XM Radio 2009 Annual Report Download - page 43

Chief Executive Officer and President of Liberty Media LLC (formerly named Liberty Media Corporation
(“Old Liberty”)) from February 2006 to May 2006 and as a director of Old Liberty from November 2005 to
May 2006. Mr. Maffei had previously served as CEO-Elect of Old Liberty from November 2005 through
February 2006. Mr. Maffei served as President and CFO of Oracle Corporation from June 2005 until
November 2005. Mr. Maffei served as Chairman and Chief Executive Officer of 360networks from January
2000 until June 2005. Previously he served as CFO of Microsoft and Chairman of Expedia. Mr. Maffei also
served as a director of Expedia from 1999 to February 2006 and as a director of Starbucks Corporation from
February 1999 to March 2006. Mr. Maffei has served as a director of DIRECTV since November 2009 and
served as a director of its predecessor, The DirecTV Group, Inc., from June 2008 to November 2009.
Mr. Maffei has served as a director of Electronics Arts, Inc. since June 2003.
David J.A. Flowers, age 55, has been a director since April 2009. Mr. Flowers has been a Senior Vice
President and the Treasurer of Liberty Media Corporation since March 2006. He has served as a Senior Vice
President of Old Liberty since October 2000 and Treasurer of Old Liberty since April 1997. Prior to that,
Mr. Flowers served as a Vice President of Old Liberty from June 1995 to October 2000. Mr. Flowers also
serves as a director of Internal Leisure Group, Inc.
Item 2 — Adoption of the Rights Plan
Our board of directors is asking stockholders to approve the rights agreement, dated as of April 29, 2009
(the “Rights Plan”), between the company and The Bank of New York Mellon (the “Rights Agent”) that our
board adopted. Unless stockholder approval is obtained by June 30, 2010, the Rights Plan will automatically
expire on that date. If stockholder approval is obtained, the Rights Plan will expire pursuant to its terms no
later than August 1, 2011 (see “Description of Rights Plan — Expiration”).
Background and Reasons for Proposal
We have experienced and continue to experience substantial operating losses, and under the Internal
Revenue Code of 1986, as amended (the “Code”), we may “carry forward” these losses in certain
circumstances to offset current and future earnings and reduce our federal income tax liability. We believe that
we currently will be able to carry forward our net operating losses (“NOLs”) and that these NOLs could be a
substantial asset to us.
The merger with XM on July 28, 2008 resulted in a change of ownership under Section 382 of the Code.
The ownership change did not limit our ability to utilize future tax deductions and so no adjustments were
made to our gross deferred tax assets as a result of the merger. At December 31, 2009, we had NOL
carryforwards of approximately $8 billion for federal and state income tax purposes available to offset future
taxable income. These NOL carryforwards expire on various dates beginning in 2014.
On March 6, 2009, we issued Liberty Radio LLC, an affiliate of Liberty Media Corporation, preferred
stock that is convertible into approximately 40% of our common stock. Currently, we do not believe that we
have experienced an “ownership change” as a result of this issuance to Liberty Media, but calculating whether
an “ownership change” has occurred is subject to inherent uncertainty. This uncertainty results from the
complexity and ambiguity of Section 382 of the Code, as well as limitations on the knowledge that any
publicly traded company can have about the ownership of and transactions in its securities. We have analyzed
the information available, along with various scenarios of possible future changes of ownership. In light of this
analysis, our current stock price and daily trading volume, we believe that, if no action is taken, it is possible
that we could undergo a subsequent “ownership change” under Section 382 of the Code. We believe the Rights
Plan substantially reduces this risk.
On April 28, 2009, our board of directors adopted the Rights Plan to protect against further limitations on
our ability to use our NOLs to reduce our future taxable income. The benefit of the NOLs to us could be
significantly reduced if we were to experience another “ownership change” as defined in Section 382 of the
Code. If that were to happen, the use of our NOLs and credits to offset our taxable income subsequent to the
“ownership change” could be materially limited. The annual limit is obtained by multiplying (1) the aggregate
value of our outstanding equity immediately prior to the “ownership change” (reduced by certain capital
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