE SUBORDINATED NOTE CLAIMS).
Class 5 consists of all Convertible Subordinated Note Claims.
2. CLASS 6 (INSURED CLAIMS).
Class 6 consists of all Insured Claims.
3. CLASS 7 (GENERAL UNSECURED CLAIMS).
Class 7 consists of all General Unsecured Claims.
D. INTERESTS.
1. CLASS 8 (PREFERRED STOCK).
Class 8 consists of all Interests that are Preferred Stock.
2. CLASS 9 (COMMON STOCK).
Class 9 consists of all Interests that are Common Stock.
3. CLASS 10 (OTHER INTERESTS).
Class 10 consists of all Other Interests.
ARTICLE III
TREATMENT OF CLAIMS AND INTERESTS
A. UNCLASSIFIED CLAIMS.
In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative
Claims and Priority Tax Claims are not classified and are not entitled to vote
on the Plan.
1. ADMINISTRATIVE CLAIMS.
A. GENERALLY.
Subject to the bar date provisions contained herein, each Holder of an
Allowed Administrative Claim shall, in full satisfaction, release, and
discharge of such Allowed Administrative Claim: (i) to the extent such Claim
is due and owing on the Effective Date, be
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paid in full, in Cash, on the Distribution Date; (ii) to the extent such
Claim is not due and owing on the Effective Date, be paid in full, in Cash,
in accordance with the terms of any agreement between the Debtor and such
Holder, or as may be due and owing under applicable non-bankruptcy law or in
the ordinary course of business; or (iii) on such other terms and conditions
as are acceptable to the Debtor and the Holder of such Claim.
B. BAR DATE FOR ADMINISTRATIVE CLAIMS.
(1) GENERAL PROVISIONS.
Except for (a) non-tax liabilities incurred in the ordinary course of
business by the Debtor in Possession, (b) claims by governmental units for
payment of taxes (and interest and/or penalties related to such taxes) and
(c) claims for U.S. Trustee fees under 28 U.S.C. 'SS' 1930, all requests for
payment of Administrative Claims must be Filed and served on counsel for the
Reorganized Debtor and any other party specifically requesting a copy in
writing, no later than thirty (30) days after the Effective Date. Holders of
Administrative Claims that are required to File a request for payment of
such claims and that do not File and serve such requests by the applicable
bar date set forth herein or in the following subsections shall be forever
barred from asserting such claims against the Debtor, the Reorganized Debtor
or its property.
(2) PROFESSIONAL FEE CLAIMS AND REQUESTS FOR 'SUBSTANTIAL
CONTRIBUTION'.
All Professional Persons asserting Professional Fee Claims and any
entity requesting a claim for making a 'substantial contribution' in the
Reorganization Case shall File and serve on counsel for the Reorganized
Debtor, the U.S. Trustee and any other party specifically requesting a copy
in writing an application for a Professional Fee Claim no later than thirty
(30) days after the Effective Date. Any interested party desiring to object
to the Professional Fee Claim must File and serve its objection on the
Reorganized Debtor, the U.S. Trustee, and the Professional Person to whose
application the objections are addressed no later than forty-five (45) days
after the Effective Date.
(3) ADMINISTRATIVE ORDINARY COURSE LIABILITIES.
Holders of Administrative Claims that are based on liabilities incurred
in the ordinary course of the Debtor in Possession's business (other than
claims of governmental units for taxes (and for interest and/or penalties
related to such taxes)) shall not be required to File any request for
payment of such claims. Such Administrative Claims, unless objected to by
the Debtor, shall be assumed and paid by the Debtor in Possession, in Cash,
pursuant to the terms and conditions of the particular transaction giving
rise to such Administrative Claim.
(4) ADMINISTRATIVE TAX CLAIMS.
All requests for payment of Administrative Claims by a governmental unit
for taxes (and for interest and/or penalties related to such taxes) for any
tax year or period, all or any portion of which occurs or falls within the
period from and including the Petition Date through and including the
Effective Date ('Postpetition Tax Claims'), and for which no bar date has
otherwise been previously established, must be Filed and served on the
Reorganized Debtor and any other party specifically requesting a copy in
writing on or before the later of (a) thirty (30) days following the
Effective Date; and (b) one hundred and twenty (120) days following the
filing of the tax return for such taxes for such tax year or period with the
applicable governmental unit. Any Holder of any Postpetition Tax Claim that
is required to File a request for payment of such taxes and does not File
and properly serve such a claim by the applicable bar date shall be forever
barred from asserting any such Postpetition Tax Claim against the Debtor,
the Reorganized Debtor or its property, regardless whether any such
Postpetition Tax Claim is deemed to arise prior to, on, or subsequent to the
Effective Date. Any interested party desiring to object to an Administrative
Claim for taxes must File and
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serve its objection on counsel to the Debtor and the relevant taxing
authority no later than ninety (90) days after the taxing authority Files
and serves its application.
2. PRIORITY TAX CLAIMS.
Each Holder of an Allowed Priority Tax Claim shall, in full
satisfaction, release, and discharge of such Allowed Priority Tax Claim: (a)
to the extent such Claim is due and owing on the Effective Date, be paid in
full, in Cash, on the Distribution Date; (b) to the extent such Claim is not
due and owing on the Effective Date, be paid in full, in Cash, in accordance
with the terms of any agreement between the Debtor and such Holder, or as
may be due and owing under applicable non-bankruptcy law, or in the ordinary
course of business; or (c) on such other terms and conditions as are
acceptable to the Debtor and the Holder of such Claim.
B. OTHER PRIORITY CLAIMS (CLASS 1).
1. NON-IMPAIRMENT.
Class 1 is not Impaired under the Plan and, consequently, the Holders of
Allowed Class 1 Claims are not entitled to vote on the Plan.
2. TREATMENT.
The legal, equitable and contractual rights of the Holders of Allowed
Class 1 Claims are unaltered by the Plan. Without limiting the generality of
the foregoing, each Holder of an Allowed Class 1 Claim, shall, in full
satisfaction of and in exchange for such Allowed Class 1 Claim: (a) to the
extent such Claim is due and owing on the Effective Date, be paid in full,
in Cash, on the Distribution Date, (b) to the extent such Claim is not due
and owing on the Effective Date, be paid in full, in Cash, in accordance
with the terms of any agreement between the Debtor and such Holder, or as
may be due and owing under applicable non-bankruptcy law or in the ordinary
course of business, or (c) on such other terms and conditions as are
acceptable to the Debtor and the Holder of such Claim.
C. SECURED CLAIMS.
1. CLASS 2 (SENIOR SECURED CLAIMS).
A. IMPAIRMENT.
Class 2 is Impaired under the Plan and, consequently, the Holders of
Allowed Class 2 Claims are entitled to vote on the Plan.
B. ALLOWANCE AND TREATMENT.
Solely for purposes of calculating distributions under the Plan, Class 2
is divided in three (3) Subclasses.
(1) CLASS 2A (SENIOR SECURED DISCOUNT NOTE CLAIMS).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 2A
Claim in the aggregate amount of $292,581,967, which amount is the
Stipulated Distribution Basis for Class 2A.
(B) TREATMENT.
On the Distribution Date, each Holder of an Allowed Class 2A Claim shall
receive a Pro Rata distribution of 228,067,643 shares of New Common Stock.
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(2) CLASS 2B (SENIOR SECURED NOTE CLAIMS).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 2B
Claim in the aggregate amount of $224,166,667, which amount is the
Stipulated Distribution Basis for Class 2B.
(B) TREATMENT.
On the Distribution Date, each Holder of an Allowed Class 2B Claim shall
receive a Pro Rata distribution of 174,737,417 shares of New Common Stock.
(3) CLASS 2C (LEHMAN SENIOR CREDIT FACILITY CLAIMS).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed
Class 2C Claim in the aggregate amount of $155,213,333, which amount is the
Stipulated Distribution Basis for Class 2C.
(B) TREATMENT.
On the Distribution Date, Lehman, the Holder of the Allowed Class 2C
Claim, shall receive 120,988,793 shares of New Common Stock.
2. CLASS 3 (SS/L CLAIMS).
A. IMPAIRMENT.
Class 3 is Impaired under the Plan and, consequently, the Holders of
Allowed Class 3 Claims are entitled to vote on the Plan.
B. ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 3
Claim in the aggregate amount of $75,644,620, which amount is the Stipulated
Distribution Basis for Class 3.
C. TREATMENT.
On the Distribution Date, SS/L, the Holder of the Allowed Class 3 Claim,
shall receive 58,964,982 shares of New Common Stock.
3. CLASS 4 (OTHER SECURED CLAIMS).
A. NON-IMPAIRMENT.
Class 4 is not Impaired under the Plan and, consequently, the Holders of
Allowed Class 4 Claims are not entitled to vote on the Plan.
B. TREATMENT.
Each Allowed Class 4 Claim shall be treated under Option A or Option B
described below, at the election of the Reorganized Debtor:
OPTION A: The Reorganized Debtor may transfer the property, securing
the Allowed Class 4 Claim, to the Holder of such Claim, in sole
satisfaction of such Holder's Other Secured Claim.
OPTION B: Each Allowed Class 4 Claim shall be satisfied as follows:
(a) any default other than a default of the kind specified in section
365(b)(2) of the Bankruptcy Code shall be cured; (b) the maturity of the
Claim shall be reinstated as the maturity existed before any default; (c)
the Holder of the Claim shall be compensated for any damages
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incurred as a result of any reasonable reliance by the Holder on any
provision that entitled the Holder to accelerate maturity of the Claim;
and (d) the other legal, equitable and contractual rights to which the
Claim entitles the Holder shall not otherwise be altered.
The Debtor shall be deemed to have elected Option B, except with respect to
any Secured Claim as to which the Debtor elects Option A, in writing, prior
to the Effective Date.
D. TREATMENT OF UNSECURED CLAIMS.
1. CLASS 5 (CONVERTIBLE SUBORDINATED NOTE CLAIMS).
A. IMPAIRMENT.
Class 5 is Impaired under the Plan and, consequently, the Holders of
Allowed Class 5 Claims are entitled to vote on the Plan.
B. ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 5
Claim in the aggregate amount of $17,845,324, which amount is the Stipulated
Distributed Basis for Class 5.
C. TREATMENT.
On the Distribution Date, each Holder of an Allowed Class 5 Claim shall
receive a Pro Rata distribution of 13,910,430 shares of New Common Stock.
2. CLASS 6 (INSURED CLAIMS).
A. NON-IMPAIRMENT.
Class 6 is not Impaired under the Plan, consequently, Holders of Allowed
Class 6 Claims are not entitled to vote on the Plan.
B. TREATMENT.
The legal, equitable and contractual rights of the Holders of Allowed
Class 6 Claims are unaltered by the Plan.
3. CLASS 7 (GENERAL UNSECURED CLAIMS).
A. NON-IMPAIRMENT.
Class 7 is not Impaired under the Plan, consequently, Holders of Allowed
Class 7 Claims are not entitled to vote on the Plan.
B. TREATMENT.
The legal, equitable and contractual rights of the Holders of Allowed
Class 7 Claims are unaltered by the Plan. Without limiting the generality of
the foregoing, each Holder of an Allowed Class 7 Claim shall, in full
satisfaction of and in exchange for such Allowed Class 7 Claim: (a) to the
extent such Claim is due and owing on the Effective Date be paid in full, in
Cash, on the Distribution Date; (b) to the extent such Claim is not due and
owing on the Effective Date, be paid in full, in Cash, in accordance with
the terms of any agreement between the Debtor and such Holder, or as may be
due and owing under applicable non-bankruptcy law or in the ordinary course
of business; or (c) on such other terms and conditions as are acceptable to
the Debtor and the Holder of such Claim.
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E. TREATMENT OF INTERESTS.
1. CLASS 8 (PREFERRED STOCK).
A. IMPAIRMENT.
Class 8 is Impaired under the Plan, and consequently, Holders of Allowed
Class 8 Interests are entitled to vote on the Plan.
B. ALLOWANCE AND TREATMENT.
Solely for the purpose of calculating distributions under this Plan,
Class 8 is divided into three (3) Subclasses.
(1) SUBCLASS 8A (SERIES A PREFERRED STOCK).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 8A
Interest in the aggregate amount of $ , the Aggregate Liquidation
Preference for the Series A Preferred Stock.
(B) TREATMENT.
On the Distribution Date, each Holder of an Allowed Class 8A Interest
shall receive a Pro Rata share (based on such Holder's Aggregate Liquidation
Preference of Series A Preferred Stock) of: (1) shares of New Common
Stock, (2) New A Warrants, and (3) New B Warrants.
(2) CLASS 8B (SERIES B PREFERRED STOCK).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 8B
Interest in the aggregate amount of $ , the Aggregate Liquidation
Preference for the Series B Preferred Stock.
(B) TREATMENT.
On the Distribution Date, each Holder of an Allowed Class 8B Interest
shall receive a Pro Rata share (Based on such Holder's Aggregate Liquidation
Preference of the Series B Preferred Stock) of: (1) shares of New
Common Stock, (2) New A Warrants, and (3) New B Warrants.
(3) CLASS 8C (SERIES D PREFERRED STOCK).
(A) ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 8C
Interest in the aggregate amount of $ , the Aggregate Liquidation
Preference for the Series D Preferred Stock.
(B) TREATMENT.
Each Holder of an Allowed Class 8C Interest shall receive a Pro Rata
share (Based on such Holder's Aggregate Liquidation Preference of Series D
Preferred Stock) of: (1) shares of New Common Stock, (2) New
A Warrants, and (3) New B Warrants.
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2. CLASS 9 (COMMON STOCK).
A. IMPAIRMENT.
Class 9 is Impaired under the Plan, and consequently, Holders of Allowed
Class 9 Interests are entitled to vote on the Plan.
B. ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 9
Interest in the aggregate amount of .
C. TREATMENT.
Each Holder of an Allowed Class 9 Interest shall retain the Old Common
Stock, but the Corporate Documents will be superceded by the Restated
Corporate Documents and the Old Common Stock will be diluted by the issuance
of the New Common Stock and New Warrants.
3. CLASS 10 (OTHER INTERESTS).
A. NON-IMPAIRMENT.
Class 10 is not Impaired under the Plan, and consequently, Holders of
Allowed Class 10 Interest are entitled to vote on the Plan.
B. ALLOWANCE.
Upon the Effective Date, there shall be deemed to be an Allowed Class 10
Interest in the aggregate amount of .
C. TREATMENT.
The legal, equitable and contractual rights of Allowed Class 10
Interests are unaltered by the Plan. Without limiting the generality of the
foregoing, each Holder of an Allowed Class 10 Interest shall retain the
Other Interests.
ARTICLE IV
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. ASSUMPTION.
Each executory contract or unexpired lease of the Debtor that has not
expired by its own terms before the Effective Date or previously been rejected
by the Debtor in Possession, that is either: (1) listed on the 'Schedule of
Executory Contracts and Unexpired Leases to be Assumed' (to be Filed on or
before the day of the Confirmation Hearing), or (2) is not rejected, is assumed
as of the Effective Date, pursuant to Bankruptcy Code section 365. Nothing in
the Plan, any Annex to the Plan, or any document executed or delivered in
connection with the Plan or any such Annex creates any obligation or liability
on the part of the Debtor, the Reorganized Debtor or any other person or entity
that is not currently liable for such obligation, with respect to any executory
contract or unexpired lease except as otherwise provided in the Plan.
B. CURE PAYMENTS.
Any monetary defaults under each executory contract and unexpired lease to
be assumed under the Plan shall be satisfied by the Reorganized Debtor, under
section 365(b)(1) of the Bankruptcy Code, either by payment of the cure amount
(if any), in Cash, on the Effective Date, such other terms as agreed to by the
Reorganized Debtor and the non-debtor party to the executory contract or
unexpired lease, or as ordered by the Court. Unless the non-debtor party to any
executory contract or unexpired lease to be assumed Filed and served on the
Debtor and its
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counsel an objection to the 'cure amount' specified on the Schedule of Executory
Contracts and Unexpired Leases to be Assumed on or before the last date
established by the Bankruptcy Court to File and serve objections to Confirmation
of the Plan, such 'cure amount' shall be forever binding on such non-debtor
party to said executory contract or unexpired lease. In the event of a timely
Filed and served objection regarding (1) the amount of any cure payments, (2)
the ability of the Reorganized Debtor to provide adequate assurance of future
performance under the executory contract or unexpired lease to be assumed, or
(3) any other matter pertaining to assumption, any cure payment required by
section 365(b)(1) of the Bankruptcy Code shall be made following the entry of a
Final Order resolving the dispute and approving the assumption.
C. REJECTION.
Effective immediately prior to the Effective Date, each executory contract
or unexpired lease of the Debtor listed on the 'Schedule of Executory Contracts
and Unexpired Leases to be Rejected' (to be Filed on or before the Annex Filing
Date), is rejected, to the extent, if any, each constitutes an executory
contract or unexpired lease, and without conceding that each constitutes an
executory contract or unexpired lease or that the Debtor has any liability under
each. Listing a contract or lease on the Schedule of Executory Contracts and
Unexpired Leases to be Rejected is not deemed an admission by the Debtor or the
Reorganized Debtor that such contract is an executory contract or unexpired
lease or that the Debtor or the Reorganized Debtor has any liability thereunder.
The Debtor reserves the right at any time before Confirmation to amend the
Schedule of Executory Contracts and Unexpired Leases to be Rejected: (a) delete
any executory contract or unexpired lease listed on the Annex and provide for
its assumption or (b) add any executory contract or unexpired lease to the
Annex, thus providing for its rejection. The Debtor shall provide notice of any
amendment of the Annex to the party to the affected executory contract or
unexpired lease, counsel for the Committee and the U.S. Trustee.
The Confirmation Order shall constitute an order of the Bankruptcy Court
approving all such rejections as of the Effective Date. Any proofs of claim for
damages arising from the rejection under the Plan of an executory contract or
unexpired lease must be Filed within thirty (30) days after the mailing of
notice of Confirmation or be forever barred and unenforceable against the
Debtor, the Reorganized Debtor and its properties and barred from receiving any
distribution under the Plan. Any such Claims that become Allowed Claims shall be
classified in Class 7 of the Plan.
ARTICLE V
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. REVESTING OF ASSETS AND OPERATIONS OF PROPERTY.
Except as otherwise set forth herein or in the Confirmation Order, as of the
Effective Date, all property of the Estate shall revest in the Reorganized
Debtor free and clear of all claims, liens, encumbrances and other interests of
the Holders of Claims or Interests. Without limiting the generality of the
foregoing, all rights, privileges, entitlements, the authorizations, grants,
permits, licenses, easements, franchises, and other similar items which
constitute part of, or are necessary or useful in the operation of the property
of the Estate or the business of providing satellite radio service to
subscribers now conducted by the Debtor (including the FCC Licenses), shall be
vested in the Reorganized Debtor on the Effective Date, and shall thereafter be
exercisable and usable by the Reorganized Debtor to the same and fullest extent
they would have been exercisable and usable by the Debtor before the Petition
Date or the Estate or Debtor in Possession during the Reorganization Case in the
absence of the Plan. From and after the Effective Date, the Reorganized Debtor
may operate its business and use, acquire and dispose of property and settle and
compromise claims or interests without supervision by the Bankruptcy Court and
free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than
those restrictions expressly imposed by the Plan and the Confirmation Order.
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B. RETENTION OF CAUSES OF ACTION.
Except to the extent such rights, claims, causes of action, defenses, and
counterclaims are expressly and specifically released in connection with the
Plan, or in any settlement agreement approved during the Reorganization Case:
(1) any and all rights, claims, causes of action, defenses, and counterclaims of
or accruing to the Debtor or its Estate shall remain assets of and vest in the
Reorganized Debtor, whether or not litigation relating thereto is pending on the
Effective Date, and whether or not any such rights, claims, causes of action,
defenses, and counterclaims have been listed or referred to in the Plan, the
Schedules, or any other document Filed with the Bankruptcy Court, and
(2) neither the Debtor nor the Reorganized Debtor waives, relinquishes, or
abandons (nor shall they be estopped or otherwise precluded from asserting) any
right, claim, cause of action, defense, or counterclaim that constitutes
property of the Estate: (a) whether or not such right, claim, cause of action,
defense, or counterclaim has been listed or referred to in the Plan or the
Schedules, or any other document Filed with the Bankruptcy Court, (b) whether or
not such right, claim, cause of action, defense, or counterclaim is currently
known to the Debtor, and (c) whether or not a defendant in any litigation
relating to such right, claim, cause of action, defense, or counterclaim Filed a
proof of claim in the Reorganization Case, Filed a notice of appearance or any
other pleading or notice in the Reorganization Case, voted for or against the
Plan, or received or retained any consideration under the Plan. Without in any
manner limiting the generality of the foregoing, notwithstanding any otherwise
applicable principle of law or equity, including, without limitation, any
principles of judicial estoppel, res judicata, collateral estoppel, issue
preclusion, or any similar doctrine, the failure to list, disclose, describe,
identify, or refer to a right, claim, cause of action, defense, or counterclaim,
or potential right, claim, cause of action, defense, or counterclaim, in the
Plan, the Schedules, or any other document Filed with the Bankruptcy Court shall
in no manner waive, eliminate, modify, release, or alter the Reorganized
Debtor's right to commence, prosecute, defend against, settle, and realize upon
any rights, claims, causes of action, defenses, or counterclaims that the Debtor
or the Reorganized Debtor has, or may have, as of the Confirmation Date. The
Reorganized Debtor may commence, prosecute, defend against, settle, and realize
upon any rights, claims, causes of action, defenses, and counterclaims in its
sole discretion, in accordance with what is in the best interests, and for the
benefit, of the Reorganized Debtor.
C. CORPORATE MATTERS REGARDING THE REORGANIZED DEBTOR.
The Reorganized Debtor shall continue to exist after the Effective Date as a
separate corporate entity in accordance with applicable nonbankruptcy law. On
the Effective Date or as soon as practicable thereafter, the Reorganized Debtor
shall (to the extent necessary) file with the Secretary of State of the State of
Delaware in accordance with sections 103 and 303 of the Delaware General
Corporation Law, the Restated Corporate Documents. The form of the Restated
Corporate Documents shall be Filed as an Annex to the Plan on or before the
Annex Filing Date. The Restated Corporate Documents are authorized and directed
without the need for any further corporate action, under applicable law,
regulation, order, rule or otherwise. On and after the Effective Date, the
Restated Corporate Documents shall govern the Reorganized Debtor's operation,
unless amended or modified.
D. MANAGEMENT OF THE REORGANIZED DEBTOR.
1. BOARD OF DIRECTORS.
On the Effective Date, the management, control and operation of the
Reorganized Debtor shall become the general responsibility of the Board of
Directors of the Reorganized Debtor in accordance with Delaware law. The initial
Board of Directors of the Reorganized Debtor shall consist of 7 members. On or
before the Annex Filing Date, the Debtor shall File with the Bankruptcy Court a
schedule setting forth the names of the persons to be appointed to the Board of
Directors of the Reorganized Debtor pursuant to this section. The initial Board
of Directors of the Reorganized Debtor shall serve until the first annual
meeting of the Holders of the New
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Common Stock. Thereafter, the Board of Directors of the Reorganized Debtor will
be elected in accordance with the Restated Corporate Documents and applicable
non-bankruptcy law.
2. MANAGEMENT.
On or before the Annex Filing Date, the Debtor will File an Annex disclosing
such additional information as is necessary to satisfy section 1129(a)(5) of the
Bankruptcy Code including (1) the identity and affiliation of any other
individual who is proposed to serve as an officer or director of the Reorganized
Debtor; (2) the identity of any other insider who will be employed or retained
by the Reorganized Debtor; and (3) the compensation for each such individual. As
of the Effective Date, the Reorganized Debtor will adopt a new stock option plan
through which options for up to 15% of the New Common Stock outstanding on a
fully diluted basis may be granted to management and employees by the Board of
Directors.
E. AUTHORIZATION AND ISSUANCE OF NEW STOCK AND NEW WARRANTS.
On the Effective Date, the Reorganized Debtor will issue an aggregate of
962,385,874 shares of New Common Stock. All shares of New Common Stock issued
pursuant to the Plan will be, upon issuance, fully paid and non-assessable, and
the Holders thereof will have no preemptive or other rights to subscribe for
additional shares. The Confirmation Order shall provide that the issuance of New
Common Stock shall be exempt from the registration requirements of the
Securities Act of 1933, as amended, in accordance with section 1145 of the
Bankruptcy Code. As of the Effective Date, the Old Common Stock shall remain
outstanding and shall continue to be fully paid and non-assessable.
On the Effective Date, the Reorganized Debtor will issue an aggregate of
87,577,115 New Warrants.
The issuance and distribution of the New Common Stock and the New Warrants
by the Reorganized Debtor in accordance with the Plan is hereby authorized and
directed without the need for any further corporate action or authorization
under applicable law, regulation, rule, order or otherwise.
F. NEW EQUITY INVESTMENT.
As a condition to the Effective Date, Apollo, Blackstone and Oppenheimer
will purchase an aggregate of 211,730,379 shares of New Common Stock for $200
million in Cash. The obligation of Apollo, Blackstone and Oppenheimer to
consummate the New Equity Investment is detailed in the Lock Up Agreement and is
subject to such terms and conditions, including the option of each party to
terminate its obligation to consummate the New Equity Investment upon the
commencement of Reorganization Case. Assuming that terms and conditions of the
Lock Up Agreement are satisfied and the New Equity Investment is funded, the
Debtor is authorized and directed without the need for any further corporate
action or authorization, to execute and deliver all documents necessary to
document and effectuate the New Equity Investment.
G. CANCELLATION OF EXISTING SECURITIES AND INDEBTEDNESS.
Except for the purposes of evidencing a right to distribution under the Plan
and except as expressly provided in the Plan or the Confirmation Order, on the
Effective Date, all Notes, Indentures, Instruments and other documents
evidencing the Claims or Interests classified in Classes 2, 3, 5 and 8 hereof,
inclusive, shall be deemed cancelled and of no further force and effect and any
collateral security with respect to such Claims shall be deemed released.
Without limiting the generality of the foregoing, on the Effective Date, each of
the following shall be deemed cancelled and of no further force and effect:
1. Senior Secured Discount Notes;
2. Senior Secured Discount Notes Indenture;
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3. Senior Secured Notes;
4. Senior Secured Notes Indenture;
5. Lehman Credit Facility;
6. SS/L Credit Agreement;
7. Convertible Subordinated Notes;
8. Convertible Subordinated Notes Indenture;
9. Prepetition Collateral Agreements;
10. Series A Preferred Stock;
11. Series B Preferred Stock; and
12. Series D Preferred Stock.
provided, however, that each Indenture, Instrument or other agreement that
governs the rights of a Holder of a Claim and that is administered by an
Indenture Trustee shall continue in effect for the purposes of allowing the
Indenture Trustee to make any distributions on account of such Claims pursuant
to the Plan and to perform any other necessary administrative functions with
respect thereto. Notwithstanding any provision to the contrary contained in the
Plan, distributions on account of the Notes shall not be reduced by the amount
of the reasonable fees and out-of-pocket expenses incurred by the Indenture
Trustees or any undisputed claim for payment by the Indenture Trustees (which
includes the reasonable fees and out-of-pocket expenses of any professionals
retained by the Indenture Trustees). In addition, upon the occurrence of the
Effective Date, the asserted charging liens if the Indenture Trustees shall be
released and their sole claims shall be for their reasonable fees and
out-of-pocket expenses.
H. HSR FILINGS.
To the extent required, on or before the Confirmation Date, the Debtor shall
file a notification and report form (the 'HSR Filing') under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the 'HSR Act').
Pursuant to Bankruptcy Code section 363(b)(2)(B), the required waiting period
shall end on the 15th day after receipt of the HSR Filing by the specified
parties.
I. DISCHARGE OF DEBTOR AND INJUNCTION.
The rights afforded in the Plan and the treatment of all Claims and
Interests therein shall be in exchange for and in complete satisfaction,
discharge and release of all Claims and Interests of any nature, whatsoever,
including any interest accrued on such Claims from and after the Petition Date
against the Debtor, the Debtor in Possession, or any of its assets or
properties. Except as otherwise provided in the Plan or the Confirmation Order,
on or after the Effective Date: (i) the Debtor shall be deemed discharged and
released to the fullest extent permitted by section 1141 of the Bankruptcy Code
from all Claims and Interests, including Claims and Interests that arose before
the Effective Date and all debts of the kind specified in sections 502(g),
502(h) or 502(i) of the Bankruptcy Code whether or not: (a) a proof of claim or
proof of interest based on such debt or interest is Filed or deemed Filed
pursuant to section 501 of the Bankruptcy Code, (b) a Claim or Interest based on
such debt or interest is allowed pursuant to section 502 of the Bankruptcy Code,
or (c) the Holder of a Claim or Interest based on such debt or interest has
accepted the Plan; and (ii) all persons shall be precluded from asserting
against the Reorganized Debtor, its successors or their assets or properties any
other or future Claims or Interests based upon any act or omission, transaction
or other activity of any kind or nature that occurred before the Effective Date.
Except as otherwise provided in the Plan or the Confirmation Order and in
addition the injunction provided under sections 524(a) and 1141 of the
Bankruptcy Code, on and after the Effective Date, all persons who have held,
currently hold or may hold a debt, Claim or Interest discharged under the Plan
are permanently enjoined from taking any of the following actions on
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account of any such discharge, debt, Claim or Interest: (1) commencing or
continuing in any manner any action or other proceeding against the Debtor, the
Reorganized Debtor, its successors or their respective properties;
(2) enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order against the Debtor, the Reorganized Debtor, its
successors, or their respective properties; (3) creating, perfecting or
enforcing any lien or encumbrance against the Debtor, the Reorganized Debtor,
its successors or their respective properties; (4) asserting any setoff, right
of subrogation or recoupment of any kind against any obligation due the Debtor,
the Reorganized Debtor, its successors or their respective properties; and
(5) commencing or continuing any action in any manner, in any place that does
not comply with or is inconsistent with the provisions of the Plan or the
Confirmation Order. Any person injured by any willful violation of such
injunction may recover actual damages, including costs and attorneys' fees and,
in appropriate circumstances, may recover punitive damages from the willful
violator.
J. LIMITATION OF LIABILITY.
Except as otherwise provided in the Plan or the Confirmation Order, neither
the Debtor, the Committee, the Informal Creditors' Committee, any Lock Up
Signatory nor any of their respective officers, directors, members or employees
(acting in such capacity), nor any attorney, accountant, financial advisor or
other professional person employed by any of them shall have or incur any
liability to any entity or person for any action taken or omitted to be taken in
connection with or related to the Reorganization Case, the formulation,
preparation, dissemination, solicitation, Confirmation or consummation of the
Plan, the Lock Up Agreement, or any other action taken or omitted to be taken in
connection with the Plan or the Prepetition Restructuring Efforts; provided that
the foregoing provisions of this section J shall have no effect on the liability
of any entity that would otherwise result from any such act or omission to the
extent that such act or omission is determined in a Final Order to have
constituted gross negligence or willful misconduct.
K. SURVIVAL OF INDEMNIFICATION AND CORPORATION CONTRIBUTION.
Notwithstanding anything to the contrary contained in the Plan, the
obligations of the Debtor to indemnify and/or provide contribution to its
directors, officers, agents, employees and representatives who are serving in
such capacity on the Petition Date, pursuant to the Corporate Documents,
applicable statutes or contractual obligations, in respect of all past, present
and future actions, suits and proceedings against any of such directors,
officers, agents, employees and representatives, based on any act or omission
related to the service with, for or on behalf of the Debtor shall not be
discharged or impaired by Confirmation or consummation of the Plan, but shall
survive unaffected by the reorganization contemplated by the Plan.
L. EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS.
The Debtor or the Reorganized Debtor (as the case may be) shall be
authorized to execute, deliver, file, or record such contracts, Instruments,
releases, indentures, and other agreements or documents, and take such actions,
as may be necessary or appropriate to effectuate and further evidence the terms
and conditions of the Plan. The secretary or any assistant secretary of the
Debtor or the Reorganized Debtor shall be authorized to certify or attest to any
of the foregoing actions.
M. EXEMPTION FROM CERTAIN TRANSFER TAXES.
Pursuant to section 1146(c) of the Bankruptcy Code, any transfers from the
Debtor to the Reorganized Debtor or any other person or entity pursuant to the
Plan shall not be subject to any document recording tax, stamp tax, conveyance
fee, intangibles or similar tax, mortgage tax, stamp act, real estate transfer
tax, mortgage recording tax, or other similar tax or governmental assessment,
and the Confirmation Order shall direct the appropriate state or local
governmental officials or agents to forego the collection of any such tax or
governmental assessment and to
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accept for filing and recordation any of the foregoing Instruments or other
documents without the payment of any such tax or governmental assessment.
N. OBJECTIONS TO CLAIMS.
Except as otherwise provided for Professional Fee Claims and Administrative
Claims under Article III.A.1.b. hereof, and as otherwise ordered by the
Bankruptcy Court, objections to claims shall be Filed by the Reorganized Debtor
and served upon the Holder of such claim as applicable, not later than the later
of (1) ninety (90) days after the Effective Date, and (2) sixty (60) days after
a proof of claim is Filed. Nothing in this section shall be construed to extend
the applicable bar date or dates for the Filing of proofs of claims or requests
for payment in these cases, or to make timely any proof of claim or request for
payment Filed after the applicable bar date.
O. PAYMENT OF STATUTORY FEES.
On or before the Effective Date, all fees payable pursuant to 28 U.S.C.
'SS' 1930, as determined by the Bankruptcy Court at the Confirmation Hearing,
shall be paid to the U.S. Trustee, in Cash.
P. INFORMAL COMMITTEE.
Pursuant to the Lock Up Agreement, on the Effective Date, the Reorganized
Debtor shall reimburse each Lock Up Signatory for reasonable out-of-pocket fees
and expenses incurred prior to the Effective Date, including fees and
disbursements of counsel.
ARTICLE VI
DISTRIBUTIONS
A. DISTRIBUTION RECORD DATE.
As of the close of business on the Distribution Record Date, the various
transfer and claims registers for each of the Classes of Claims or Interests as
maintained by the Debtor, its respective agents, or the Indenture Trustees shall
be deemed closed, and there shall be no further changes in the record Holders of
any of the Claims or Interests. The Debtor shall have no obligation to recognize
any transfer of the Claims or Interests occurring after the close of business on
the Distribution Record Date. The Debtor and the Indenture Trustees shall be
entitled to recognize and deal for all purposes hereunder only with those record
Holders stated on the transfer ledgers as of the close of business on the
Distribution Record Date, to the extent applicable.
B. SATISFACTION OF CLAIMS OR INTERESTS.
Unless otherwise provided herein, any distributions and deliveries to be
made on account of Allowed Claims or Allowed Interests shall be in complete
settlement, satisfaction and discharge of such Allowed Claims or Allowed
Interests.
C. WAIVER OF SUBORDINATION.
The distributions under the Plan take into account the relative priority of
the Claims and Interests in each Class in connection with any contractual
subordination provisions relating thereto. Accordingly, the distributions to the
Holders of Claims and Interests shall not be subject to levy, garnishment,
attachment, or other legal or equity process by any Holder of indebtedness
purportedly senior to the indebtedness of the Holder of other Claims and
Interests, by reason of contractual subordination rights. On the Effective Date,
all Holders of Claims shall be deemed to have waived any and all contractual
subordination rights they may have with respect to such distribution, and the
Confirmation Order shall permanently enjoin, effective as of the Effective Date,
all Holders of Claims and Interests from enforcing or attempting to enforce any
such rights with respect to distributions under the Plan.
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D. DISBURSING AGENT.
The Reorganized Debtor, or such other entity as the Reorganized Debtor may
employ, shall act as the Disbursing Agent under the Plan and make all
distributions required under the Plan. Unless otherwise required, the Disbursing
Agent shall serve without bond. In the event the Reorganized Debtor serves as
the Disbursing Agent, it shall do so without charging fees, but shall be
entitled to be reimbursed for reasonable expenses. Any other entity serving as
the Disbursing Agent shall be entitled to customary and reasonable fees and
expenses for performing such services.
E. RIGHTS AND POWERS OF DISBURSING AGENT.
1. POWERS OF THE DISBURSING AGENT.
The Disbursing Agent shall be empowered to (i) effect all actions and
execute all agreements, Instruments, and other documents necessary to perform
its duties under the Plan, (ii) make all distributions contemplated hereby,
(iii) employ professionals to represent it with respect to its responsibilities,
and (iv) exercise such other powers as may be vested in the Disbursing Agent by
order of the Bankruptcy Court, pursuant to the Plan, or as deemed by the
Disbursing Agent to be necessary and proper to implement the provisions hereof.
2. EXPENSES INCURRED ON OR AFTER THE EFFECTIVE DATE.
Except as otherwise ordered by the Bankruptcy Court, the amount of any
reasonable fees and expenses incurred by the Disbursing Agent on or after the
Effective Date (including, without limitation, taxes) and any reasonable
compensation and expense reimbursement claims (including, without limitation,
reasonable attorney and other professional fees and expenses) made by the
Disbursing Agent shall be paid in Cash by the Reorganized Debtor.
F. SURRENDER OF INSTRUMENTS.
Unless otherwise provided herein, as a condition to receiving any
distribution under the Plan, each Holder of a Claim or Interest represented by
an Instrument, including Notes and stock certificates, may be required to
surrender such Instrument held by it to the Disbursing Agent or its designee
accompanied by a letter of transmittal. Any Holder that fails to (i) surrender
such Instrument or (ii) execute and deliver an affidavit of loss and/or
indemnity reasonably satisfactory to the Disbursing Agent and furnish a bond in
form, substance, and amount reasonably satisfactory to the Disbursing Agent
before the first anniversary of the Effective Date shall be deemed to have
forfeited all rights and claims and may not participate in any distribution
under the Plan in respect of such Claim or Interest. Any distribution so
forfeited shall become the sole and exclusive property of the Reorganized
Debtor.
G. DELIVERY OF DISTRIBUTIONS.
Unless otherwise provided herein, all distributions to any Holder of an
Allowed Claim or Allowed Interest, shall be made at the address of such Holder
as set forth on the Schedules Filed with the Bankruptcy Court or on the books
and records of the Debtor or its agents, unless the Debtor has been notified, in
advance, in writing of a change of address, including, without limitation, by
the filing of a proof of claim or interest by such Holder that contains an
address for such Holder different from the address reflected on such Schedules
for such Holder. In the event that any distribution to any Holder is returned as
undeliverable, no distribution to such Holder shall be made unless and until the
Disbursing Agent has been notified of the then current address of such Holder,
at which time or as soon as reasonably practicable thereafter such distribution
shall be made to such Holder without interest; provided that such distributions
shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code
at the expiration of two years from the later of (i) the Effective Date and
(ii) the date such Holder's Claim or Interest becomes an Allowed Claim or
Allowed Interest. After such date, all unclaimed property or interest in
property shall revert to the Reorganized Debtor, and the Claim or Interest of
any other Holder to
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such property or interest in property shall be discharged and forever barred.
The Reorganized Debtor and the Disbursing Agent shall have no obligation to
attempt to locate any Holder of an Allowed Claim or Allowed Interest other than
by reviewing their books and records (including any proofs of claim Filed
against the Debtor).
H. DISTRIBUTION OF NEW COMMON STOCK.
All distributions of New Common Stock made under the Plan in respect to the
Notes will be made to the respective Indenture Trustee, which, in turn, will
distribute such property pursuant to the respective Indenture. As a condition of
receiving any distribution as provided herein, each Holder of the Notes must
surrender any Instruments or certificates representing or evidencing such Notes
held by each such Holder to the respective Indenture Trustee accompanied by a
letter of transmittal in a form to be designated by the Debtor. The Indenture
Trustee will cancel and destroy each such Instrument or certificate, and then
promptly certify to the Reorganized Debtor the destruction of each such
Instrument or certificate in accordance with the terms of the respective
Indentures. Any Holder that fails to (a) surrender such Instrument or
certificate, or (b) execute and deliver an affidavit of loss and/or indemnity
reasonably satisfactory to the respective Indenture Trustee before the first
anniversary of the Effective Date will be deemed to have forfeited all rights
and claims and may not participate in any distribution under the Plan in respect
of such Claims. Any distribution so forfeited will become the sole and exclusive
property of the Reorganized Debtor.
Following distribution by the Indenture Trustees of the New Common Stock
received in accordance with the Plan pursuant to the Indentures, and following
the cancellation and certification of the destruction of the Instruments or
certificates as provided above, the Indenture Trustees and their agents will be
relieved of, and released from, all obligations associated with the Notes
arising under the Indentures or under other applicable agreements or law and the
Indentures will be deemed to be discharged.
On the Effective Date, or as soon thereafter as is practicable, the Debtor
will pay, in Cash, the amounts incurred, pursuant to the Indentures, to the
Indenture Trustees, together with their agents and attorneys, including
reasonable fees and expenses and costs and expenses of collection, including,
but not limited to, reasonable attorneys' fees.
I. MANNER OF PAYMENT UNDER PLAN OF REORGANIZATION.
Except as specifically provided herein, at the option of the Debtor, any
Cash payment to be made hereunder may be made by a check or wire transfer or as
otherwise required or provided in applicable agreements.
J. FRACTIONAL SHARES.
No fractional shares of New Common Stock will be issued. For purposes of
Plan distributions, fractional shares of New Common Stock shall be rounded down
to the next whole number or zero, as applicable. Neither the Debtor, the
Reorganized Debtor nor the Disbursing Agent shall have any obligation to make a
distribution that is less than one (1) share of New Common Stock.
K. COMPROMISE OF CONTROVERSIES.
Pursuant to Bankruptcy Rule 9019, and in consideration for the
classification, distribution and other benefits provided under the Plan, the
provisions of the Plan shall constitute a good faith compromise and settlement
of all Claims and controversies resolved pursuant to the Plan, including,
without limitation, all Claims arising prior to the Petition Date, whether known
or unknown, foreseen or unforeseen, asserted or unasserted, arising out of,
relating to or in connection with the business or affairs of, or transactions
with, the Debtor. The entry of the Confirmation Order shall constitute the
Bankruptcy Court's approval of each of the foregoing compromises or settlements,
and all other compromises and settlements provided for in the Plan of
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Reorganization, and the Bankruptcy Court's findings shall constitute its
determination that such compromises and settlements are in the best interests of
the Debtor, the Estate, creditors and other parties in interest, and are fair,
equitable and within the range of reasonableness.
L. EXEMPTION FROM SECURITIES LAWS.
The issuance of the New Common Stock pursuant to the Plan shall be exempt
from any securities laws registration requirements to the fullest extent
permitted by section 1145 of the Bankruptcy Code.
M. GENERAL UNSECURED CLAIMS.
Notwithstanding the contents of the Schedules, Claims listed therein as
undisputed, liquidated and not contingent shall be reduced by the amount, if
any, that was paid by the Debtor prior to the Distribution Record Date,
including pursuant to orders of the Bankruptcy Court. To the extent such
payments are not reflected in the Schedules, such Schedules are hereby amended
and reduced to reflect that such payments were made. Nothing in the Plan shall
preclude the Reorganized Debtor from paying Claims that the Debtor was
authorized to pay pursuant to any Final Order entered by the Bankruptcy Court
prior to the Confirmation Date.
N. DISPUTED CLAIMS AND DISPUTED INTERESTS.
1. NO DISTRIBUTIONS.
No payment or distribution will be made with respect to all or a portion of
any Disputed Claim or Disputed Interest until such Claim or Interest is an
Allowed Claim or Allowed Interest.
2. DISPUTED RESERVE.
Notwithstanding any other provision of this Plan, the Disbursing Agent shall
withhold from the property to be distributed under this Plan on account of any
Disputed Claim or Disputed Interest and shall place in the Disputed Reserve the
amount of Cash, New Common Stock or New Warrants that would be distributed on
account of the 'face amount' of such Disputed Claims or Disputed Interests as of
the Distribution Date. For purposes of this provision, the 'face amount' of a
Claim or Interest is the liquidated amount set forth on the proof of the claim
or interest , or if no proof of the claim or interest has been Filed, the amount
of the Claim or Interest Scheduled as not being disputed, contingent, or
unliquidated. In the case of any Disputed Claim or Disputed Interest that is
filed in an unliquidated or undetermined amount, the Bankruptcy Court shall,
upon motion by the Reorganized Debtor, or such other party or parties as might
have standing therefor, determine an amount sufficient to withhold and reserve
with respect to such Claim or Interest and may estimate the likely maximum
amount of the claim in order to make such determination. Any Holder whose Claim
or Interest is so estimated shall not have recourse to the Reorganized Debtor,
any assets theretofore distributed on account of any Allowed Claim or Allowed
Interest, any other Disputed Reserve, or any other entity or property if the
finally allowed Claim or Interest of such Holder exceeds that maximum. Instead,
such Holder shall have recourse only to undistributed assets in the Disputed
Reserve that were allocated in such Disputed Reserve for the Claim of that
creditor.
To the extent practicable, the Disbursing Agent shall invest any cash in the
Disputed Reserve in any manner permitted by section 345 of the Bankruptcy Code
or any order of the Bankruptcy Court that has established investment guidelines
for funds of the Estate, or any further order of the Bankruptcy Court.
3. DISTRIBUTION ON DISPUTED CLAIMS OR DISPUTED INTERESTS.
The property in the Disputed Reserve shall be distributed on account of the
Disputed Claims or Disputed Interests as those claims become Allowed Claims or
Allowed Interests by a Final Order. Beginning on the date that is sixty (60)
days after the Effective Date, and every sixty (60) days thereafter until all
Disputed Claims and Disputed Interests are resolved, the Disbursing Agent
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shall make a distribution to each Holder of a Disputed Claim or Disputed
Interest whose claim became an Allowed Claim or Allowed Interest in the
preceding sixty (60) days; provided that the Holder of a Disputed Claim or
Disputed Interest whose Claim or Interest has been individually estimated and
reserved as provided for in section N.2, above, shall have its distribution
limited to the amount reserved in its specific Disputed Reserve for that
Disputed Claim or Disputed Interest. As part of the distribution described in
the preceding sentence, the Disbursing Agent shall deliver to the Reorganized
Debtor all property that was held in the Disputed Reserve on account of the
Disputed Claims or Disputed Interests that were resolved in the preceding sixty
days to the extent that the amounts reserved on account of such Claims or
Interests exceed the eventually allowed amounts of such Claims or Interests.
Any property in the Disputed Reserve remaining after the resolution of all
disputes over the allowance of Claims or Interests in such Class, including the
remaining net return yielded from the investment of any cash in the Disputed
Reserve, shall be returned to the Reorganized Debtor.
ARTICLE VII
MISCELLANEOUS PROVISIONS
A. RETENTION OF JURISDICTION.
Following Confirmation of the Plan, the Bankruptcy Court shall retain such
jurisdiction as is legally permissible after Confirmation, including, without
limitation, for the following purposes:
1. To determine the allowability, amount, classification, or priority of
Claims upon objection by the Debtor;
2. To construe and to take any action to execute and enforce the Plan,
the Confirmation Order, or any other order of the Bankruptcy Court, to issue
such orders as may be necessary for the implementation, execution,
performance, and consummation of the Plan and all matters referred to
herein, and to determine all matters that may be pending before the
Bankruptcy Court in the Reorganization Case on or before the Effective Date;
3. To rule on any and all Professional Fee Claims for periods before the
Effective Date;
4. To rule on any other request for payment of any Administrative Claim;
5. To resolve any dispute regarding the implementation, execution,
performance, consummation, or interpretation of the Plan;
6. To resolve all applications, adversary proceedings, contested
matters, and other litigated matters instituted on or before the Effective
Date;
7. To determine such other matters and to perform other functions as may
be provided in the Confirmation Order;
8. To modify the Plan under section 1127 of the Bankruptcy Code, to
remedy any apparent nonmaterial defect or omission in the Plan, or to
reconcile any nonmaterial inconsistency in the Plan so as to carry out its
intent and purposes;
9. To issue injunctions or take such other actions or make such other
orders as may be necessary or appropriate to restrain interference with the
Plan or its execution or implementation by any entity; and
10. To issue such orders in aid of execution of the Plan and the
Confirmation Order, notwithstanding any otherwise applicable nonbankruptcy
law, with respect to any entity, to the full extent authorized by the
Bankruptcy Code.
B. SUCCESSORS AND ASSIGNS.
The rights, benefits and obligations of any entity named or referred to in
the Plan are binding on, and will inure to the benefit of, any permitted heirs,
executors, administrators, successors or assigns of such entity.
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C. AMENDMENT, MODIFICATION AND SEVERABILITY.
1. The Plan may be amended or modified before the Effective Date by the
Debtor to the extent provided by section 1127 of the Bankruptcy Code, and in
accordance with the Lock Up Agreement.
2. The Debtor reserves the right to modify or amend the Plan upon a
determination by the Bankruptcy Court that the Plan, as it is currently drafted,
is not confirmable pursuant to section 1129 of the Bankruptcy Code. To the
extent such a modification or amendment is permissible under section 1127 of the
Bankruptcy Code without the need to resolicit acceptances, the Debtor reserves
the right to sever any provisions of the Plan that the Bankruptcy Court finds
objectionable.
D. REVOCATION OF THE PLAN.
The Debtor reserves the right to revoke or withdraw the Plan prior to the
Confirmation Date. If the Debtor revokes or withdraws the Plan, or if
Confirmation does not occur, then the Plan shall be null and void, and nothing
contained in the Plan shall: (1) constitute a waiver or release of any Claims by
or against, or any Interests in, the Debtor; or (2) prejudice in any manner the
rights of the Debtor in any further proceedings.
E. DISSOLUTION OF COMMITTEE.
On the Effective Date, the Committee shall dissolve and the members of the
Committee shall be released and discharged from all authority, duties,
responsibilities and obligations related to and arising from and in connection
with the Reorganization Case, except with respect to any appeal of any Order.
F. NO ADMISSIONS.
Notwithstanding anything herein to the contrary, nothing contained in the
Plan shall be deemed as an admission by the Debtor with respect to any matter
set forth herein including, without limitation, liability on any claim.
ARTICLE VIII
CONDITIONS TO EFFECTIVE DATE
A. CONDITIONS.
The Effective Date of the Plan shall not occur unless and until each of the
conditions set forth below has been satisfied or duly waived.
1. The Confirmation Order is a Final Order.
2. The New Equity Investment shall be funded.
3. Any waiting period applicable to the consummation of the Plan and
occurrence of the Effective Date under the HSR Act shall have expired or be
terminated.
B. WAIVER OF CONDITIONS.
Only the Debtor may waive condition VIII.A.1. in its sole and absolute
discretion, by filing a written waiver. No other condition is waivable by any
party in interest.
C. FAILURE TO SATISFY CONDITIONS.
The Effective Date must occur on or before the later of: (1) ,
2003; or (2) such other date as is agreed to by the Debtor and the Committee,
and if it does not occur, the Confirmation Order shall automatically be vacated.
If the Confirmation Order is automatically
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vacated, the Plan and the Confirmation Order shall be deemed null and void, of
no force or effect and shall not be used by any party for any purpose and
nothing in the Plan or the Confirmation Order shall prejudice or constitute a
waiver or release of any right, claim or remedy by or against the Debtor or any
other party.
ARTICLE IX
CONFIRMATION REQUEST
The Debtor requests Confirmation of the Plan under Bankruptcy Code
section 1129. If any Impaired Class does not accept the Plan pursuant to
Bankruptcy Code section 1126, the Debtor requests Confirmation pursuant to
Bankruptcy Code section 1129(b). In that event, the Debtor reserves the right to
modify the Plan to the extent (if any) that Confirmation of the Plan under
Bankruptcy Code section 1129(b) requires modification.
Plan Proposed By:
SIRIUS SATELLITE RADIO INC.
By:
..................................
Patrick L. Donnelly
Executive Vice President, General
Counsel and Secretary
Plan Presented By:
STUTMAN, TREISTER & GLATT P.C.
By:
..................................
Frank A. Merola
Eric D. Goldberg
Members of the Firm
Reorganization Counsel
for Sirius Satellite Radio Inc.
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EXHIBIT C
SIRIUS SATELLITE RADIO
2003 LONG-TERM STOCK INCENTIVE PLAN
SECTION 1. Purpose. The purposes of this Sirius Satellite Radio 2003
Long-Term Stock Incentive Plan are to promote the interests of Sirius Satellite
Radio Inc. and its stockholders by (i) attracting and retaining employees of,
and consultants to, the Company and its Affiliates, as defined below;
(ii) motivating such individuals by means of performance-related incentives to
achieve longer-range performance goals; and (iii) enabling such individuals to
participate in the long-term growth and financial success of the Company.
SECTION 2. Definitions. As used in the Plan, the following terms shall have
the meanings set forth below:
'Affiliate' shall mean any entity (i) that, directly or indirectly, is
controlled by, controls or is under common control with, the Company or (ii) in
which the Company has a significant equity interest, in either case as
determined by the Committee.
'Award' shall mean any Option, Stock Appreciation Right, Restricted Stock
Award, Restricted Stock Unit Award, Performance Award, Other Stock-Based Award
or Performance Compensation Award made or granted from time to time hereunder.
'Award Agreement' shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
'Board' shall mean the Board of Directors of the Company.
'Change of Control' shall mean the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition, in one or a
series of related transactions, of all or substantially all of the assets of the
Company to any 'person' or 'group' (as such terms are used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act), (ii) any person or group is or becomes the
'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have 'beneficial ownership' of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 25% of the total voting power of the voting stock of
the Company, including by way of merger, consolidation or otherwise or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board (together with any new directors
whose election by such Board or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors of the Company, then still in office, who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board, then in office.
'Code' shall mean the Internal Revenue Code of 1986, as amended from time to
time.
'Committee' shall mean a committee of the Board designated by the Board to
administer the Plan and composed of not less than two directors, each of whom is
required to be a 'Non-Employee Director' (within the meaning of Rule 16b-3) and
an 'outside director' (within the meaning of Section 162(m) of the Code) to the
extent Rule 16b-3 and Section 162(m) of the Code, respectively, are applicable
to the Company and the Plan. If at any time such a committee has not been so
designated, the Board shall constitute the Committee.
'Company' shall mean Sirius Satellite Radio Inc., together with any
successor thereto.
'Exchange Act' shall mean the Securities Exchange Act of 1934, as amended.
'Fair Market Value' shall mean (i) with respect to any property other than
Shares, the fair market value of such property determined by such methods or
procedures as shall be established from time to time by the Committee and
(ii) with respect to the Shares, as of any date, (1) the mean between the high
and low sales prices of the Shares on the Nasdaq Stock Market for such
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date (or if not then trading on the Nasdaq Stock Market, the mean between the
high and low sales price of the Shares on the stock exchange or over-the-counter
market on which the Shares are principally trading on such date), or, if there
were no sales on such date, on the closest preceding date on which there were
sales of Shares or (2) in the event there shall be no public market for the
Shares on such date, the fair market value of the Shares as determined in good
faith by the Committee.
'Incentive Stock Option' shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is intended to meet
the requirements of Section 422 of the Code or any successor provision thereto.
'Negative Discretion' shall mean the discretion authorized by the Plan to be
applied by the Committee to eliminate or reduce the size of a Performance
Compensation Award; provided that the exercise of such discretion would not
cause the Performance Compensation Award to fail to qualify as
'performance-based compensation' under Section 162(m) of the Code. By way of
example and not by way of limitation, in no event shall any discretionary
authority granted to the Committee by the Plan including, but not limited to,
Negative Discretion, be used to (a) grant or provide payment in respect of
Performance Compensation Awards for a Performance Period if the Performance
Goals for such Performance Period have not been attained or (b) increase a
Performance Compensation Award above the maximum amount payable under Section
4(a) or 11(d)(vi) of the Plan. Notwithstanding anything herein to the contrary,
in no event shall Negative Discretion be exercised by the Committee with respect
to any Option or Stock Appreciation Right (other than an Option or Stock
Appreciation Right that is intended to be a Performance Compensation Award under
Section 11 of the Plan).
'Non-Qualified Stock Option' shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is not intended to
be an Incentive Stock Option.
'Option' shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
'Other Stock-Based Award' shall mean any right granted under Section 10 of
the Plan.
'Participant' shall mean any employee of, or consultant to, the Company or
its Subsidiaries eligible for an Award under Section 5 and selected by the
Committee to receive an Award under the Plan.
'Performance Award' shall mean any right granted under Section 9 of the
Plan.
'Performance Compensation Award' shall mean any Award designated by the
Committee as a Performance Compensation Award pursuant to Section 11 of the
Plan.
'Performance Criteria' shall mean the criterion or criteria that the
Committee shall select for purposes of establishing the Performance Goal(s) for
a Performance Period with respect to any Performance Compensation Award under
the Plan. The Performance Criteria that will be used to establish the
Performance Goal(s) shall be based on the attainment of specific levels of
performance of the Company (or an Affiliate, division or operational unit of the
Company) and shall be limited to the following: return on net assets, return on
shareholders' equity, return on assets, return on capital, shareholder returns,
profit margin, earnings per Share, net earnings, operating earnings, earnings
before interest, taxes, depreciation and amortization, number of subscribers,
growth of subscribers, operating expenses, capital expenses, subscriber
acquisition costs, Share price or sales or market share. To the extent required
under Section 162(m) of the Code, the Committee shall, within the first 90 days
of a Performance Period (or, if longer, within the maximum period allowed under
Section 162(m) of the Code), define in an objective fashion the manner of
calculating the Performance Criteria it selects to use for such Performance
Period.
'Performance Formula' shall mean, for a Performance Period, the one or more
objective formulas applied against the relevant Performance Goal to determine,
with regard to the Performance Compensation Award of a particular Participant,
whether all, some portion but less than all, or none of the Performance
Compensation Award has been earned for the Performance Period.
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'Performance Goals' shall mean, for a Performance Period, the one or more
goals established by the Committee for the Performance Period based upon the
Performance Criteria. The Committee is authorized at any time during the first
90 days of a Performance Period, or at any time thereafter (but only to the
extent the exercise of such authority after the first 90 days of a Performance
Period would not cause the Performance Compensation Awards granted to any
Participant for the Performance Period to fail to qualify as 'performance-based
compensation' under Section 162(m) of the Code), in its sole and absolute
discretion, to adjust or modify the calculation of a Performance Goal for such
Performance Period to the extent permitted under Section 162(m) of the Code in
order to prevent the dilution or enlargement of the rights of Participants,
(a) in the event of, or in anticipation of, any unusual or extraordinary
corporate item, transaction, event or development affecting the Company; or
(b) in recognition of, or in anticipation of, any other unusual or nonrecurring
events affecting the Company, or the financial statements of the Company, or in
response to, or in anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions.
'Performance Period' shall mean the one or more periods of time of at least
one year in duration, as the Committee may select, over which the attainment of
one or more Performance Goals will be measured for the purpose of determining a
Participant's right to and the payment of a Performance Compensation Award.
'Person' shall mean any individual, corporation, partnership, association,
limited liability company, joint-stock company, trust, unincorporated
organization, government or political subdivision thereof or other entity.
'Plan' shall mean this Sirius Satellite Radio 2003 Long-Term Stock Incentive
Plan.
'Restricted Stock' shall mean any Share granted under Section 8 of the Plan.
'Restricted Stock Unit' shall mean any unit granted under Section 8 of the
Plan.
'Rule 16b-3' shall mean Rule 16b-3 as promulgated and interpreted by the SEC
under the Exchange Act, or any successor rule or regulation thereto as in effect
from time to time.
'SEC' shall mean the Securities and Exchange Commission or any successor
thereto and shall include the Staff thereof.
'Shares' shall mean the common stock of the Company, $.001 par value, or
such other securities of the Company (i) into which such common stock shall be
changed by reason of a recapitalization, merger, consolidation, split-up,
combination, exchange of shares or other similar transaction or (ii) as may be
determined by the Committee pursuant to Section 4(b) of the Plan.
'Stock Appreciation Right' shall mean any right granted under Section 7 of
the Plan.
'Substitute Awards' shall have the meaning specified in Section 4(c) of the
Plan.
SECTION 3. Administration. (a) The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law, and in addition
to other express powers and authorizations conferred on the Committee by the
Plan, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to a
Participant and designate those Awards which shall constitute Performance
Compensation Awards; (iii) determine the number of Shares to be covered by, or
with respect to which payments, rights, or other matters are to be calculated in
connection with, Awards; (iv) determine the terms and conditions of any Award;
(v) determine whether, to what extent, and under what circumstances Awards may
be settled or exercised in cash, Shares, other securities, other Awards or other
property, or canceled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or suspended;
(vi) determine whether, to what extent, and under what circumstances cash,
Shares, other securities, other Awards, other property, and other amounts
payable with respect to an Award (subject to Section 162(m) of the Code with
respect to Performance Compensation Awards) shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret, administer or reconcile any inconsistency, correct any defect,
resolve ambiguities and/or supply any omission in the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) establish,
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amend, suspend, or waive such rules and regulations and appoint such agents as
it shall deem appropriate for the proper administration of the Plan;
(ix) establish and administer Performance Goals and certify whether, and to what
extent, they have been attained; and (x) make any other determination and take
any other action that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, and any stockholder.
(c) The mere fact that a Committee member shall fail to qualify as a
'Non-Employee Director' or 'outside director' within the meaning of Rule 16b-3
and Section 162(m) of the Code, respectively, shall not invalidate any award
made by the Committee which award is otherwise validly made under the Plan.
(d) No member of the Committee shall be liable to any Person for any action
or determination made in good faith with respect to the Plan or any Award
hereunder.
(e) With respect to any Performance Compensation Award granted to a Covered
Employee (within the meaning of Section 162(m) of the Code) under the Plan, the
Plan shall be interpreted and construed in accordance with Section 162(m) of the
Code.
(f) Notwithstanding the foregoing, the Committee may delegate to one or more
officers of the Company the authority to grant awards to Participants who are
not officers or directors of the Company subject to Section 16 of the Exchange
Act or Covered Employees (within the meaning of Section 162(m) of the Code).
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(b), the
aggregate number of Shares with respect to which Awards may be granted from time
to time under the Plan shall in the aggregate not exceed, at any time, 15% of
the sum of (i) the issued and outstanding Shares, (ii) any Shares which are
issuable as a result of any conversion, exchange or exercise of any preferred
stock, warrant or other security of the Company which is outstanding on the date
of determination; and (iii) the Shares which have been issued or are issuable to
employees, consultants and directors of the Company pursuant to the Plan, the
Company's 1999 Long-Term Stock Incentive Plan, the Company's Amended and
Restated 1994 Stock Option Plan and the Company's Amended and Restated 1994
Directors' Nonqualified Stock Option Plan; provided, however, that the aggregate
number of Shares with respect to which Incentive Stock Options may be granted
under the Plan shall be 40,000,000. The maximum number of Shares with respect to
which Options and Stock Appreciation Rights may be granted to any Participant in
any fiscal year shall be 40,000,000 and the maximum number of Shares which may
be paid to a Participant in the Plan in connection with the settlement of any
Award(s) designated as 'Performance Compensation Awards' in respect of a single
Performance Period shall be 40,000,000 or, in the event such Performance
Compensation Award is paid in cash, the equivalent cash value thereof. If, after
the effective date of the Plan, any Shares covered by an Award granted under the
Plan, or to which such an Award relates, are forfeited, or if an Award has
expired, terminated or been canceled for any reason whatsoever (other than by
reason of exercise or vesting), then the Shares covered by such Award shall
again be, or shall become, Shares with respect to which Awards may be granted
hereunder.
(b) Adjustments. Notwithstanding any provisions of the Plan to the contrary,
in the event that the Committee determines in its sole discretion that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is appropriate in order to prevent dilution or
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enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, equitably adjust any or all of
(i) the number of Shares or other securities of the Company (or number and kind
of other securities or property) with respect to which Awards may be granted,
(ii) the number of Shares or other securities of the Company (or number and kind
of other securities or property) subject to outstanding Awards, and (iii) the
grant or exercise price with respect to any Award or, if deemed appropriate,
make provision for a cash payment to the holder of an outstanding Award in
consideration for the cancellation of such Award, which, in the case of Options
and Stock Appreciation Rights shall equal the excess, if any, of the Fair Market
Value of the Shares subject to such Options or Stock Appreciation Rights over
the aggregate exercise price or grant price of such Options or Stock
Appreciation Rights.
(c) Substitute Awards. Awards may, in the discretion of the Committee, be
made under the Plan in assumption of, or in substitution for, outstanding awards
previously granted by the Company or its Affiliates or a company acquired by the
Company or with which the Company combines ('Substitute Awards'). The number of
Shares underlying any Substitute Awards shall be counted against the aggregate
number of Shares available for Awards under the Plan.
(d) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5. Eligibility. Any employee of, or consultant to, the Company or
any of its Affiliates (including any prospective employee) shall be eligible to
be selected as a Participant.
SECTION 6. Stock Options.
(a) Grant. Subject to the terms of the Plan, the Committee shall have sole
and complete authority to determine the Participants to whom Options shall be
granted, the number of Shares to be covered by each Option, the exercise price
therefor and the conditions and limitations applicable to the exercise of the
Option. The Committee shall have the authority to grant Incentive Stock Options,
or to grant Non-Qualified Stock Options, or to grant both types of Options. In
the case of Incentive Stock Options, the terms and conditions of such grants
shall be subject to and comply with such rules as may be prescribed by Section
422 of the Code, as from time to time amended, and any regulations implementing
such statute. All Options when granted under the Plan are intended to be
Non-Qualified Stock Options, unless the applicable Award Agreement expressly
states that the Option is intended to be an Incentive Stock Option. If an Option
is intended to be an Incentive Stock Option, and if for any reason such Option
(or any portion thereof) shall not qualify as an Incentive Stock Option, then,
to the extent of such nonqualification, such Option (or portion thereof) shall
be regarded as a Non-Qualified Stock Option appropriately granted under the
Plan; provided that such Option (or portion thereof) otherwise complies with the
Plan's requirements relating to Non-Qualified Stock Options.
(b) Exercise Price. The Committee shall establish the exercise price at the
time each Option is granted, which exercise price shall be set forth in the
applicable Award Agreement.
(c) Exercise. Each Option shall be exercisable at such times and subject to
such terms and conditions as the Committee may, in its sole discretion, specify
in the applicable Award Agreement. The Committee may impose such conditions with
respect to the exercise of Options, including without limitation, any relating
to the application of federal or state securities laws, as it may deem necessary
or advisable. Options with an exercise price equal to or greater than the Fair
Market Value per Share as of the date of grant are intended to qualify as
'performance-based compensation' under Section 162(m) of the Code. In the sole
discretion of the Committee, Options may be granted with an exercise price that
is less than the Fair Market Value per Share and such Options may, but need not,
be intended to qualify as performance-based compensation in accordance with
Section 11 hereof.
(d) Payment. (i) No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the aggregate exercise price therefor is
received by the Company. Such payment may be made in cash, or its equivalent, or
(x) by exchanging Shares owned by the optionee (which are not the subject of any
pledge or other security interest and which have been owned by such optionee for
at least six months) or (y) subject to such rules as may be established by the
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Committee, through delivery of irrevocable instructions to a broker to sell the
Shares otherwise deliverable upon the exercise of the Option and to deliver
promptly to the Company an amount equal to the aggregate exercise price or by a
combination of the foregoing, provided that the combined value of all cash and
cash equivalents and the Fair Market Value of any such Shares so tendered to the
Company as of the date of such tender is at least equal to such aggregate
exercise price.
(ii) Wherever in this Plan or any Award Agreement a Participant is permitted
to pay the exercise price of an Option or taxes relating to the exercise of an
Option by delivering Shares, the Participant may, subject to procedures
satisfactory to the Committee, satisfy such delivery requirement by presenting
proof of beneficial ownership of such Shares, in which case the Company shall
treat the Option as exercised without further payment and shall withhold such
number of Shares from the Shares acquired by the exercise of the Option.
SECTION 7. Stock Appreciation Rights.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Stock
Appreciation Rights shall be granted, the number of Shares to be covered by each
Stock Appreciation Right Award, the grant price thereof and the conditions and
limitations applicable to the exercise thereof. Stock Appreciation Rights with a
grant price equal to or greater than the Fair Market Value per Share as of the
date of grant are intended to qualify as 'performance-based compensation' under
Section 162(m) of the Code. In the sole discretion of the Committee, Stock
Appreciation Rights may be granted with an exercise price that is less than the
Fair Market Value per Share and such Stock Appreciation Rights may, but need
not, be intended to qualify as performance-based compensation in accordance with
Section 11 hereof. Stock Appreciation Rights may be granted in tandem with
another Award, in addition to another Award, or freestanding and unrelated to
another Award. Stock Appreciation Rights granted in tandem with or in addition
to an Award may be granted either before, at the same time as the Award or at a
later time.
(b) Exercise and Payment. A Stock Appreciation Right shall entitle the
Participant to receive an amount equal to the excess of the Fair Market Value of
a Share on the date of exercise of the Stock Appreciation Right over the grant
price thereof. The Committee shall determine in its sole discretion whether a
Stock Appreciation Right shall be settled in cash, Shares or a combination of
cash and Shares.
(c) Other Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine, at the grant of a
Stock Appreciation Right, the term, methods of exercise, methods and form of
settlement, and any other terms and conditions of any Stock Appreciation Right.
The Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it shall deem appropriate.
SECTION 8. Restricted Stock and Restricted Stock Units.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Shares of
Restricted Stock and Restricted Stock Units shall be granted, the number of
Shares of Restricted Stock and/or the number of Restricted Stock Units to be
granted to each Participant, the duration of the period during which, and the
conditions, if any, under which, the Restricted Stock and Restricted Stock Units
may be forfeited to the Company, and the other terms and conditions of such
Awards.
(b) Transfer Restrictions. Shares of Restricted Stock and Restricted Stock
Units may not be sold, assigned, transferred, pledged or otherwise encumbered,
except, in the case of Restricted Stock, as provided in the Plan or the
applicable Award Agreements. Certificates issued in respect of Shares of
Restricted Stock shall be registered in the name of the Participant and
deposited by such Participant, together with a stock power endorsed in blank,
with the Company. Upon the lapse of the restrictions applicable to such Shares
of Restricted Stock, the Company shall deliver such certificates to the
Participant or the Participant's legal representative.
(c) Payment. Each Restricted Stock Unit shall have a value equal to the Fair
Market Value of a Share. Restricted Stock Units shall be paid in cash, Shares,
other securities or other property, as
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determined in the sole discretion of the Committee, upon the lapse of the
restrictions applicable thereto, or otherwise in accordance with the applicable
Award Agreement. Dividends paid on any Shares of Restricted Stock may be paid
directly to the Participant, withheld by the Company subject to vesting of the
Restricted Shares pursuant to the terms of the applicable Award Agreement, or
may be reinvested in additional Shares of Restricted Stock or in additional
Restricted Stock Units, as determined by the Committee in its sole discretion.
SECTION 9. Performance Awards.
(a) Grant. The Committee shall have sole and complete authority to determine
the Participants who shall receive a 'Performance Award', which shall consist of
a right which is (i) denominated in cash or Shares, (ii) valued, as determined
by the Committee, in accordance with the achievement of such performance goals
during such performance periods as the Committee shall establish, and
(iii) payable at such time and in such form as the Committee shall determine.
(b) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the Performance Goals
to be achieved during any Performance Period, the length of any Performance
Period, the amount of any Performance Award and the amount and kind of any
payment or transfer to be made pursuant to any Performance Award.
(c) Payment of Performance Awards. Performance Awards may be paid in a lump
sum or in installments following the close of the Performance Period or, in
accordance with procedures established by the Committee, on a deferred basis.
SECTION 10. Other Stock-Based Awards.
(a) General. The Committee shall have authority to grant to Participants an
'Other Stock-Based Award', which shall consist of any right which is (i) not an
Award described in Sections 6 through 9 above and (ii) an Award of Shares or an
Award denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares (including, without limitation,
securities convertible into Shares), as deemed by the Committee to be consistent
with the purposes of the Plan; provided that any such rights must comply, to the
extent deemed desirable by the Committee, with Rule 16b-3 and applicable law.
Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of any such Other Stock-Based
Award, including the price, if any, at which securities may be purchased
pursuant to any Other Stock-Based Award granted under this Plan.
(b) Dividend Equivalents. In the sole and complete discretion of the
Committee, an Award, whether made as an Other Stock-Based Award under this
Section 10 or as an Award granted pursuant to Sections 6 through 9 hereof, may
provide the Participant with dividends or dividend equivalents, payable in cash,
Shares, other securities or other property on a current or deferred basis.
SECTION 11. Performance Compensation Awards.
(a) General. The Committee shall have the authority, at the time of grant of
any Award described in Sections 6 through 10 (other than Options and Stock
Appreciation Rights granted with an exercise price or grant price, as the case
may be, equal to or greater than the Fair Market Value per Share on the date of
grant), to designate such Award as a Performance Compensation Award in order to
qualify such Award as 'performance-based compensation' under Section 162(m) of
the Code.
(b) Eligibility. The Committee will, in its sole discretion, designate
within the first 90 days of a Performance Period (or, if longer, within the
maximum period allowed under Section 162(m) of the Code) which Participants will
be eligible to receive Performance Compensation Awards in respect of such
Performance Period. Designation of a Participant eligible to receive an Award
hereunder for a Performance Period shall not in any manner entitle the
Participant to receive payment in respect of any Performance Compensation Award
for such Performance Period. The determination as to whether or not such
Participant becomes entitled to payment in respect of any Performance
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Compensation Award shall be decided solely in accordance with the provisions of
this Section 11. Moreover, designation of a Participant eligible to receive an
Award hereunder for a particular Performance Period shall not require
designation of such Participant eligible to receive an Award hereunder in any
subsequent Performance Period and designation of one person as a Participant
eligible to receive an Award hereunder shall not require designation of any
other person as a Participant eligible to receive an Award hereunder in such
period or in any other period.
(c) Discretion of Committee with Respect to Performance Compensation Awards.
With regard to a particular Performance Period, the Committee shall have full
discretion to select the length of such Performance Period, the type(s) of
Performance Compensation Awards to be issued, the Performance Criteria that will
be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the
Performance Goals(s) is/are to apply to the Company and the Performance Formula.
Within the first 90 days of a Performance Period (or, if longer, within the
maximum period allowed under Section 162(m) of the Code), the Committee shall,
with regard to the Performance Compensation Awards to be issued for such
Performance Period, exercise its discretion with respect to each of the matters
enumerated in the immediately preceding sentence of this Section 11(c) and
record the same in writing.
(d) Payment of Performance Compensation Awards. (i) Condition to Receipt of
Payment. Unless otherwise provided in the applicable Award Agreement, a
Participant must be employed by the Company on the last day of a Performance
Period to be eligible for payment in respect of a Performance Compensation Award
for such Performance Period.
(ii) Limitation. A Participant shall be eligible to receive payment in
respect of a Performance Compensation Award only to the extent that: (1) the
Performance Goals for such period are achieved; and (2) the Performance Formula
as applied against such Performance Goals determines that all or some portion of
such Participant's Performance Award has been earned for the Performance Period.
(iii) Certification. Following the completion of a Performance Period, the
Committee shall meet to review and certify in writing whether, and to what
extent, the Performance Goals for the Performance Period have been achieved and,
if so, to calculate and certify in writing that amount of the Performance
Compensation Awards earned for the period based upon the Performance Formula.
The Committee shall then determine the actual size of each Participant's
Performance Compensation Award for the Performance Period and, in so doing, may
apply Negative Discretion, if and when it deems appropriate.
(iv) Negative Discretion. In determining the actual size of an individual
Performance Award for a Performance Period, the Committee may reduce or
eliminate the amount of the Performance Compensation Award earned under the
Performance Formula in the Performance Period through the use of Negative
Discretion if, in its sole judgement, such reduction or elimination is
appropriate.
(v) Timing of Award Payments. The Awards granted for a Performance Period
shall be paid to Participants as soon as administratively possible following
completion of the certifications required by this Section 11.
(vi) Maximum Award Payable. Notwithstanding any provision contained in the
Plan to the contrary, the maximum Performance Compensation Award payable to any
one Participant under the Plan for a Performance Period is 40,000,000 Shares or,
in the event the Performance Compensation Award is paid in cash, the equivalent
cash value thereof on the last day of the Performance Period to which such Award
relates. Furthermore, any Performance Compensation Award that has been deferred
shall not (between the date as of which the Award is deferred and the payment
date) increase (i) with respect to Performance Compensation Award that is
payable in cash, by a measuring factor for each fiscal year greater than a
reasonable rate of interest set by the Committee or (ii) with respect to a
Performance Compensation Award that is payable in Shares, by an amount greater
than the appreciation of a Share from the date such Award is deferred to the
payment date.
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SECTION 12. Amendment and Termination.
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without stockholder approval if such approval is necessary to
comply with any tax or regulatory requirement applicable to the Plan; and
provided, further, that any such amendment, alteration, suspension,
discontinuance or termination that would impair the rights of any Participant or
any holder or beneficiary of any Award previously granted shall not be effective
without the consent of the affected Participant, holder or beneficiary.
(b) Amendments to Awards. The Committee may waive any conditions or rights
under, amend any terms of, or alter, suspend, discontinue, cancel or terminate,
any Award theretofore granted; provided that any such waiver, amendment,
alteration, suspension, discontinuance, cancellation or termination that would
impair the rights of any Participant or any holder or beneficiary of any Award
previously granted shall not be effective without the consent of the affected
Participant, holder or beneficiary.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make equitable
adjustments in the terms and conditions of, and the criteria included in, all
outstanding Awards in recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 4(b) hereof) affecting the
Company, any Affiliate, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan; provided that
no such adjustment shall be authorized to the extent that such authority or
adjustment would cause an Award designated by the Committee as a Performance
Compensation Award under Section 11 of the Plan to fail to qualify as
'performance-based compensation' under Section 162(m) of the Code.
SECTION 13. Change of Control. In the event of a Change of Control, any
outstanding Awards then held by Participants which are unexercisable or
otherwise unvested shall automatically be deemed exercisable or otherwise
vested, as the case may be, effective as of immediately prior to such Change of
Control.
SECTION 14. General Provisions.
(a) Nontransferability.
(i) Each Award, and each right under any Award, shall be exercisable
only by the Participant during the Participant's lifetime, or, if
permissible under applicable law, by the Participant's legal guardian or
representative.
(ii) No Award may be sold, assigned, alienated, pledged, attached or
otherwise transferred or encumbered by a Participant otherwise than by will
or by the laws of descent and distribution, and any such purported sale,
assignment, alienation, pledge, attachment, transfer or encumbrance shall be
void and unenforceable against the Company or any Affiliate; provided that
the designation of a beneficiary shall not constitute a sale, assignment,
alienation, pledge, attachment, transfer or encumbrance.
(iii) Notwithstanding the foregoing, the Committee may in the applicable
Award Agreement evidencing an Option granted under the Plan or at any time
thereafter in an amendment to an Award Agreement provide that Options
granted hereunder which are not intended to qualify as Incentive Options may
be transferred by the Participant to whom such Option was granted (the
'Grantee') without consideration, subject to such rules as the Committee may
adopt to preserve the purposes of the Plan, to: (1) the Grantee's spouse,
children or grandchildren (including adopted and stepchildren and
grandchildren) (collectively, the 'Immediate Family'); (2) a trust solely
for the benefit of the Grantee and his or her Immediate Family; or (3) a
partnership, corporation or limited liability company whose only partners,
members or shareholders are the Grantee and his or her Immediate Family;
(each transferee described in clauses (1), (2) and (3) above is hereinafter
referred to as a 'Permitted
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Transferee'); provided that the Grantee gives the Committee advance written
notice describing the terms and conditions of the proposed transfer and the
Committee notifies the Grantee in writing that such a transfer would comply
with the requirements of the Plan and any applicable Award Agreement
evidencing the Option.
The terms of any Option transferred in accordance with the immediately
preceding sentence shall apply to the Permitted Transferee and any reference in
the Plan or in an Award Agreement to an optionee, Grantee or Participant shall
be deemed to refer to the Permitted Transferee, except that (a) Permitted
Transferees shall not be entitled to transfer any Options, other than by will or
the laws of descent and distribution; (b) Permitted Transferees shall not be
entitled to exercise any transferred Options unless there shall be in effect a
registration statement on an appropriate form covering the Shares to be acquired
pursuant to the exercise of such Option if the Committee determines that such a
registration statement is necessary or appropriate, (c) the Committee or the
Company shall not be required to provide any notice to a Permitted Transferee,
whether or not such notice is or would otherwise have been required to be given
to the Grantee under the Plan or otherwise and (d) the consequences of
termination of the Grantee's employment by, or services to, the Company under
the terms of the Plan and the applicable Award Agreement shall continue to be
applied with respect to the Grantee, following which the Options shall be
exercisable by the Permitted Transferee only to the extent, and for the periods,
specified in the Plan and the applicable Award Agreement.
(b) No Rights to Awards. No Participant or other Person shall have any claim
to be granted any Award, and there is no obligation for uniformity of treatment
of Participants, or holders or beneficiaries of Awards. The terms and conditions
of Awards and the Committee's determinations and interpretations with respect
thereto need not be the same with respect to each Participant (whether or not
such Participants are similarly situated).
(c) Share Certificates. All certificates for Shares or other securities of
the Company or any Affiliate delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the SEC, any stock exchange upon which
such Shares or other securities are then listed, and any applicable Federal or
state laws, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(d) Withholding. (i) A Participant may be required to pay to the Company or
any Affiliate and the Company or any Affiliate shall have the right and is
hereby authorized to withhold from any Award, from any payment due or transfer
made under any Award or under the Plan or from any compensation or other amount
owing to a Participant the amount (in cash, Shares, other securities, other
Awards or other property) of any applicable withholding taxes in respect of an
Award, its exercise, or any payment or transfer under an Award or under the Plan
and to take such other action as may be necessary in the opinion of the Company
to satisfy all obligations for the payment of such taxes. The Committee may
provide for additional cash payments to holders of Awards to defray or offset
any tax arising from the grant, vesting, exercise or payments of any Award.
(ii) Without limiting the generality of clause (i) above, a Participant may
satisfy, in whole or in part, the foregoing withholding liability by delivery of
Shares owned by the Participant (which are not subject to any pledge or other
security interest and which have been owned by the Participant for at least six
months) with a Fair Market Value equal to such withholding liability or by
having the Company withhold from the number of Shares otherwise issuable
pursuant to the exercise of the option a number of Shares with a Fair Market
Value equal to such withholding liability.
(iii) Notwithstanding any provision of this Plan to the contrary, in
connection with the transfer of an Option to a Permitted Transferee pursuant to
Section 14(a), the Grantee shall remain liable for any withholding taxes
required to be withheld upon the exercise of such Option by the Permitted
Transferee.
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(e) Award Agreements. Each Award hereunder shall be evidenced by an Award
Agreement which shall be delivered to the Participant and shall specify the
terms and conditions of the Award and any rules applicable thereto, including
but not limited to the effect on such Award of the death, disability or
termination of employment or service of a Participant and the effect, if any, of
such other events as may be determined by the Committee.
(f) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other compensation arrangements, which may, but need not, provide for the
grant of options, restricted stock, Shares and other types of Awards provided
for hereunder (subject to stockholder approval if such approval is required),
and such arrangements may be either generally applicable or applicable only in
specific cases.
(g) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of, or in any
consulting relationship to, the Company or any Affiliate. Further, the Company
or an Affiliate may at any time dismiss a Participant from employment or
discontinue any consulting relationship, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan, any Award
Agreement or any applicable employment contract or agreement.
(h) No Rights as Stockholder. Subject to the provisions of the applicable
Award, no Participant or holder or beneficiary of any Award shall have any
rights as a stockholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares. Notwithstanding the
foregoing, in connection with each grant of Restricted Stock hereunder, the
applicable Award shall specify if and to what extent the Participant shall not
be entitled to the rights of a stockholder in respect of such Restricted Stock.
(i) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of New York, applied without
giving effect to its conflict of laws principles.
(j) Severability. If any provision of the Plan or any Award is or becomes or
is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to
any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform the applicable laws, or if it cannot be construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(k) Other Laws. The Committee may refuse to issue or transfer any Shares or
other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Award granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that any such offer,
if made, would be in compliance with all applicable requirements of the U.S.
federal securities laws.
(l) No Trust or Fund Created. Neither the Plan nor any Award shall create or
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(m) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated, or otherwise eliminated.
C-11
(n) Headings. Headings are given to the Sections and subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 15. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of the date of its
approval by the stockholders of the Company.
(b) Expiration Date. No Award shall be granted under the Plan after December
31, 20[12]. Unless otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award granted hereunder may, and the authority of the Board
or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any
such Award or to waive any conditions or rights under any such Award shall,
continue after December 31, 2012.
C-12
The voting agent for this proxy solicitation is:
THE BANK OF NEW YORK
By Registered or Certified Mail. By Hand or Overnight Delivery:
Corporate Trust Department
15 Broad Street -- 16th Floor
New York, New York 10007
Attention:
By Facsimile Transmission:
(212) 235-2261
To Confirm By Telephone or For Information Call:
(212) 235-2363
-------------------
Questions and requests for assistance or for additional copies of this Proxy
Statement, the proxy and ballot may also be directed to the information agent.
The information agent for this proxy and solicitation is:
[MACKENZIE PARTNERS, INC. LOGO]
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Email: proxy@mackenziepartners.com
STATEMENT OF DIFFERENCES
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The section symbol shall be expressed as............................... 'SS'