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240.14a-12
SIRIUS SATELLITE RADIO INC.
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[Logo]
1221 Avenue of the Americas
New York, NY 10020
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 21, 2002
-------------------
You are cordially invited to attend our Annual Meeting of Stockholders,
which will be held on Friday, June 21, 2002, 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 Annual Meeting is being held for the following purposes:
1. To elect seven directors.
2. To ratify the appointment of Ernst & Young LLP as our independent
accountants for the current year.
3. To amend our Certificate of Incorporation to increase our authorized
common stock from 200,000,000 shares to 500,000,000 shares.
4. To transact any other business that may properly come before the
meeting.
These items are described in this Proxy Statement.
Only stockholders of record at the close of business on April 26, 2002 are
entitled to vote at the Annual Meeting. A list of stockholders entitled to vote
will be available for examination for ten days prior to the Annual 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.
IF YOU PLAN TO ATTEND
PLEASE NOTE THAT SPACE LIMITATIONS MAKE IT NECESSARY TO LIMIT ATTENDANCE TO
STOCKHOLDERS. ADMISSION TO THE MEETING WILL BE ON A FIRST-COME, FIRST-SERVED
BASIS. STOCKHOLDERS HOLDING STOCK IN BROKERAGE ACCOUNTS ('STREET NAME' HOLDERS)
WILL NEED TO BRING A COPY OF A BROKERAGE STATEMENT REFLECTING STOCK OWNERSHIP AS
OF THE RECORD DATE TO ENTER THE MEETING. CAMERAS, RECORDING DEVICES AND OTHER
ELECTRONIC EQUIPMENT WILL NOT BE PERMITTED IN THE MEETING.
YOUR VOTE IS IMPORTANT. WE ENCOURAGE YOU TO SIGN AND RETURN YOUR PROXY CARD
BEFORE THE MEETING SO THAT YOUR SHARES WILL BE REPRESENTED AND VOTED AT THE
MEETING, EVEN IF YOU CANNOT ATTEND.
This Proxy Statement and our 2001 Annual Report to Stockholders are being
distributed on or about May 22, 2002.
By Order of the Board of Directors,
PATRICK L. DONNELLY
PATRICK L. DONNELLY
Executive Vice President,
General Counsel and Secretary
New York, New York
May 22, 2002
TABLE OF CONTENTS
PAGE
----
About the Meeting........................................... 1
Item 1 -- Election of Directors............................. 4
Nominees for the Board of Directors..................... 4
Board Governance and Operations............................. 5
Meetings of the Board of Directors...................... 5
Committees of the Board of Directors.................... 6
Report of Compensation Committee........................ 7
Performance Graph....................................... 10
Directors' Compensation................................. 11
Compensation Committee Interlocks and Insider
Participation.......................................... 11
Executive Compensation...................................... 12
Summary Compensation Table.............................. 12
Option Grants in Last Fiscal Year....................... 12
10-Year Option Repricings............................... 13
Employment Agreements................................... 13
Information about Our Common Stock Ownership................ 17
Voting Trust Agreement.................................. 18
Item 2 -- Ratification of Independent Accountants........... 19
Report of Audit Committee............................... 20
Arthur Andersen LLP Fees................................ 20
Item 3 -- Amendment of Our Certificate of Incorporation to
Increase Authorized Shares................................ 21
Other Matters............................................... 21
Appendix A -- Amendment to Our Certificate of
Incorporation............................................. A-1
ABOUT THE MEETING
WHAT AM I VOTING ON?
1. The election of seven directors to our board of directors (Leon D. Black,
Joseph P. Clayton, Lawrence F. Gilberti, James P. Holden, David
Margolese, Peter G. Peterson and Joseph V. Vittoria).
2. To ratify the appointment of Ernst & Young LLP as our independent
accountants for the current year.
3. To amend our Certificate of Incorporation to increase our authorized
common stock from 200,000,000 shares to 500,000,000 shares.
--------------------------------------------------------------------------------
HOW DO I VOTE?
If your shares are held in 'street name', through a broker, bank or other
nominee, that institution will send you separate instructions describing the
procedure for voting your shares.
STOCKHOLDERS OF RECORD can vote as follows:
By Mail: Stockholders should sign, date and return their proxy cards in the
pre-addressed, postage-paid envelope that is provided.
At the Meeting: If you attend the Annual Meeting, you may vote in person by
ballot, even if you have previously returned a proxy card.
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WHO IS ENTITLED TO VOTE AND HOW MANY VOTES DO THEY HAVE?
Holders of our common stock, 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 as of the
close of business on April 26, 2002 (the 'Record Date') are entitled to vote
at the Annual Meeting. Each share of our common stock is entitled to one
vote. Each share of our Series A Junior Preferred Stock and Series B Junior
Preferred Stock is entitled to three and one-third votes. Each share of our
Series D Junior Preferred Stock is entitled to 2.9412 votes. As of the Record
Date, the number of shares outstanding were as follows: 76,705,668 shares of
common stock; 1,742,512 shares of Series A Junior Preferred Stock; 781,548
shares of Series B Junior Preferred Stock; and 2,343,091 shares of Series D
Junior Preferred Stock.
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WHAT IS A PROXY?
A proxy is a person you appoint to vote on your behalf. We are soliciting
proxies so that all shares of our common stock, Series A Junior Preferred
Stock, Series B Junior Preferred Stock and Series D Junior Preferred Stock
may be voted at the Annual Meeting.
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WHO AM I DESIGNATING AS MY PROXY?
You will be designating Patrick L. Donnelly, our Executive Vice President,
General Counsel and Secretary, and Douglas A. Kaplan, our Vice President and
Deputy General Counsel, as your proxies.
--------------------------------------------------------------------------------
HOW WILL MY PROXY VOTE MY SHARES?
Your proxy will vote according to your instructions. If you complete your
proxy instructions but do not indicate your vote on some or all of the
business matters, your proxy will vote 'FOR' these items. Also, your proxy is
authorized to vote on any other business that properly comes before the
Annual Meeting in accordance with the recommendation of our board of
directors.
1
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. You may change your vote at any time before your shares are voted at the
Annual Meeting by:
Notifying our Corporate Secretary, Patrick L. Donnelly, in writing at
Sirius Satellite Radio Inc., 1221 Avenue of the Americas, 36th Floor, New
York, New York 10020 that you are revoking your proxy;
Executing and delivering a later dated proxy card; or
Voting in person at the Annual Meeting.
However, if you have shares held through a brokerage firm, bank or other
custodian, and you vote by proxy, you may revoke your proxy instructions
only by informing the custodian in accordance with any procedures it has
established.
--------------------------------------------------------------------------------
WHAT IS A QUORUM OF STOCKHOLDERS?
Shares representing the majority of the total outstanding votes, present or
represented by proxy, constitute a quorum. If you vote or return a proxy
card, your shares will be considered part of the quorum.
--------------------------------------------------------------------------------
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
Assuming a quorum of stockholders is present at the Annual 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
ratify the appointment of Ernst & Young LLP as our independent accountants,
and the affirmative vote of a majority of the total votes attributable to our
outstanding common stock, Series A Junior Preferred Stock, Series B Junior
Preferred Stock and Series D Junior Preferred D Stock, voting as a single
class, is needed to approve the amendment to our Certificate of
Incorporation.
--------------------------------------------------------------------------------
HOW DO YOU COUNT SHARES THAT AREN'T VOTED FOR THE NOMINEES FOR DIRECTOR, OR
ABSTAIN ON ANY MATTER?
With respect to the election of directors, votes withheld will be treated as
shares present for purposes of determining a quorum. Directors are elected by
a plurality vote, so the seven persons receiving the greatest number of votes
will be elected and withheld votes will not affect the outcome of the
election.
With respect to the approval of Ernst & Young LLP and the amendment to our
Certificate of Incorporation, or any other matter properly brought before the
meeting, abstentions will be treated as shares present for purposes of
determining a quorum. Because a majority of the shares represented at the
meeting and entitled to vote is required to ratify the appointment of Ernst &
Young LLP, abstentions will have the same effect as a vote against approval.
Similarly, because a majority of the shares outstanding and entitled to vote
is required for approval of the amendment to our Certificate of
Incorporation, abstentions will have the same effect as a vote against
approval.
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HOW DO YOU COUNT SHARES THAT ARE HELD BY BROKERS BUT NOT VOTED?
Valid proxies submitted by a broker or its nominee that are not voted on a
matter or that are marked 'abstain' will be counted for purposes of
determining a quorum at the Annual Meeting, but will not be considered as
having voted on that matter.
--------------------------------------------------------------------------------
WHO WILL COUNT THE VOTES?
A representative of The Bank of New York, our transfer agent, will tabulate
the votes and act as inspector of election.
2
HOW DO I ATTEND THE ANNUAL MEETING?
If you are a registered stockholder, an admission ticket is enclosed with
your proxy card. If you wish to attend the Annual Meeting, please vote your
proxy but keep the admission ticket and bring it with you to the Annual
Meeting.
If your shares are held in the name of a bank, broker or other holder of
record and you wish to attend the Annual Meeting, you need to bring a copy of
a bank or brokerage statement to the Annual Meeting reflecting your stock
ownership as of the Record Date.
--------------------------------------------------------------------------------
WHO IS SOLICITING MY PROXY AND WHO PAYS THE COST?
Sirius is soliciting your proxy. The cost of soliciting proxies will be borne
by Sirius, which has engaged MacKenzie Partners, Inc. to assist in the
distribution and solicitation of proxies. We have agreed to pay MacKenzie
$5,000 plus its reasonable out-of-pocket expenses. Sirius will also reimburse
brokerage firms, banks and other custodians for their reasonable
out-of-pocket expenses for forwarding these proxy materials to you.
Directors, officers and regular employees of Sirius may solicit proxies on
our behalf by telephone or in writing.
--------------------------------------------------------------------------------
WHEN ARE THE STOCKHOLDER PROPOSALS DUE 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.
3
ITEM 1 -- ELECTION OF DIRECTORS
Seven directors will be elected at this year's Annual Meeting. 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. Biographical
information for each of the nominees is presented below.
NOMINEES FOR THE BOARD OF DIRECTORS
LEON D. BLACK, age 50, has been a director since June 2001. Mr. Black is one
of the founding principals of Apollo Advisors, L.P., which manages 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 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.
JOSEPH P. CLAYTON, age 52, has served as our President and Chief Executive
Officer and a director 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 MultiMedia S.A., a leading
consumer electronics company. Mr. Clayton is a director of Good Guys Inc. and
Transcend Services Inc. He is also 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.
LAWRENCE F. GILBERTI, age 51, 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, age 50, 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 DaimlerChrysler Corporation
during his 19-year career at the company.
DAVID MARGOLESE, age 44, is our co-founder and has served as Chairman of our
board of directors since August 1993, as a director since 1991 and as our Chief
Executive Officer from 1993 to October 2001. Prior to his involvement with us,
Mr. Margolese co-founded Cantel Inc., Canada's national cellular telephone
carrier, which was acquired by Rogers Communications Inc. in 1989. He has been
inducted into NASA's Space Technology Hall of Fame and in 1999 was nominated by
the Harvard Business School as entrepreneur of the year.
PETER G. PETERSON, age 75, 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,
4
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 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, age 66, 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 been 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE 'FOR' EACH OF THE NOMINEES.
BOARD GOVERNANCE AND OPERATIONS
The business and affairs of Sirius are managed by or under the direction of
our board of directors. Our board includes a majority of non-employee directors.
Our board reaffirms its accountability to stockholders through the annual
election process. All directors stand for election annually.
Our board reviews and ratifies senior management selection and compensation,
monitors overall corporate performance and ensures the integrity of our
financial controls. Our board of directors also oversees our strategic and
business planning processes.
MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 2001, there were twelve meetings
of our board of directors, and the board took action three times by written
consent in lieu of meetings. Each director attended more than 75% of the total
number of meetings of the board and meetings held by all committees on which he
served.
5
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors maintains two standing committees, an Audit Committee
and a Compensation Committee. The board of directors does not maintain a
Nominating Committee. The following table shows the present members of each
committee, the number of committee meetings held during 2001 and the functions
performed by each committee:
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COMMITTEE FUNCTIONS
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AUDIT Recommends to the board the selection of independent
Meetings: Three accountants
Members: Reviews reports of independent accountants
Lawrence F. Gilberti Reviews and approves the scope and cost of all services
James P. Holden (including non-audit services) provided by the firm
Joseph V. Vittoria* selected to conduct the audit
Monitors the effectiveness of the audit process
Reviews adequacy of financial and operating controls
Monitors corporate compliance program
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COMPENSATION Reviews and approves salaries and other compensation
Meetings: Three matters for executive officers
Members: Administers stock option program, including grants of
Lawrence F. Gilberti* options to executive officers under our stock option
Peter G. Peterson plans
Joseph V. Vittoria
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* Chairperson
6
REPORT OF COMPENSATION COMMITTEE
The following Report of the Compensation Committee of our board of directors
and the performance graph included elsewhere in this Proxy Statement do not
constitute soliciting material and should not be deemed filed or incorporated by
reference into any other filings by us under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent we specifically
incorporate this Report or the performance graph by reference therein.
The Compensation Committee of our board of directors, comprised solely of
directors who are not current or former employees, is responsible for overseeing
and administering our executive compensation programs. The Compensation
Committee is advised by our Senior Vice President, Human Resources, and from
time to time seeks the advice of independent compensation consultants retained
by us. The Compensation Committee also reviews, monitors and approves executive
compensation, establishes compensation guidelines for our officers, reviews
projected personnel needs and administers our long-term stock incentive plan.
During 2001 and the early part of January 2002, we recruited four new
executive officers -- Joseph P. Clayton, our President and Chief Executive
Officer; Guy D. Johnson, our Executive Vice President, Sales and Marketing; John
J. Scelfo, our Executive Vice President and Chief Financial Officer; and Michael
S. Ledford, our Senior Vice President, Engineering. The Compensation Committee
actively participated in the process of interviewing and selecting each of these
four executive officers, and in structuring and approving their compensation
arrangements. The Compensation Committee was advised by Towers Perrin, LLC, a
nationally recognized independent compensation consulting firm selected by it.
We entered into an employment agreement with each of these executive
officers. A summary of these employment agreements and the employment agreement
between us and Patrick L. Donnelly, our Executive Vice President, General
Counsel and Secretary, and Joseph S. Capobianco, our Senior Vice President,
Content, is described below under the heading 'Employment Agreements'.
COMPENSATION PHILOSOPHY
Our compensation program for executive officers consists of three key
elements:
a base salary;
an annual bonus; and
grants of stock options.
The Compensation Committee believes that this three-part approach best
serves the interests of our stockholders. It enables us to meet the requirements
of the competitive environment in which we operate, while ensuring that
executive officers are compensated in a manner that advances both the short and
long-term interests of stockholders. Under this approach, compensation for our
executive officers involves a high proportion of pay that is 'at
risk' -- namely, the annual bonus and the value of stock options. During 2001,
the annual bonus was based, in significant part, on individual performance.
During 2002, the Compensation Committee expects to approve an annual bonus plan
for executive officers and other employees. Pursuant to this plan, executive
officers and employees will be entitled to receive bonuses based upon
achievement of milestones approved by the Compensation Committee. Stock options
relate a significant portion of long-term remuneration directly to stock price
appreciation realized by stockholders.
BASE SALARIES
The base salaries paid to each of our executive officers during 2001 were
paid pursuant to the written employment agreements described below, under the
heading 'Employment Agreements.' Changes in base salaries for our executive
officers were based upon competitive salary comparisons, a subjective assessment
of the nature of the position and the contribution and experience of the officer
and the length of the officer's service. The Compensation Committee did not
assign any relative weight to the various factors it considered or set
predetermined performance targets for purposes of these base salary
determinations.
7
During 2001, the Compensation Committee approved a base salary increase for
Mr. Capobianco on May 1, 2001 from $275,000 to $300,000 and approved a base
salary increase on January 1, 2002 for Mr. Scelfo from $300,000 to $345,000 and
Mr. Donnelly from $325,000 to $345,000.
ANNUAL BONUS
In December 2001, the Committee awarded a cash bonus to Mr. Scelfo of
$225,000, Mr. Donnelly of $225,000, Mr. Ledford of $100,000, and Mr. Capobianco
of $75,000.
The Compensation Committee awarded these bonuses after reviewing the
progress achieved during 2001 in preparing our service for launch, including the
successful financings executed in 2001, the completion of many technology
development efforts and the various cost containment initiatives undertaken
during the year. Bonuses for our executive officers and other employees in 2001
decreased compared to 2000 levels. This decrease was established by the
Compensation Committee, in large part, to reflect the decline in our stock price
during 2001. The larger bonuses for Mr. Scelfo and Mr. Donnelly compared to
other executive officers reflect the additional role each played in the period
following David Margolese's departure as Chief Executive Officer and prior to
the arrival of Joseph P. Clayton as President and Chief Executive Officer.
STOCK OPTIONS
We provide long-term incentives through stock options granted to our
executive officers under our long-term stock incentive plan. The Compensation
Committee believes that the potential for stock ownership by executives and
other employees is the most effective method by which the interests of
management may be aligned with those of our stockholders. The options granted
typically vest over three years, have a term of ten years and an exercise price
equal to the fair market value of our common stock on the grant date or the date
we commit to issue the options.
In May 2001, the Compensation Committee awarded Mr. Donnelly 100,000 stock
options. These options have a ten-year term and an exercise price of $7.61 per
share. In January 2002, the Committee awarded Mr. Scelfo 100,000 stock options.
These options have a ten-year term and an exercise price of $9.46 per share. The
number of options granted by the Compensation Committee to these executive
officers was based upon such criteria as anticipated achievement,
responsibilities, performance, experience and future potential, as well as an
awareness of the financial incentives required to retain the quality of
executive management essential to the attainment of our strategic and financial
objectives.
On May 11, 2001, the Compensation Committee awarded Mr. Margolese 1,500,000
stock options. These options have a ten-year term and an exercise price of
$12.67 per share. The unvested portion of these options vested on October 16,
2001 when Mr. Margolese ceased to be our Chief Executive Officer.
The Compensation Committee has authorized executive management to grant
stock options to employees below the executive officer level on an annual basis
according to guidelines intended to be competitive with comparable companies and
to reward individual achievement appropriately. Our executive officers do not
receive annual stock option grants under this program.
STOCK OPTION REPRICING
On April 9, 2001, the Compensation Committee amended approximately 3,932,000
stock options with an exercise price greater than $7.50 to cause such stock
options to have an exercise price equal to $7.50. The revised exercise price of
these stock options was determined by the Compensation Committee based on the
five day average of our common stock immediately prior to the repricing. David
Margolese, our current Chairman, and then Chief Executive Officer, elected not
to include any options held by him in the repricing. In addition, options held
by John J. Scelfo, our Executive Vice President and Chief Financial Officer, and
Michael S. Ledford, our Senior Vice President, Engineering, were not repriced
because the exercise price of their stock options was less than $7.50 per share.
Joseph P. Clayton, our President and Chief Executive Officer, joined us in
November 2001 and Guy D. Johnson, our Executive Vice President, Sales and
Marketing, joined us in January 2002. None of the stock options held by either
of these executives have been repriced or otherwise amended. In
8
accordance with the SEC's rules, we have included under the caption '10-Year
Option Repricings' a chart that shows the options repriced by our executive
officers.
The Compensation Committee, together with an independent compensation
consultant, evaluated various methods to motivate and retain employees during
the period prior to the launch of our service. After reviewing various
compensation alternatives, the Compensation Committee concluded that repricing
best served the near and long-term interests of our stockholders. Other than the
change in the exercise price, no other changes to the terms of the original
options were made.
COMPENSATION OF OUR CHIEF EXECUTIVE OFFICER
On October 16, 2001, Mr. David Margolese's service as our Chief Executive
Officer was terminated. In connection with this termination, he received a
severance payment of $5,000,000 in accordance with his employment agreement. On
the date of Mr. Margolese's termination of employment, we also entered into an
agreement with him relating to his continuing responsibilities as non-executive
Chairman of our board of directors. Under this agreement:
Mr. Margolese receives, at the discretion of our board of directors, a fee
of $200,000 per year;
The termination date of stock options held by Mr. Margolese was extended
until April 16, 2007, provided that he remains Chairman of our board of
directors and complies with his duties and obligations under the agreement;
and
Mr. Margolese's employment agreement was cancelled.
Both the severance payment to Mr. Margolese and the agreement relating to
his continuing responsibilities as non-executive Chairman were reviewed and
approved by the Compensation Committee.
Upon Mr. Margolese's termination, Mr. Scelfo and Mr. Donnelly were appointed
interim Co-Chief Executive Officers. Neither Mr. Donnelly's nor Mr. Mr. Scelfo's
base salary was increased upon their appointment.
In November 2001, the Compensation Committee negotiated, and we entered
into, an employment agreement with Mr. Clayton, our President and Chief
Executive Officer. The Compensation Committee engaged Towers Perrin, an
independent compensation consultant, to assist it in the process of evaluating
appropriate compensation for Mr. Clayton. Towers Perrin identified for the
Compensation Committee competitive compensation arrangements against which the
Compensation Committee measured the compensation agreed to with Mr. Clayton. Mr.
Clayton's compensation fell within observed competitive practices provided by
Towers Perrin.
Pursuant to Mr. Clayton's employment agreement, we issued Mr. Clayton an
option to purchase up to 750,000 shares of our common stock at an exercise price
of $5.25. These options were exercisable on the date of grant. 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.
POLICY WITH RESPECT TO INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code places a $1 million per person
limitation on the tax deduction we may take for compensation paid to our Chief
Executive Officer and our four other highest paid executive officers, except
that compensation constituting performance-based compensation, as defined by the
Internal Revenue Code, is not subject to the $1 million limit. The Compensation
Committee generally intends to grant awards under our long-term stock incentive
plan consistent with the terms of Section 162(m) so that such awards will not be
subject to the $1 million limit. The Compensation Committee also expects to take
actions in the future that may be necessary to preserve the deductibility of
executive compensation to the extent reasonably practicable and consistent with
other objectives of our compensation program. However, the Compensation
Committee reserves the
9
discretion to pay compensation that does not qualify for exemption under Section
162(m) where the Compensation Committee believes such action to be in our best
interest.
Compensation Committee
LAWRENCE F. GILBERTI, Chairman
PETER G. PETERSON
JOSEPH V. VITTORIA
PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative performance of our
common stock with the Standard & Poor's Composite-500 Stock Index (the 'S&P
500') and the Nasdaq Telecommunications Index from December 31, 1996 to
December 31, 2001. The graph assumes that $100 was invested on December 31, 1996
in each of our common stock, the S&P 500 and the Nasdaq Telecommunications Index
and that all dividends were reinvested.
CUMULATIVE TOTAL RETURN
Based upon an initial investment of $100 on December 31, 1996
with dividends reinvested
[PERFORMANCE GRAPH]
TOTAL SHAREHOLDER RETURNS
NASDAQ
DATE SIRIUS S&P 500 TELECOMMUNICATIONS INDEX(1)
---- ------ ------- ---------------------------
December 31, 1996.................................. $ 100 $100 $100
December 31, 1997.................................. $ 410 $133 $142
December 31, 1998.................................. $ 830 $170 $232
December 31, 1999.................................. $1,079 $206 $470
December 31, 2000.................................. $ 726 $188 $214
December 31, 2001.................................. $ 282 $165 $109
---------
(1) The Nasdaq Telecommunications Index is a capitalization weighted index
designed to measure the performance of all Nasdaq-traded stocks in the
telecommunications sector, including satellite technology.
10
DIRECTORS' COMPENSATION
Mr. Margolese received no additional compensation for serving on our board
of directors during his tenure as our Chief Executive Officer. On the date of
Mr. Margolese's resignation, we entered into an agreement with him relating to
his continuing responsibilities as non-executive Chairman of our board of
directors. Pursuant to this agreement, Mr. Margolese receives, at the discretion
of our board of directors, a fee of $200,000 per year for serving as
non-executive Chairman of our board of directors.
Mr. Clayton receives no additional compensation for serving on our board of
directors.
Each non-employee director, including Mr. Margolese, is entitled to receive
options to purchase 10,000 shares of common stock on the business day following
our annual meeting of stockholders. The exercise price for such options is the
fair market value of our common stock on the date of grant. During 2001, Mr.
Black and Mr. Peterson waived their right to receive stock options for service
on our board of directors. Mr. Holden received an option to purchase up to
30,000 shares of common stock upon becoming a director in August 2001.
Non-employee directors are also reimbursed for reasonable travel expenses
incurred in attending meetings of our board of directors and its committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Gilberti, a director, is a partner in the law firm of Reed Smith LLP and
has provided legal services to us since 1992. During the period commencing on
January 1, 2000 and ending on March 31, 2002, we paid Reed Smith LLP an
aggregate of $29,925 for legal services.
Mr. Clayton was a member of the board of directors of Global Crossing Ltd.,
a global internet and long distance services provider, and is a member of the
board of directors of Good Guys Inc., a regional consumer electronics retailer.
We have entered into an agreement with Global Crossing to provide us
telecommunications services for monitoring our terrestrial repeater network and
an agreement with Good Guys in connection with the marketing and sale of
subscriptions to our service. We also have reimbursed Mr. Clayton for expenses
associated with our use of an airplane that is owned by him. In accordance with
procedures established by our board of directors, we reimbursed Mr. Clayton for
the reasonable expenses associated with the use of this airplane in an amount
not more than the costs of a similar charter aircraft. We do not expect to use
this airplane in the future, except in cases where its use is expressly
authorized by our board of directors.
11
EXECUTIVE COMPENSATION
The table below shows the compensation for the last three years for our
President and Chief Executive Officer and the five next highest paid executive
officers at the end of 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-------------------------
NUMBER OF
ANNUAL COMPENSATION RESTRICTED SECURITIES
-------------------------------- STOCK UNDERLYING ALL OTHER
SALARY BONUS OTHER ANNUAL AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION ($) (#) ($)(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 .................. 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's service as our Chief Executive Officer was terminated 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 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. Each of
these bonuses was awarded by our board of directors in recognition of the
executive's 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, $4.00 per share, by the
number of shares awarded, 50,000).
The following table sets forth certain information for the fiscal year ended
December 31, 2001, with respect to options granted to individuals named in the
Summary Compensation Table above.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
OPTIONS % OF TOTAL EXERCISE OF STOCK PRICE APPRECIATION
GRANTED OPTIONS GRANTED PRICE EXPIRATION ---------------------------
NAME (#) TO EMPLOYEES ($/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
Joseph S. Capobianco....... -- -- -- -- -- --
12
The following table 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 ($11.63 per share).
NUMBER OF SECURITIES
NO. OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS AT
ACQUIRED ON (#) FISCAL YEAR END ($)
EXERCISE VALUE REALIZED --------------------------- ---------------------------
NAME (#) ($) 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 $5.25 per share on each of November 26, 2002, November 26, 2003 and
November 26, 2004. These options will be exercisable on the date of grant.
The following table sets forth certain information with respect to stock
options held by our executive officers that were repriced during the year ended
December 31, 2001.
10-YEAR OPTION REPRICINGS
NUMBER OF
SECURITIES MARKET PRICE LENGTH OF ORIGINAL
UNDERLYING OF STOCK EXERCISE PRICE OPTION TERM
OPTIONS AT TIME OF AT TIME OF NEW REMAINING
REPRICED OR REPRICING OR REPRICING OR EXERCISE AT DATE OF
AMENDED AMENDMENT AMENDMENT PRICE REPRICING OR
NAME DATE (#) ($)(1) ($) ($) AMENDMENT
---- ---- --- ------ --- --- ---------
Patrick L. Donnelly ............... April 9, 2001 110,000 $7.60 $ 33.50 $7.50 7 years, 1 month
Executive Vice President, 90,000 $7.60 $ 23.75 $7.50 7 years, 11 months
General Counsel and Secretary 125,000 $7.60 $ 30.50 $7.50 8 years, 8 months
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 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, John J. Scelfo, Patrick L. Donnelly, Joseph S. Capobianco and Michael
S. Ledford.
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 in 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
13
performance criteria to be 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 $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 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.
GUY D. JOHNSON
On January 7, 2002, we entered into an employment agreement with Guy D.
Johnson to serve as our Executive 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 in 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 to
be 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 $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.
14
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.
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. In connection
with this agreement, we granted Mr. Scelfo options to purchase 300,000 shares of
our common stock at $6.91 per share. Options with respect to 150,000 shares
became exercisable on October 4, 2001 and April 4, 2002, and the remaining
options become exercisable in increments of 75,000 on October 4, 2002 and
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.
JOSEPH S. CAPOBIANCO AND PATRICK L. DONNELLY
On March 28, 2000, we entered into employment agreements with Joseph S.
Capobianco to serve as our Senior Vice President, Content, and Patrick L.
Donnelly, to serve as our Executive Vice President, General Counsel and
Secretary. Both of these agreements expire on March 28, 2003.
Pursuant to these agreements, in 2001 we paid Mr. Capobianco an annualized
base salary of $275,000 and Mr. Donnelly an annualized base salary of $325,000.
These base salaries are subject to increase from time to time by our board of
directors. Under the terms of these agreements, if the executive's employment is
terminated without cause or he terminates his employment for good reason (as
defined in the employment agreements), we are obligated to pay him 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 the executives to pay an excise tax under the United
States Internal Revenue Code on any amounts received by them, we have agreed to
pay Mr. Capobianco and 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 agreements, the executives may not disclose any of
our proprietary information or, during his employment with us and for two years
thereafter (or one year thereafter if
15
the executive'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.
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 $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.
16
INFORMATION ABOUT OUR COMMON STOCK OWNERSHIP
The table below shows, as of March 31, 2002, each person we know to be a
beneficial owner of more than 5% of our common stock. In general, 'beneficial
ownership' includes those shares a person has the power to vote or transfer, and
options to acquire our common stock that are exercisable currently or become
exercisable within 60 days. Except as otherwise noted, the persons named in the
table below have sole voting and sole investment power with respect to all
shares shown as beneficially owned by them.
NAMES AND ADDRESS OF NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER (1) BENEFICIALLY OWNED CLASS (2)
-------------------- ------------------ ---------
Apollo Investment Fund IV, L.P. (3)....................... 9,413,533 11.1
Apollo Overseas Partners IV, L.P.
Two Manhattanville Road
Purchase, New York 10577
OppenheimerFunds, Inc. (4) ............................... 8,213,480 10.7
498 Seventh Avenue
New York, New York 10018
Blackstone Management Associates III L.L.C. (5) .......... 6,891,444 8.3
345 Park Avenue
New York, New York 10154
David Margolese (6) ...................................... 6,350,000 7.8
1221 Avenue of the Americas
36th Floor
New York, New York 10020
---------
(1) This table is based upon information supplied by directors, officers and
principal stockholders. Percentage of ownership is based on shares of common
stock outstanding on March 31, 2002.
(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 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) 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 entitles the holder to vote as if the
shares had been converted to common stock, and 1,000,000 shares of our
common stock. Each share of this preferred stock is entitled to three and
one-third votes per share.
(4) This information is based upon an amendment to Schedule 13G filed on
February 8, 2002 by OppenheimerFunds, Inc. ('OFI'). OFI and Oppenheimer
Global Growth & Income Fund indicated that Oppenheimer Global Growth &
Income Fund has the sole power to vote or to direct the vote with respect to
5,500,000 shares of our common stock, OFI has shared power to dispose or to
direct the disposition of 8,213,480 shares of our common stock and
Oppenheimer Global Growth & Income Fund has shared power to dispose or to
direct the disposition of 5,500,000 shares of our common stock. OFI is an
investment adviser registered under the Investment Advisers Act of 1940, and
Oppenheimer Global Growth & Income Fund is an investment company registered
under the Investment Company Act of 1940.
(5) Represents 2,343,091 shares of 9.2% Series D Junior Cumulative Convertible
Preferred Stock, which entitles the holder to vote as if the shares had been
converted to common stock. Each share of this preferred stock is entitled to
2.9412 votes per share. This information is based upon the Schedule 13D
dated June 6, 2001 filed by Blackstone Management Associates III L.L.C. with
the SEC.
(6) 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.
Under a voting trust agreement entered into by Darlene Friedland, as
grantor, David Margolese, as trustee, and us, Mr. Margolese has the power to
vote in his discretion all shares of common stock owned or acquired in the
future by Darlene Friedland and her affiliates (50,000 shares as of
April 19, 2002) until November 20, 2002.
17
The following table shows the number of shares of our common stock
beneficially owned by each director, our Chief Executive Officer and the five
other most highly compensated executive officers as of March 31, 2002. The table
also shows common stock beneficially owned by all of our directors and executive
officers as a group on March 31, 2002:
SHARES
NAME OF NUMBER OF SHARES PERCENT ACQUIRABLE
BENEFICIAL OWNER BENEFICIALLY OWNED (1) OF CLASS WITHIN 60 DAYS
---------------- ---------------------- -------- --------------
Joseph P. Clayton................................... 760,000 1% 750,000
David Margolese (2)................................. 6,350,000 7.8% 4,700,000
Leon D. Black (3)................................... -- * --
Lawrence F. Gilberti................................ 65,000 * 65,000
James P. Holden..................................... 40,000 * 40,000
Peter G. Peterson (4)............................... -- * --
Joseph V. Vittoria.................................. 65,000 * 65,000
Guy D. Johnson...................................... 260,151 * 125,000
John J. Scelfo...................................... 176,316 * 175,000
Patrick L. Donnelly................................. 502,213 * 500,000
Michael S. Ledford.................................. 50,000 * --
Joseph S. Capobianco................................ 159,812 * 156,500
All Directors and Executive Officers as a Group
(12 persons) (5).................................. 8,428,492 10.1% 6,576,500
---------
* Less than 1% of our outstanding shares of common stock.
(1) These amounts include shares of common stock which the individuals hold and
shares of common stock they have a right to acquire within the next 60 days
as shown in the last column through the exercise of stock options. Also
included in the table are the number of shares of common stock acquired
under our 401(k) Savings Plan as of March 31, 2002: Mr. Clayton --
0 shares; Mr. Capobianco -- 3,312 shares; Mr. Donnelly -- 2,213 shares; Mr.
Ledford -- 0 shares; Mr. Johnson -- 151 shares; and Mr.
Scelfo -- 816 shares.
(2) Pursuant to the Voting Trust Agreement, until November 20, 2002, David
Margolese, as trustee, has the power to vote in his discretion all shares of
common stock owned or hereafter acquired by Darlene Friedland and her
affiliates (50,000 shares as of April 19, 2002).
(3) Apollo Advisors IV, L.P. ('Advisors IV'), the managing general partner of
Apollo Investment Fund IV, L.P. ('AIF IV'), is also the managing general
partner of Apollo Overseas Partners IV, L.P. ('Overseas IV'). Apollo Capital
Management IV, Inc. ('Capital Management IV') is the general partner of
Advisors IV. Leon D. Black and John J. Hannan are the directors and
principal executive officers of Capital Management IV. Apollo Management IV,
L.P. ('Management IV') serves as manager to AIF IV and to Overseas IV.
AIF IV Management, Inc. ('AIF IV Management') is the general partner of
Management IV. Each of Advisors IV, AIF IV, Overseas IV, Capital Management
IV, Management IV, AIF IV Management and Messrs. Black and Hannan and their
respective affiliates disclaims beneficial ownership of all of our shares in
excess of their respective pecuniary interest, if any.
(4) Blackstone CCC Capital Partners L.P. ('BCP CCC'), Blackstone CCC Offshore
Capital Partners L.P. ('BCP CCC Offshore') and Blackstone Family Investment
Partnership III L.P. ('BFIP III'), acting through their sole general partner
Blackstone Management Associates III L.L.C. ('BMA III'), have the sole power
to vote or to direct the vote, and to dispose or to direct the disposition
of, the 9.2% Series D Junior Cumulative Convertible Preferred Stock
respectively owned by them. As a result, for purposes of Section 13(d) of
the Exchange Act, BMA III may be deemed to beneficially own the shares of
9.2% Series D Junior Cumulative Convertible Preferred Stock directly owned
by the respective Blackstone partnerships of which it is the general
partner. Peter G. Peterson and Stephen A. Schwarzman are the founding
members and managing members of BMA III. Messrs. Peterson and Schwarzman
have shared power to vote or to direct the vote of, and to dispose or to
direct the disposition of, the shares of 9.2% Series D Junior Cumulative
Convertible Preferred Stock that may be deemed to be beneficially owned by
BMA III. As a result, each of Messrs. Peterson and Schwarzman may be deemed
to beneficially own the shares of 9.2% Series D Junior Cumulative
Convertible Preferred Stock that BMA III may be deemed to beneficially own.
Each of BMA III and Messrs. Peterson and Schwarzman disclaims beneficial
ownership of such shares.
(5) Does not include 993,500 shares of common stock issuable pursuant to stock
options that are not exercisable within 60 days.
VOTING TRUST AGREEMENT
We are a party to a voting trust agreement dated August 26, 1997 by and
among Darlene Friedland, as grantor, David Margolese, as the voting trustee, and
us. The following summary description of the Voting Trust Agreement does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the agreement.
The Voting Trust Agreement provides for the establishment of a trust (the
'Trust') into which (i) there has been deposited all of the shares of common
stock owned by Mrs. Friedland on August 26, 1997 and (ii) there shall be
deposited any shares of common stock acquired by Mrs. Friedland, her spouse
Robert Friedland, any member of either of their immediate families or any entity
directly or indirectly controlled by Mrs. Friedland, her spouse or any member of
their immediate families (the 'Friedland Affiliates') between the date shares
are initially deposited and the termination of the Trust. The Voting Trust
terminates on November 20, 2002.
The Voting Trust Agreement does not restrict the ability of Mrs. Friedland
or any of the Friedland Affiliates to sell, assign, transfer or pledge any of
the shares deposited into the Trust, nor does it
18
prohibit Mrs. Friedland or the Friedland Affiliates from purchasing additional
shares of our common stock, provided those shares become subject to the Trust.
Under the Voting Trust Agreement, the trustee has the power to vote shares
held in the Trust in relation to any matter upon which the holders of such stock
would have a right to vote, including without limitation the election of
directors. For so long as David Margolese remains trustee of the Trust, he may
exercise such voting rights in his discretion. Any successor trustee or trustees
of the Trust must vote as follows:
on the election of directors, the trustee(s) must vote the entire number of
shares held by the Trust, with the number of shares voted for each director
(or nominee for director) determined by multiplying the total number of
votes held by the Trust by a fraction, the numerator of which is the number
of votes cast for such person by other stockholders and the denominator of
which is the sum of the total number of votes represented by all shares
casting any votes in the election of directors;
if the matter under Delaware law or our Certificate of Incorporation or our
Bylaws requires at least an absolute majority of all outstanding shares of
common stock in order to be approved, the trustee(s) must vote all of the
shares in the Trust in the same manner as the majority of all votes that
are cast for or against the matter by all other stockholders; and
on all other matters, including, without limitation, any amendment of the
Voting Trust Agreement for which a stockholder vote is required, the
trustee(s) must vote all of the shares in the Trust for or against the
matter in the same manner as all votes that are cast for or against the
matter by all other stockholders.
The Voting Trust Agreement may not be amended without our prior written
consent, acting by unanimous vote of the board of directors, and approval of our
stockholders, acting by the affirmative vote of two-thirds of the total voting
power of Sirius, except in certain limited circumstances where amendments to the
Voting Trust Agreement are required to comply with applicable law.
ITEM 2 -- RATIFICATION OF INDEPENDENT ACCOUNTANTS
Our board of directors has selected Ernst & Young LLP as our independent
accountants for 2002. As such, Ernst & Young will audit and report on our
financial statements for the fiscal year ending December 31, 2002.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting. They will have an opportunity to make a statement if they desire to do
so and are expected to be available to respond to appropriate questions.
On April 11, 2002, we dismissed Arthur Andersen LLP as our independent
accountants and engaged Ernst & Young to serve as our independent accountants
for 2002. This action was approved by the Audit Committee of our board of
directors. We do not expect representatives of Arthur Andersen to be present at
the Annual Meeting.
The audit reports of Arthur Andersen LLP on our consolidated financial
statements as of and for the fiscal years ended December 31, 2001 and 2000 did
not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2001 and 2000 and through April 11,
2002, there were no disagreements with Arthur Andersen LLP on any matter of
accounting principle or practice, financial statement disclosure, or auditing
scope or procedure which, if not resolved to Arthur Andersen's satisfaction,
would have caused them to make reference to the subject matter of the
disagreement in connection with their reports.
Prior to engaging Ernst & Young, neither we nor anyone acting on our behalf
consulted with Ernst & Young regarding the application of accounting principles
to any specified transaction or the type of audit opinion that might be rendered
on our financial statements, and neither a written report nor oral advice was
provided to us that Ernst & Young concluded was an important factor considered
by us in reaching a decision as to any accounting, auditing or financial
reporting issue.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE 'FOR' THIS ITEM.
19
REPORT OF AUDIT COMMITTEE
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other filing by us under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent we specifically incorporate this Report by
reference therein.
The Audit Committee of our board of directors is comprised of the three
directors named below. Each member of the Audit Committee is an independent
director as defined by the rules of The Nasdaq National Market. The Audit
Committee has adopted a written charter which has been approved by the board of
directors and the Audit Committee has reviewed this charter during the past
fiscal year.
The Audit Committee has reviewed and discussed with management our audited
financial statements. Arthur Andersen LLP, our auditor during 2001, is
responsible for expressing an opinion on the conformity of our audited financial
statements with generally accepted accounting principles. The Audit Committee
has discussed with Arthur Andersen the matters that are required to be discussed
by Statement on Auditing Standards No. 61. Arthur Andersen has provided to the
Audit Committee the written disclosures and letter required by Independence
Standards Board Standard No. 1, and the Audit Committee discussed with Arthur
Andersen that firm's independence. The Audit Committee also considered whether
Arthur Andersen's provision of non-audit services to us, including financial
information systems design and implementation services, was compatible with
Arthur Andersen's independence.
In light of the indictment of Arthur Andersen on March 14, 2002, Arthur
Andersen also provided the Audit Committee a letter of representation stating
that its December 31, 2001 audit of our financial statements was subject to
their quality control system for the U.S. accounting and auditing practice to
provide reasonable assurance that the engagement was conducted in compliance
with professional standards, that there was appropriate continuity of Arthur
Andersen personnel working on the audit and availability of national office
consultation.
On the basis of these reviews and discussions, the Audit Committee
recommended to our board of directors that the board approve the inclusion of
our audited financial statements in our Annual Report on Form 10-K for the year
ended December 31, 2001 for filing with the SEC.
On April 11, 2002, we dismissed Arthur Andersen LLP as our independent
accountants and engaged Ernst & Young LLP as our independent accountants.
Audit Committee
JOSEPH V. VITTORIA, Chairman
LAWRENCE F. GILBERTI
JAMES P. HOLDEN
ARTHUR ANDERSEN FEES
The following table sets forth the fees billed to us for the fiscal year
ended December 31, 2001 by Arthur Andersen, our principal accounting firm during
2001:
Audit Fees:................................................. $ 69,500
Financial Information Systems Design and Implementation
Fees:..................................................... $346,772
All Other Fees*:............................................ $708,775
---------
* Includes fees for tax planning and compliance, review of SEC registration
statements, statutory audits, business consulting and other non-audit
services.
20
ITEM 3 -- AMENDMENT OF OUR CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES
On May 10, 2002, our board of directors unanimously adopted a resolution
declaring it advisable to amend our Certificate of Incorporation to increase the
number of shares of common stock that we have authority to issue to 500,000,000
shares of common stock, par value $0.001 per share. Our board of directors
further directed that this amendment to our Certificate of Incorporation be
submitted for consideration by our stockholders at the Annual Meeting. In the
event stockholders approve this amendment, we will amend Article Fourth of our
Certificate of Incorporation to increase the number of shares of common stock
which we are authorized to issue from 200,000,000 to 500,000,000. 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 April 30, 2002, there were 161,580,493 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 have
additional shares available to meet our future business needs as they arise. Our
board of directors believes the availability of these additional shares will
provide us with the flexibility to issue common stock for a variety of purposes
the board of directors may deem advisable 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 or to restructure our obligations, the
purchase of property, the acquisition or merger into 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 could have
a dilutive effect on a stockholder's voting power.
Although an increase in the authorized shares of common stock could, under
certain circumstances, also be construed as having an anti-takeover effect (for
example, by diluting the stock ownership of a person seeking to effect a change
in the composition of our board of directors or contemplating a tender offer or
other transaction for the combination with another company), we are not
proposing to amend our Certificate of Incorporation in response to any effort to
accumulate our stock or to obtain control of us by means of a merger, tender
offer, or solicitation in opposition to management. In addition, our board of
directors does not currently contemplate recommending the adoption of any other
amendments to our Certificate of Incorporation which could be construed to
affect the ability of third parties to take over or change control of us.
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 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 ITEM.
OTHER MATTERS
Our board of directors does not intend to present, or have any reason to
believe others will present, any items of business other than those stated
above. If other matters are properly brought before the Annual 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
PATRICK L. DONNELLY
Executive Vice President,
General Counsel and Secretary
New York, New York
May 22, 2002
21
APPENDIX A
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
Article Fourth of the Certificate of Incorporation of Sirius Satellite Radio
Inc. is hereby amended by deleting the first sentence thereof in its entirety
and substituting in lieu thereof the following sentence:
'The total number of shares of all classes of stock which the
corporation shall have the authority to issue is 550,000,000 shares,
consisting of 500,000,000 shares of common stock, par value $0.001 per share
('Common Stock'), and 50,000,000 shares of preferred stock, par value $0.001
per share ('Preferred Stock').'
A-1
Appendix 1
SIRIUS SATELLITE RADIO INC.
Proxy Solicited on behalf of the Board of Directors of
Sirius Satellite Radio Inc.
The undersigned hereby appoints Patrick L. Donnelly and Douglas A. Kaplan,
and each of them, proxies, with full power of substitution in each of them, for
and on behalf of the undersigned to vote as proxies, as directed and permitted
herein to vote your shares of Sirius Satellite Radio Common Stock (including any
shares of Common Stock which you have the right to direct the proxies to vote
under the Sirius Satellite Radio Inc. 401(k) Savings Plan) and Preferred Stock,
at the Annual Meeting of Stockholders of SIRIUS SATELLITE RADIO INC. to be held
on Friday, June 21, 2002, at 10:30 a.m., in the Auditorium on the second floor
of The McGraw-Hill Building, 1221 Avenue of the Americas, New York, New York,
and at any adjournments thereof upon matters set forth in the Proxy Statement
and, in their judgment and discretion, upon such other business as may properly
come before the meeting.
This proxy when properly executed will be voted in the manner directed on
the reverse hereof by the Stockholder. If no direction is made, this proxy will
be voted FOR all nominees listed and for Item 2 and item 3.
(Continued and to be dated and signed on the reverse side.)
SIRIUS SATELLITE RADIO INC.
P.O. BOX 11385
NEW YORK, N.Y. 10203-0385
SIRIUS SATELLITE RADIO
ADMISSION TICKET
2002 ANNUAL MEETING OF STOCKHOLDERS
FRIDAY, JUNE 21, 2002
10:30 A.M.
TO BE HELD AT
THE McGRAW-HILL BUILDING
THE AUDITORIUM, 2ND FLOOR
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK
THIS TICKET MUST BE PRESENTED TO ENTER THE MEETING
DETACH PROXY CARD HERE
FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS [ ]
listed below for all nominees listed below
Nominees: Leon D. Black, Joseph P. Clayton, Lawrence F. Gilberti,
James P. Holden, David Margolese, Peter G. Peterson and
Joseph V. Vittoria
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.)
To change your address, please mark this box. [ ]
*Exceptions ___________________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of Ernst & Young LLP as independent auditors. [ ] [ ] [ ]
3. Approval of amendment to our Certificate of Incorporation to increase [ ] [ ] [ ]
authorized common stock from 200,000,000 shares to 500,000,000 shares.
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The signature on this Proxy should correspond exactly with
stockholder's name as printed to the left. In the case of joint
tenancies, co-executors, or co-trustees, both should sign. Persons
signing as Attorney, Executor, Administrator, Trustee or Guardian
should give their full title.
Date Share Owner sign here Co-Owner sign here
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