On October 24. 2006. Mr. Karmazin briefed the Sirius board of directors on his discussions with XM regarding a possible business combination summarizing his discussions with Messrs. Parsons and Panero over the past month. Among other things. Mr. Karmazin discussed with the Sirius board of directors regulatory issues involved with a merger the likely merchandise reaction and the value creation and synergies that would arise from a business combination. The Sirius board of directors engaged in an extensive discussion of the potential cost savings including savings in cost centers research and development and general and other expenses. The board advance discussed XM’s assets its relationships with automakers whether there were other potential bidders for XM and XM’s capital structure. Following this discussion the Sirius board authorized Mr. Karmazin to continue discussions with XM.
In connection with their due diligence reviews. Sirius and XM instituted procedures to ensure that competitive information that was not legally appropriate to tell was not exchanged by the management of the companies. In certain cases management of each company reviewed documents provided by the other company that did not include competitive information; and in other instances outside discuss to each company reviewed materials but was not permitted to share competitively sensitive information with their clients. Sirius and Sirius’ advisors reviewed among other things. XM’s agreements with automakers (Toyota. Hyundai. Nissan. General Motors. Honda) sports leagues and conferences (MLB. NHL. ACC. Big East. Pac-10) retailers (Wal-Mart. Circuit City. Best Buy) news providers (CNN. Fox News) entertainment content providers (Oprah. Opie & Anthony. Starbucks. ABC/ESPN) technical service providers (Loral. Sea open) and radio manufacturers (Delphi).
Sirius’ advisors also conducted a due diligence review of XM’s litigation and regulatory matters including but not limited to: (i) the purported stockholder class challenge captioned In re XM air Radio Sec. Litig.. Civ. Act. No. 06-00802 (ESH) (D. C.) which has since been dismissed with prejudice; (ii) an action by members of the recording industry captioned Atlantic Recording Corp. et al. v. XM Satellite Radio. Inc.. No. 06-3733 (DAB) (GWG) (S. D. N. Y.); (iii) a purported consumer class action captioned Enderlin v. XM Satellite Radio Holdings. Inc. et al.. (E. Dist. Ark.); (iv) proceedings before the Copyright Royalty Board; (v) an arbitration concerning satellite insurance matters; and (vi) various FCC. FTC and SEC inquiries. In connection with these matters. Sirius’ advisors reviewed pleadings and court filings conducted research and received briefings from XM’s in-house and outside counsel.
Sirius believes that the merger will result in significant be synergies. protect Street equity analysts undergo published estimates of the present value of cost synergies ranging from $3 billion to $9 billion. Sirius expects operating cost savings to be achievable in almost every cost item on the companies’ income statement including:
Deal 1 Day 5 Days 10 Days 20 Days 30 Days 90 Days—————– —— ——- ——– ——– ——– ——–Bank of New 6% 6% 6% 7% 6% 8%York/MellonFinancial—————– —— ——- ——– ——– ——– ——–CVS/Caremark 6% 5% 3% 1% (1%) 0%—————– —— ——- ——– ——– ——– ——–Goldcorp/Glamis 32% 32% 33% 35% 35% 39%—————– —— ——- ——– ——– ——– ——–Thermo 7% 8% 8% 7% 8% 3%Electron/Fisher—————– —— ——- ——– ——– ——– ——–Alcatel/Lucent 7% 4% 0% (2%) (3%) (6%)—————– —— ——- ——– ——– ——– ——–AT&T/Bellsouth 18% 17% 17% 19% 20% 20%—————– —— ——- ——– ——– ——– ——–Symantec/Veritas 10% 29% 39% 47% 50% 55%—————– —— ——- ——– ——– ——– ——–
Sirius paid Morgan Stanley $4,576,000 in connection with Morgan Stanley’s services rendered as the administrative and collateral agent under its $250 million senior secured term credit facility. In addition in the five years preceding the execution of the merger agreement. Sirius paid Morgan Stanley an aggregate of approximately $28,000,000 in connection with the underwriting and placement of various issuances of convertible debt securities and debt securities.
In response to a “Second Request” for information relating to the merger from the U. S. Department of Justice. Sirius has produced millions of pages of documents from the files of many of its executives. These documents include business planning documents documents discussing competition in the audio entertainment industry pricing documents as well as documents covering numerous other categories. In response to the Second Request. Sirius has also produced data regarding its business operations including information on revenues sales and prices which was requested by the Department of Justice. As part of its investigation and as is typical in Second communicate investigations the Department of Justice has taken deposition testimony and. Sirius understands has requested information from some third parties including from Sirius’ competitors in audio entertainment. On September 4. 2007. Sirius and XM each certified to the Department of Justice that they were in substantial compliance with the Second Request.
This communication contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consider but are not limited to statements about the benefits of the business combination involving Sirius Satellite Radio Inc and XM Satellite communicate Holdings Inc. including potential synergies and be savings and the timing thereof future financial and operating results the combined company’s plans objectives expectations and intentions with respect to future operations products and services; and other statements identified by words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “will,” “should,” “may,” or words of similar meaning. Such forward-looking statements are based upon the current beliefs and expectations of Sirius’ and XM’s management and are inherently subject to significant business economic and competitive uncertainties and contingencies many of which are difficult to predict and generally beyond the control of Sirius and XM. Actual results may differ materially from the results.
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