XM Radio 2009 Annual Report Download - page 20

Relationship with American Honda
XM has agreed to make a certain amount of its bandwidth available to American Honda. American Honda
has a representative on our board of directors and is considered a related party. Mr. Mendel has indicated that he
does not wish to stand for reelection at this meeting and American Honda will no longer be a related party
following his term as a director. XM can use the bandwidth until it is actually used by American Honda.
American Honda’s use of XM’s bandwidth must be in compliance with applicable laws, must not compete or
adversely interfere with XM’s business, and must meet XM’s quality standards. This agreement remains in effect
so long as American Honda holds a certain amount of its investment in us. In January 2007, XM announced a
10-year extension to its arrangement with American Honda to be its supplier of satellite radio and related data
services in Honda and Acura vehicles. XM also agreed to make incentive payments to American Honda for each
purchaser of a Honda or Acura vehicle that becomes a self-paying XM subscriber and share with American
Honda a portion of the subscription revenue attributable to Honda and Acura vehicles with installed XM radios.
Relationship with Liberty Media
In February and March 2009, we entered into several transactions to borrow up to $530 million from
Liberty Media Corporation and its affiliates. All of these loans were repaid during 2009 in cash from the
proceeds of notes issued by us and XM.
As part of the transactions with Liberty Media, on February 17, 2009, we entered into an investment
agreement (the “Investment Agreement”) with Liberty Radio, LLC, an indirect wholly-owned subsidiary of
Liberty Media Corporation. Pursuant to the Investment Agreement, we agreed to issue to Liberty Radio, LLC
12,500,000 shares of convertible preferred stock with a liquidation preference of $0.001 per share in partial
consideration for the loan investments described herein. The preferred stock was issued on March 6, 2009, as
described below. See “Relationship with Liberty Media — Issuance of the Preferred Stock”.
The preferred stock is convertible into approximately 40% of our outstanding shares of common stock
(after giving effect to such conversion). Liberty Radio, LLC has agreed not to acquire more than 49.9% of our
outstanding common stock for three years from the date the preferred stock was issued, except that Liberty
Radio, LLC may acquire more than 49.9% of our outstanding common stock at any time after the second
anniversary of such date pursuant to any cash tender offer for all of the outstanding shares of our common
stock that are not beneficially owned by Liberty Radio, LLC or its affiliates at a price per share greater than
the closing price of the common stock on the trading day preceding the earlier of the public announcement or
commencement of such tender offer. The Investment Agreement also provides for certain other standstill
provisions during such three year period.
The rights, preferences and privileges of the preferred stock are set forth in the Certificate of Designations
of Convertible Perpetual Preferred Stock, Series B-1 (the “Certificate of Designations”), filed with the
Secretary of State of the State of Delaware. The holder of our preferred stock is entitled to appoint a
proportionate number of our board of directors based on its ownership levels from time to time. The
Certificate of Designations also provides that so long as at least 6,250,000 shares of Series B-1 Preferred
Stock are outstanding, we need the consent of the holder of the Series B-1 Preferred Stock for certain actions,
including:
• the grant or issuance of our equity securities;
• any merger or sale of all or substantially all of our assets;
• any acquisition or disposition of assets other than in the ordinary course of business above certain
thresholds;
• the incurrence of debt in amounts greater than a stated threshold;
• engaging in a business different than the business currently conducted by us; and
• amending our certificate of incorporation or by-laws in a manner that materially adversely affects the
holders of the preferred stock.
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