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As filed with the Securities and Exchange Commission on October 31, 2018

Registration No. 333-[●]

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-4
REGISTRATION STATEMENT

UNDER
THE SECURITIES ACT OF 1933

Sirius XM Holdings Inc.

(Exact name of registrant as specified in its charter)

 

Delaware (State or other jurisdiction of incorporation or organization)

4832 (Primary Standard Industrial Classification Code Number)

38-3916511 (I.R.S. Employer Identification No.)

 

1290 Avenue of the Americas, 11^th Floor
New York, New York 10104
(212) 584-5100

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Patrick L. Donnelly, Esq.
Executive Vice President, General Counsel and Secretary
Sirius XM Holdings Inc.
1290 Avenue of the Americas, 11^th Floor
New York, New York 10104
(212) 584-5100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Eric Swedenburg Ravi Purushotham Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000

Copies to: Stephen Bené Pandora Media, Inc. 2100 Franklin Street Suite 700 Oakland, California 94612 (510) 451-4100

Martin A. Wellington Jennifer F. Fitchen Sidley Austin LLP 1001 Page Mill Road, Building 1 Palo Alto, California 94304 (650) 565-7000

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the applicable transactions described in the enclosed proxy statement/prospectus.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x		Accelerated filer	o
Non-accelerated filer	o		Smaller reporting company	o
Emerging Growth Company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) o

Exchange Act Rule 14d-1(d) (Cross Border Third-Party Tender Offer) o

 

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to Be Registered	Amount to Be Registered(1)	Proposed Maximum Offering Price Per Share	Proposed Maximum Aggregate Offering Price(2)	Amount of Registration Fee(3)
Common stock, par value $0.001 per share	512,771,159	N/A	2,987,604,177.88	362,097.63

	(1)	Represents the maximum number of shares of common stock, par value $0.001 per share (the “Sirius XM common stock”), of the Registrant, Sirius XM Holdings Inc. (“Sirius XM”), estimated to be issued upon the completion of the transactions described in the proxy statement/prospectus contained herein. This number is based on the product of (a) the sum of (i) 269,775,191, the aggregate number of shares of common stock, par value $0.0001 per share (“Pandora common stock”), of Pandora Media, Inc. (“Pandora”), outstanding as of October 24, 2018, plus (ii) 39,257,001 shares of Pandora common stock reserved for issuance with respect to Pandora’s convertible notes, plus (iii) 47,058,890 shares of Pandora common stock reserved for issuance pursuant to the Pandora stock incentive plans and (b) an exchange ratio of 1.44 shares of Sirius XM common stock for each share of Pandora common stock.
	(2)	Pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act of 1933, as amended, and solely for the purpose of calculating the registration fee, the proposed maximum aggregate offering price is the product of (a) the average high and low prices for shares of Pandora common stock as reported on the New York Stock Exchange on October 24, 2018 ($8.39 per share) and (b) 356,091,082, the estimated maximum number of shares of Pandora common stock that may be exchanged or converted for the securities being registered (calculated as shown in note (1) above).
	(3)	Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act based on a rate of $121.20 per $1,000,000 of the proposed maximum aggregate offering price.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

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Information in this proxy statement/prospectus is not complete and may be changed. We may not sell the securities offered by this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where an offer or solicitation is not permitted.

 

Subject to completion, dated October 31, 2018

 

 

PROPOSED TRANSACTION—YOUR VOTE IS VERY IMPORTANT

 

Dear Stockholders of Pandora Media, Inc.:

 

You are cordially invited to attend a special meeting of the stockholders of Pandora Media, Inc., which we will hold on [●], 2018 at [●] a.m., local time, at [●].

 

As previously announced, on September 23, 2018, Pandora Media, Inc. entered into an agreement and plan of merger and reorganization with Sirius XM Holdings Inc., pursuant to which Sirius XM will acquire Pandora and, at the closing of the acquisition, each holder of Pandora common stock will be entitled to receive 1.44 shares of Sirius XM common stock for each share of Pandora common stock issued and outstanding immediately prior to the closing. If the transaction is completed, Sirius XM will acquire all of the outstanding shares of Pandora common stock.

 

Pandora will be holding a special meeting of the Pandora stockholders for the purpose of voting on certain matters in connection with the transaction. No vote of Sirius XM stockholders is required in connection with the transaction, nor is any such vote being sought.

 

The market value of Sirius XM common stock being issued as merger consideration will depend on the market price of Sirius XM common stock on the closing date. Based on the closing price of Sirius XM common stock on September 21, 2018, the last trading day before the public announcement of the execution of the merger agreement, the value of the per share consideration payable to holders of Pandora common stock would be $[●]. Based on the closing price of Sirius XM common stock on [●], 2018, the last practicable date before the filing of the proxy statement/prospectus accompanying this notice, the value of the per share consideration payable to holders of Pandora common stock would be $[●].

 

The Pandora stockholders should obtain current market price quotations for shares of Pandora common stock and shares of Sirius XM common stock. Shares of Pandora common stock are listed on The New York Stock Exchange under the symbol “P” and shares of Sirius XM common stock are (and those shares to be issued as merger consideration will be) listed on the NASDAQ Global Select Market under the symbol “SIRI”. We expect that upon completion of the transactions contemplated by the merger agreement, former Pandora stockholders will own approximately [●]% of the outstanding Sirius XM common stock (based on the number of shares of Pandora common stock outstanding as of the record date for the Pandora special meeting and the number of shares of Sirius XM common stock outstanding as of such date).

 

The Pandora board of directors has determined that the merger agreement and the transactions contemplated thereby are fair to, and in the best interests of, Pandora and its stockholders, has approved and declared advisable the merger agreement and the transactions contemplated thereby and recommends that the Pandora stockholders vote “FOR” the merger agreement proposal and “FOR” each of the other proposals described in the accompanying proxy statement/prospectus.

 

Your vote is important, regardless of the number of shares you own. Whether or not you plan to attend the Pandora special meeting, please vote as soon as possible to make sure that your shares are represented. Submitting a proxy now will not prevent you from being able to vote in person at the Pandora special meeting.

 

The obligations of Pandora and Sirius XM to complete the merger are subject to the satisfaction or waiver of the conditions set forth in the merger agreement, a copy of which is included as part of the accompanying proxy statement/prospectus. The proxy statement/prospectus provides you with detailed information about the merger agreement and the proposed transactions. It also contains or references information about Pandora and Sirius XM and certain related matters. You are encouraged to read the proxy statement/prospectus carefully and in its entirety. In particular, you should carefully read the section entitled “Risk Factors” beginning on page [●] of the proxy statement/prospectus for a discussion of risks you should consider in evaluating the proposed transactions and how they will affect you. You can also obtain information about Pandora and Sirius XM from documents that have been filed with the Securities and Exchange Commission that are incorporated in this proxy statement/prospectus by reference.

 

Thank you for your cooperation and we look forward to the successful completion of the transactions.

 

Very truly yours,	Very truly yours,
James E. Meyer Chief Executive Officer Sirius XM Holdings Inc.	Roger Lynch Chief Executive Officer Pandora Media, Inc.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the transactions, the adoption of the merger agreement, the issuance of the shares of Sirius XM common stock in connection with the transactions described in the accompanying proxy statement/prospectus or determined if this proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The accompanying proxy statement/prospectus is dated [●], 2018 and is first being mailed to the Pandora stockholders of record on or about [●], 2018.

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Pandora Media, Inc.
2100 Franklin Street, Suite 700
Oakland, California 94612
(510) 451-4100

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Pandora Media, Inc., a Delaware corporation (“Pandora”), will be held on [●], 2018, at [●] a.m., local time, at [●], for the following purposes:

 

1.

to consider and vote on a proposal to adopt the agreement and plan of merger and reorganization, dated as of September 23, 2018 (as such agreement may be amended from time to time), by and among Pandora, Sirius XM Holdings Inc., a Delaware corporation (“Sirius XM”), White Oaks Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Sirius XM (“Merger Sub”), Sirius XM Radio Inc., a Delaware corporation and wholly-owned subsidiary of Sirius XM (“Sirius XM Radio”), Billboard Holding Company, Inc., a Delaware corporation and wholly-owned subsidiary of Pandora (“New Holding Company”), and Billboard Acquisition Sub, Inc., a Delaware corporation and wholly-owned subsidiary of New Holding Company (“Holdco Merger Sub”), pursuant to which the following transactions, each of which will occur on the closing date:

 

·

the merger of Holdco Merger Sub with and into Pandora, whereupon the separate existence of Holdco Merger Sub will cease and Pandora will continue as the surviving corporation and a wholly owned subsidiary of New Holding Company, and, as a result thereof, (i) each share of Pandora common stock will be converted into one share of New Holding Company common stock and (ii) each share of Pandora’s series A convertible preferred stock will be converted into one share of New Holding company preferred stock, having the same terms and conditions as immediately prior to the effective time of such merger;

 

·

the conversion of Pandora into a limited liability company formed under the Delaware Limited Liability Company Act by filing with the Secretary of State of the State of Delaware a certificate of conversion;

 

·

the merger of Merger Sub with and into New Holding Company, whereupon the separate existence of Merger Sub will cease and New Holding Company will continue as the surviving corporation and a wholly owned subsidiary of Sirius XM, and, as a result thereof, (i) each share of New Holding Company common stock will be converted into the right to receive 1.44 shares of Sirius XM common stock and (ii) each share of New Holding Company preferred stock will remain issued and outstanding and unaffected by such merger; and

 

·

the merger of New Holding Company with and into Sirius XM Radio, whereupon the separate existence of New Holding Company will cease, Sirius XM Radio will continue as the surviving corporation and Pandora will become a wholly-owned subsidiary of Sirius XM Radio, and, as a result thereof, (i) each share of Sirius XM Radio will remain issued and outstanding and unaffected by such merger and (ii) each share of capital stock of New Holding Company (including the shares of New Holding Company preferred stock) will be cancelled for no consideration.

 

2.

to consider and vote on a proposal to approve, on a non-binding advisory basis, certain compensation that may be paid or become payable to Pandora’s named executive officers that is based on or otherwise relates to the transactions contemplated by the merger agreement; and

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3.

to consider and vote on a proposal to adjourn or postpone the Pandora special meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the Pandora special meeting to approve the merger agreement proposal.

 

The Pandora board of directors has set [●], 2018 as the record date for the Pandora special meeting. Only the holders of record of Pandora common stock and Pandora’s series A convertible preferred stock at the close of business on the record date will be entitled to notice of and to vote at the Pandora special meeting and any adjournments or postponements thereof.

 

Your vote is very important. The proposal to adopt the merger agreement and approve the transactions contemplated thereby must be approved by Pandora stockholders in order for the transactions to be completed. The failure to vote on this proposal will have the same effect as a vote “AGAINST” the transactions.

 

After reading the accompanying proxy statement/prospectus, please make sure to vote your shares by proxy promptly by completing, signing and dating the accompanying proxy card and returning it in the enclosed prepaid envelope or by voting by proxy by telephone or through the Internet by following the instructions on the accompanying proxy card. If you hold shares through an account with a bank, broker or other nominee, please follow the instructions you receive from it to vote your shares.

 

If you have any questions or need assistance with voting, please contact our proxy solicitor, Innisfree M&A Incorporated, by calling toll-free at (888) 750-5834 or (212) 750-5833 (collect).

 

	BY ORDER OF THE BOARD OF DIRECTORS OF PANDORA MEDIA, INC.
	Steve Bené General Counsel and Corporate Secretary

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ADDITIONAL INFORMATION

 

This proxy statement/prospectus incorporates important business and financial information from other documents that Pandora and Sirius XM have filed with the Securities and Exchange Commission, which we refer to as the SEC. For a more detailed description of the information and documents incorporated by reference into this proxy statement/prospectus and how you may obtain it, please see “Where You Can Find More Information” beginning on page [●]. This information is available for you to review without charge at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549 and through the SEC’s website at www.sec.gov. You can obtain copies of this proxy statement/prospectus and any of the documents incorporated by reference in this proxy statement/prospectus or other information about Pandora or Sirius XM, without charge, upon written or oral request to Pandora’s proxy solicitor or the applicable company’s principal executive office, which are as follows:

 

Pandora Media, Inc. 2100 Franklin Street, Suite 700 Oakland, California 94612 Attn.: Investor Relations (510) 451-4100

Sirius XM Holdings Inc. 1290 Avenue of the Americas, 11th Floor New York, New York 10104 Attn.: Investor Relations (212) 584-5100

 

If you would like to request any documents, please do so by [●], 2018 in order to receive them before the Pandora special meeting.

 

Investors may also consult the Pandora Investor Relations website at investor.pandora.com or the Sirius XM website at www.siriusxm.com for more information concerning the transactions described in this proxy statement/prospectus or to obtain any of the documents filed with or furnished to the SEC by Pandora or Sirius XM, free of charge. Information included on these websites is not incorporated by reference into this proxy statement/prospectus.

 

The proxy statement/prospectus provides a detailed description of the merger agreement and the transactions contemplated thereby. We urge you to read the proxy statement/prospectus, including any documents incorporated by reference into the accompanying proxy statement/prospectus, and its annexes carefully and in their entirety.

 

If you have any questions concerning the transactions contemplated by the merger agreement, the other matters to be considered at the Pandora special meeting or the accompanying proxy statement/prospectus or need assistance voting your shares of Pandora common stock, please contact Pandora’s proxy solicitor, Innisfree M&A Incorporated, by telephone at (888) 750-5834 (toll-free) or (212) 750-5833 (collect).

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ABOUT THIS PROXY STATEMENT/PROSPECTUS

 

This proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the SEC by Sirius XM, constitutes a prospectus of Sirius XM under Section 5 of the Securities Act of 1933, as amended, which we refer to as the Securities Act, with respect to the shares of Sirius XM’s common stock, par value $0.001 per share, to be issued to the stockholders of Pandora in connection with the acquisition of Pandora by Sirius XM. This document also constitutes a proxy statement of Pandora under Section 14(a) of the Securities Exchange Act of 1934, as amended, which we refer to as Exchange Act. It also constitutes a notice of meeting with respect to a special meeting of the Pandora stockholders, at which they will be asked to vote upon a proposal to adopt the merger agreement and certain other proposals.

 

You should rely only on the information contained or incorporated by reference into this proxy statement/prospectus in connection with any vote, the giving or withholding of any proxy or any investment decision in connection with the transactions contemplated by the merger agreement. Neither Pandora nor Sirius XM has authorized anyone to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated [●], 2018. You should not assume that the information contained in, or incorporated by reference into, this proxy statement/prospectus is accurate as of any date other than such date, unless otherwise specifically provided herein, and you should not assume that the information incorporated by reference herein is accurate as of any date other than the date of the incorporated document.

 

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this proxy statement/prospectus regarding Sirius XM has been provided by Sirius XM, and information contained in this proxy statement/prospectus regarding Pandora has been provided by Pandora.

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QUESTIONS AND ANSWERS ABOUT THE PANDORA SPECIAL MEETING	1
SUMMARY	7
The Parties	7
The Transactions	8
Merger Consideration	9
Treatment of Pandora Stock-Based Awards	9
Recommendation of the Pandora Board of Directors	9
Opinions of Pandora’s Financial Advisors	10
Pandora Special Meeting	11
Interests of Pandora’s Directors and Executive Officers in the Transactions	11
Antitrust Approvals Required for the Transactions	11
Conditions to Completion of the Transactions	11
Go-Shop and Non-Solicitation by Pandora	12
Termination	12
Termination Fee	13
Comparison of Stockholders’ Rights	13
Appraisal Rights	13
Risk Factors	13
Accounting Treatment of the Merger	13
Material U.S. Federal Income Tax Consequences	13
SELECTED HISTORICAL FINANCIAL DATA FOR SIRIUS XM	15
SELECTED HISTORICAL FINANCIAL DATA FOR PANDORA	16
RISK FACTORS	20
Risks Relating to the Transactions	20
Risks Relating to the Combined Company After Closing of the Transactions	23
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS	27
THE PANDORA SPECIAL MEETING	29
Time, Place and Date	29
Purpose of the Pandora Special Meeting	29
Recommendation of the Pandora Board of Directors	29
Record Date; Stock Entitled to Vote	29
Quorum	29
Required Vote; Outstanding Shares	29
Voting Procedures for Record Holders	30
Revoking a Proxy	31
Vote of Pandora’s Directors and Executive Officers	31
Proxy Solicitation Costs	32
Other Information	32
Assistance	32
Householding	33
PANDORA PROPOSALS	34
Proposal 1: The Merger Agreement Proposal	34
Proposal 2: The Advisory Compensation Proposal	35
Proposal 3: The Adjournment Proposal	36
THE PARTIES	37
THE TRANSACTIONS	40
Background of the Transactions	40
Pandora’s Purpose and Reasons for the Transactions; Recommendations of the Pandora Board of Directors	52
Certain Financial Forecasts	55
Opinions of Pandora’s Financial Advisors	59
The Sirius XM Board of Directors’ Reasons for the Transactions	77
Interests of Pandora’s Directors and Executive Officers in the Transactions	79
Material U.S. Federal Income Tax Consequences	85

 

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Antitrust Approvals Required for the Transactions	88
Accounting Treatment	89
Public Trading Markets	89
THE MERGER AGREEMENT	91
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION	112
DESCRIPTION OF SIRIUS XM CAPITAL STOCK	121
COMPARISON OF STOCKHOLDERS’ RIGHTS	123
APPRAISAL RIGHTS	129
LEGAL OPINIONS	130
EXPERTS	131
OTHER MATTERS	132
PANDORA ANNUAL MEETING STOCKHOLDER PROPOSALS	133
WHERE YOU CAN FIND MORE INFORMATION	134
ANNEX A: AGREEMENT AND PLAN OF MERGER AND REORGANIZATION	A-1
ANNEX A1: JOINDER TO MERGER AGREEMENT	A1-1
ANNEX B: OPINION OF CENTERVIEW PARTNERS LLC	B-1
ANNEX C: OPINION OF LIONTREE ADVISORS LLC	C-1

 

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RISK FACTORS

 

In addition to the other information included and incorporated by reference into this proxy statement/prospectus, including the matters addressed in “Cautionary Statement Concerning Forward-Looking Statements,” you should carefully consider the following risks before deciding how to vote. In addition, you should read and consider the risks associated with each of the businesses of Sirius XM and Pandora because these risks will also affect the combined company following completion of the transactions. These risks can be found in the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q of each of Sirius XM and Pandora, each of which is filed with the SEC and incorporated by reference into this proxy statement/prospectus. You should also read and consider the other information in this proxy statement/prospectus and the other documents incorporated by reference into this proxy statement/prospectus. For more information, see “Where You Can Find More Information.”

 

Risks Relating to the Transactions

 

The closing of the transactions will permit certain counterparties to commercial agreements to terminate those agreements or exercise other rights.

 

Pandora is party to certain agreements that give the counterparties to such agreements, including music labels and other copyright holders that own or control rights that are an essential input to Pandora, certain rights, including notice, consent and other rights in connection with a “change of control” such as the transactions, that may give rise to a default by Pandora under these agreements or the rights by the counterparties to terminate these agreements or charge Pandora rates that are less favorable to Pandora. These counterparties may assert these rights in connection with the closing, claim a default of the agreements by Pandora, terminate the agreements, and/or request modifications of their agreements as a condition to granting a waiver or consent under these agreements, any of which would adversely affect the business and operations of Pandora and the value of Sirius XM common stock following the closing of the transactions. In addition, the transactions constitute an event that would enable holders of Pandora’s outstanding convertible notes to, at each holder’s option, convert those notes into, at the election of Pandora, cash, shares of Pandora common stock or a combination thereof.

 

The transactions are subject to a number of conditions and may not be completed on the terms or timeline currently contemplated, or at all.

 

The closing of the transactions is subject to a number of conditions, including the approval of the merger agreement proposal by the Pandora stockholders and expiration or early termination of the waiting period under the HSR Act, which make the closing (and timing of the closing) of the transactions uncertain. In addition, if the merger is not completed by June 23, 2019, either Sirius XM or Pandora may terminate the merger agreement (subject to certain exceptions). Sirius XM or Pandora may also elect to terminate the merger agreement in certain other circumstances. See “The Merger Agreement—Conditions to the Closing of the Transactions” beginning on page [●] and “The Merger Agreement—Termination of the Merger Agreement” beginning on page [●] for additional information of these circumstances.

 

Sirius XM and Pandora cannot assure you that the transactions will be consummated on the terms and timeline currently contemplated or at all. Many of the conditions to the closing of the transactions are not within the control of Sirius XM or Pandora, and neither company can predict when or if these conditions will be satisfied and could delay the completion of the transactions for a significant period of time or prevent it from occurring. Any delay in completing the transactions could cause each of Sirius XM and Pandora not to realize some or all of the benefits that each expects to achieve if the transactions are successfully completed within its expected timeframe.

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Failure to complete the transactions could adversely affect the stock prices and the future business and financial results of Sirius XM and Pandora.

 

If the transactions are not completed on a timely basis, or at all, the ongoing respective businesses of Sirius XM and/or Pandora may be adversely affected and, without realizing the benefit of having completed the transactions, Sirius XM and Pandora could be subject to numerous risks, including:

 

·

Sirius XM and Pandora will be required to pay their respective costs relating to the transactions, such as legal, accounting, financial advisor, filing, printing and mailing fees;

 

·

Sirius XM’s and Pandora’s respective management has committed time and resources to matters relating to the transactions that could otherwise have been devoted to pursuing other beneficial opportunities;

 

·

Sirius XM and Pandora may experience negative reactions from the financial markets, including negative impacts on their respective stock prices, or from their respective customers and employees; and

 

·

Sirius XM and Pandora may have reputational harm due to the adverse perception of any failure to successfully complete the transactions.

 

The exchange ratio is fixed and will not be adjusted in the event of any change in the market price of either Sirius XM common stock or Pandora common stock.

 

As a result of the closing of the transactions, each share of Pandora common stock held immediately prior to the closing will, after initially being converted into a share of New Holding Company common stock in the holding company merger, enable the holder thereof to receive 1.44 shares of Sirius XM common stock as a result of the merger, with cash paid in lieu of fractional shares. The exchange ratio is fixed in the merger agreement and will not be adjusted for changes in the market price of either Sirius XM common stock or Pandora common stock.

 

Because the exchange ratio is fixed, changes in the market price of Sirius XM common stock prior to the closing of the merger will affect the value of the merger consideration that the Pandora stockholders will receive in connection with the closing. The market price of Sirius XM common stock at the closing may vary from the market prices of Sirius XM common stock on the date the merger agreement was executed, on the date of this proxy statement/prospectus and on the date of the Pandora special meeting.

 

For example, based on the range of closing prices of Sirius XM common stock during the period from September 21, 2018, the last trading day before public announcement of the merger agreement, through [●], 2018, the last practicable date before the filing of this proxy statement/prospectus, the market value of 1.44 shares of Sirius XM common stock ranged from a low of $[●] to a high of $[●]. The actual market value of the merger consideration received by the Pandora stockholders upon completion of the transactions may be outside this range. Furthermore, because the transactions will be completed, if at all, after the Pandora special meeting, the market value of the merger consideration cannot be known at the time the Pandora stockholders consider and vote upon the merger agreement proposal at the Pandora special meeting.

 

Stock price changes may result from a variety of factors (many of which are beyond the control of Sirius XM or Pandora), including:

 

·

changes in, or changes in market expectations of, the companies’ respective businesses, operations, assets, liabilities and prospects;

 

·

investor behavior and strategies, including market assessments of the likelihood that the transactions will be completed;

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·

interest rates, general market and economic conditions and other factors generally affecting the market price of the companies’ common stock;

 

·

federal, state and local legislation, governmental regulation and legal developments in the businesses in which the companies operate; and

 

·

other factors beyond the control of either Sirius XM or Pandora, including those described under this heading “Risk Factors.”

 

Sirius XM and Pandora expect to incur significant costs and expenses in connection with the transactions.

 

Each of Sirius XM and Pandora have incurred, and expect to further incur, certain nonrecurring costs in connection with the transactions, including advisory, legal and other transaction costs. While many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time, management of Sirius XM and Pandora continue to assess the magnitude of these costs, and additional unanticipated costs that may be incurred in connection with the transactions. Although Sirius XM and Pandora expect that the realization of benefits related to the transactions will offset such costs and expenses over time, no assurances can be made that the net benefits will be achieved in the near term, or at all.

 

The announcement and pendency of the transactions could divert the attention of management and adversely affect the business and operations of each of Sirius XM and Pandora.

 

Sirius XM and Pandora are currently operated independently of each other. Management of both Sirius XM and Pandora may be required to divert attention away from their respective day-to-day activities and operations and devote time and effort to closing the transactions and integrating the businesses following the closing. The risks, and adverse effects, of such disruptions and diversions could be exacerbated by a delay in the closing of the transactions. These factors could adversely affect the financial position or results of operations of Sirius XM and/or Pandora, regardless of whether the transactions are completed.

 

Furthermore, uncertainty about the effect of the transactions on employees, customers, and other third parties may have an adverse effect on Pandora and/or Sirius XM. Some customers, vendors or other third parties of each of Pandora and Sirius XM may change, delay or defer decisions with respect to existing or future business relationships. Similarly, current and prospective employees of Pandora or Sirius XM may experience uncertainty about their future roles with Pandora or Sirius XM following the merger, which may adversely affect the ability of Pandora or Sirius XM to attract and retain key personnel during the pendency of the transactions.

 

Pandora is subject to contractual restrictions before the closing of the transactions, which could adversely affect Pandora’s business.

 

The merger agreement imposes certain restrictive interim covenants on Pandora. For instance, the consent of Sirius XM is required in respect of, among other things, amendments to Pandora’s organizational documents, share repurchases, certain actions relating to material contracts, certain employee benefit changes, certain capital expenditures, acquisition and dispositions, payments of dividends, and certain issuances of shares of Pandora common stock. These restrictions may prevent Pandora from taking certain actions before the closing of the transactions or the termination of the merger agreement, including making certain acquisitions or otherwise pursuing certain business opportunities, or making certain changes to its capital stock, that the Pandora board of directors may deem beneficial.

 

Sirius XM is subject to contractual restrictions while the transactions are pending, which could adversely affect Sirius XM’s business.

 

Although less restrictive than those imposed on Pandora, the merger agreement does impose certain restrictive interim covenants on Sirius XM. For instance, the consent of Pandora is required in respect of, among other things, certain amendments to Sirius XM’s organizational documents and payments of dividends (other than

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regular quarterly dividends). These restrictions may prevent Sirius XM from taking certain actions before the closing of the transactions or the termination of the merger agreement that the Sirius XM board of directors may deem beneficial.

 

Certain provisions of the merger agreement could discourage a competing proposal to acquire Pandora or could result in any competing proposal being offered at a lower price than it might otherwise be offered.

 

The merger agreement contains “no-shop” provisions that restrict Pandora’s ability to solicit, encourage, facilitate or discuss competing third-party proposals to acquire all or a significant part of Pandora. In addition, Sirius XM generally has an opportunity to offer to modify the terms of the merger agreement in response to any competing proposal. Upon termination of the merger agreement in certain circumstances, Pandora may be required to pay a termination fee to Sirius XM of $105 million. For additional information, see the sections entitled “The Merger Agreement—Go-Shop and Non-Solicitation by Pandora” beginning on page [●].

 

These provisions could discourage a potential acquiror from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the Sirius XM common stock to be received by the Pandora stockholders in connection with the closing of the transactions, or might result in a potential acquiror proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable by Pandora in certain circumstances under the merger agreement.

 

The directors and executive officers of Pandora have interests in the transactions that are different from, or in addition to, those of the Pandora stockholders.

 

The directors and executive officers of Pandora have interests in the transactions that are different from, or in addition to, the interests of the Pandora stockholders generally. These interests include, among others, the treatment of outstanding equity awards pursuant to the merger agreement, potential severance and other benefits upon a qualifying termination in connection with the merger and certain rights to ongoing indemnification and insurance coverage. For additional information, see the section entitled “The Transactions—Interests of Pandora’s Directors and Executive Officers in the Transactions” beginning on page [●].

 

The transactions may not qualify as a “reorganization,” within the meaning of Section 368(a) of the Code, and no ruling has been or will be sought from the IRS regarding the U.S. federal income tax consequences of the transactions.

 

It is intended that, for U.S. federal income tax purposes, the transactions will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. However, if either Pandora or Sirius XM is unable to receive an opinion of counsel to that effect, the parties have agreed to restructure the transactions so that the transactions will be treated as a taxable stock sale. In addition, neither Sirius XM nor Pandora intends to request a ruling from the IRS regarding the U.S. federal income tax consequences of the transactions. Accordingly, no assurance can be given that the transactions will so qualify as a “reorganization.” Further, even if Sirius XM and Pandora conclude that the transactions so qualify, no assurance can be given that the IRS will not challenge that conclusion or that a court would not sustain such a challenge. Each Pandora stockholder should read the discussion under “The Transactions—Material U.S. Federal Income Tax Consequences” beginning on page [●] and should consult its own tax advisor for a full understanding of the tax consequences of the transactions to such stockholder.

 

Risks Relating to the Combined Company After Closing of the Transactions

 

Following the transactions, Sirius XM may be unable to integrate the businesses of Sirius XM and Pandora successfully or realize the anticipated synergies and related benefits of the merger or do so within the anticipated time frame.

 

The transactions involve the combination of two companies which currently operate as independent companies. Sirius XM will be required to devote significant management attention and resources to integrating the

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businesses and operations of Pandora. Potential difficulties Sirius XM or Pandora may encounter in the integration process including:

 

·

the inability to successfully combine the businesses of Sirius XM and Pandora in a manner that permits Sirius XM to offer cross-promotion opportunities, audio packages that integrate Sirius XM content and programming with Pandora’s ad-supported and subscription services and achieve other benefits anticipated to result from the transactions, in the time frame currently anticipated or at all;

 

·

the complexities associated with integrating personnel from the two companies and of combining two companies with different histories, cultures and customer bases;

 

·

the failure of Sirius XM to retain key employees of either Pandora or Sirius XM;

 

·

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the transactions; and

 

·

performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention in connection with completing the transactions and integrating the companies’ operations.

 

For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of Sirius XM’s or Pandora’s management, the disruption of Sirius XM’s ongoing business or inconsistencies in Sirius XM’s services, standards, controls, procedures and policies, any of which could adversely affect the ability of Sirius XM to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits of the transactions, or could otherwise adversely affect the business and financial results of Sirius XM following the closing of the transactions.

 

The combined company’s future results will suffer if it does not effectively manage its expanded operations following the closing of the transactions.

 

Following the closing of the transactions, the size and scope of operations of the business of Sirius XM will increase beyond the current size and scope of operations of either Sirius XM’s or Pandora’s current businesses. In addition, Sirius XM may continue to expand its size and operations through additional acquisitions or other strategic transactions. Sirius XM’s future success depends, in part, upon its ability to manage its expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that Sirius XM will be successful or that it will realize the expected economies of scale, synergies and other benefits currently anticipated from the transactions or anticipated from any additional acquisitions or strategic transactions.

 

The Pandora stockholders will have a reduced ownership and voting interest in the combined company following the transactions, and will exercise less influence over management of the combined company.

 

Because shares of Sirius XM common stock to be received by the Pandora stockholders in the transactions will not represent the same proportionate equity and voting interests as their existing shares of Pandora common stock represent in Pandora, this will result in the Pandora stockholders having less influence over the management of the combined company. Based upon the number of outstanding shares on the record date for the Pandora special meeting, upon completion of the transactions, we expect that former Pandora stockholders will own approximately [●]% of the Sirius XM common stock (based on the number of shares of Sirius XM common stock outstanding on [●], 2018, the last practicable date before the filing of this proxy statement/prospectus).

 

As of [●], 2018, the last practicable date before the filing of this proxy statement/prospectus, Liberty Media beneficially owned approximately [●]% of the Sirius XM common stock and upon completion of the transactions, we expect that Liberty Media will own approximately [●]% of the Sirius XM common stock (based on the number of shares of Sirius XM common stock outstanding on [●], 2018, the last practicable date before the filing of this

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proxy statement/prospectus). Accordingly, Liberty Media has, and will have following the closing of the transactions, the ability to influence Sirius XM’s affairs, policies and operations. Two Liberty Media executives and one other member of the board of directors of Liberty Media are members of the Sirius XM board of directors. The Sirius XM board of directors currently has thirteen members. Gregory B. Maffei, the President and Chief Executive Officer of Liberty Media, is the Chairman of Sirius XM’s board of directors. The Sirius XM board of directors is responsible for, among other things, the appointment of executive management, future issuances of common stock or other securities, the payment of dividends, if any, the incurrence of debt, and the approval of various transactions, including the transactions.

 

Liberty Media can also determine the outcome of all matters requiring approval of the Sirius XM stockholders, including the election of the board of directors and changes to the Sirius XM certificate of incorporation or by-laws. Liberty Media can also cause or prevent a change of control of Sirius XM and could preclude any unsolicited acquisition of Sirius XM. The concentration of ownership could deprive Sirius XM stockholders of an opportunity to receive a premium for their common stock as part of a sale of Sirius XM and might ultimately affect the market price of Sirius XM common stock. In certain cases, the interests of Liberty Media may not be aligned with the interests of other Sirius XM stockholders. Sirius XM is also, and following the closing of the transactions is expected to remain, a “controlled company” for the purposes of the NASDAQ Stock Market listing rules. As such, Sirius XM has elected not to comply with certain NASDAQ corporate governance requirements. Although a majority of the members of the Sirius XM board of directors consists of independent directors, Sirius XM does not have a compensation committee and nominating and corporate governance committee that consist entirely of independent directors.

 

The unaudited pro forma condensed combined consolidated financial statements included in this proxy statement/prospectus are for illustrative purposes, and the actual financial condition and results of operations after the merger may differ materially.

 

The unaudited pro forma condensed combined consolidated financial statements in this proxy statement/prospectus are presented for illustrative purposes only and are not necessarily indicative of what the combined company’s actual financial condition or results of operations would have been had the transactions been completed on the dates indicated. In addition, the unaudited pro forma condensed combined consolidated financial statements do not purport to project the future financial position or operating results of the combined company. The unaudited pro forma condensed combined consolidated financial statements reflect adjustments, which are based upon assumptions and preliminary estimates, to record the Pandora identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The purchase price allocation reflected in this proxy statement/prospectus is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Pandora as of the date of the completion of the transactions. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this proxy statement/prospectus. For more information, see “Unaudited Comparative Per Share Information” beginning on page [●] and “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements” beginning on page [●] in this proxy statement/prospectus.

 

The prospective financial forecasts for Pandora included in this proxy statement/prospectus reflect the estimates of Pandora’s management and Pandora’s actual performance may differ materially from such forecasts.

 

The prospective financial forecasts for Pandora included in this proxy statement/prospectus are based on assumptions of, and information available to, Pandora at the time such prospective financial forecasts were prepared. Pandora does not know whether the assumptions made will prove correct. Any or all of such information may turn out to be wrong. Such information can be adversely affected by inaccurate assumptions or by known or unknown risks and uncertainties, many of which are beyond Pandora’s control. Further, prospective financial forecasts of this type are based on estimates and assumptions that are inherently subject to factors such as company performance, industry performance, general business, economic, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of operations of Pandora, which factors and changes may cause the prospective financial forecasts or the underlying assumptions to be inaccurate. As a result of these contingencies, there can be no assurance that the prospective financial forecasts of Pandora will be realized or that actual results

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will not be significantly higher or lower than projected. For more information, see the section entitled “The Merger—Certain Pandora Unaudited Prospective Financial Information” beginning on page [●].

 

The market price of Sirius XM common stock may be volatile, and holders of Sirius XM common stock could lose a significant portion of their investment due to drops in the market price of Sirius XM common stock following completion of the transactions.

 

The market price of Sirius XM common stock may be volatile, and following completion of the transactions, the Pandora stockholders who receive Sirius XM common stock may not be able to resell their Sirius XM common stock due to fluctuations in the market price, including changes in market price caused by factors unrelated to the combined company’s operating performance or prospects. In particular, the market price of Sirius XM common stock has in the past experienced significant fluctuation, including fluctuation that is unrelated to Sirius XM’s performance, and this fluctuation may continue in the future.

 

Furthermore, although the combined company will generally be subject to the same risks that each of Sirius XM and Pandora currently face, the results of operations as well as the market price of Sirius XM common stock following the closing may be affected by factors different from those factors affecting Sirius XM and Pandora as independent stand-alone companies. The combined company may face additional risks and uncertainties that Sirius XM or Pandora may currently not be exposed to as independent companies.

 

The shares of Sirius XM common stock to be received by the Pandora stockholders will have different rights from the shares of Pandora common stock currently held by the Pandora stockholders.

 

In connection with the closing of the transactions, the Pandora stockholders will become Sirius XM stockholders and their rights as stockholders will be governed by Sirius XM’s organizational documents. The rights associated with Sirius XM common stock are different from the rights associated with Pandora common stock. For additional information, see the section entitled “Comparison of Stockholders’ Rights” beginning on page [●].

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

 

This proxy statement/prospectus, including information and documents included or incorporated by reference in this proxy statement/prospectus, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this proxy statement/prospectus, including the information and documents included or incorporated by reference in this proxy statement/prospectus, that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. These forward-looking statements include, but are not limited to, statements about the benefits of the transactions, including Sirius XM’s and/or Pandora’s expectations or predictions of future financial or business performance or conditions; statements about Sirius XM’s and Pandora’s plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “plan,” “predict,” “project,” “forecast,” “guidance,” “goal,” “objective,” “prospects,” “possible” or “potential,” by future conditional verbs such as “assume,” “will,” “would,” “should,” “could” or “may,” or by variations of such words or by similar expressions. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time, are difficult to predict and are generally beyond the control of either company. Forward-looking statements speak only as of the date they are made, and Sirius XM and Pandora assume no duty to update forward-looking statements, except to the extent required by applicable law or regulation.

 

In addition to factors previously disclosed in Sirius XM’s and Pandora’s reports filed with the SEC, including the respective company’s recent Forms 10-K and 10-Q, and those identified elsewhere in this proxy statement/prospectus, including those disclosed under “Risk Factors” beginning on page [●], the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

 

·

failure to meet or delay in meeting the closing conditions to the transactions, including the approval of Pandora’s stockholders, on the expected terms and schedule and the risk that regulatory approvals required for the transactions are not obtained or are obtained subject to conditions that are not anticipated;

 

·

delay in closing the transactions;

 

·

the occurrence of any event, change or other circumstances that could give rise to a right of one or both of Sirius XM and Pandora to terminate the merger agreement;

 

·

difficulties and delays in integrating Sirius XM and Pandora businesses or fully anticipated synergies, cost savings and other benefits estimated to result from the transactions;

 

·

failure to realize the expected benefits from the proposed transactions;

 

·

risks related to disruption of management time from ongoing business operations due to the proposed transactions;

 

·

changes in political or other factors such as monetary policy, legal and regulatory changes, general economic and market conditions or other external factors over which they have no control;

 

·

the outcome of pending or threatened litigation or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger agreement or the transactions;

 

·

Sirius XM’s or Pandora’s increasing industry competition;

 

·

statements relating to future business prospects, number of subscribers, revenue, income and financial condition;

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·

new service and product offerings;

 

·

the expected timing and likelihood of completion of the proposed transactions, including the timing and satisfaction of conditions to the proposed transactions that could reduce anticipated benefits or cause the parties to abandon the transactions;

 

·

the risk that any announcements relating to the proposed transactions could have adverse effects on the market price of the Pandora common stock or Sirius XM common stock;

 

·

the risk that the transactions and their announcement could have an adverse effect on the ability of Pandora and Sirius XM to retain and hire personnel and maintain relationships with their suppliers and customers and on their operating results and businesses generally;

 

·

changes and uncertainties in the market for music rights;

 

·

potential changes in accounting principles, policies, practices or guidelines;

 

·

changes in the price of Sirius XM common stock before closing, including as a result of the financial performance of Pandora prior to closing;

 

·

Sirius XM’s potential exposure to unknown or contingent liabilities of Pandora; and

 

·

natural disasters, war or terrorist activities.

 

You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this proxy statement/prospectus or the date of the applicable document incorporated by reference in this proxy statement/prospectus. Sirius XM and Pandora assume no duty to update forward-looking statements, except to the extent required by applicable law or regulation. All subsequent written and oral forward-looking statements concerning the transactions or other matters addressed in this proxy statement/prospectus and attributable to Sirius XM or Pandora or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

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THE PANDORA SPECIAL MEETING

 

This section contains information about the Pandora special meeting and this proxy statement/prospectus is being furnished to the Pandora stockholders in connection with the solicitation of proxies by the Pandora board of directors for use at the Pandora special meeting. Pandora is first mailing this proxy statement/prospectus and accompanying proxy card to its stockholders on or about [●], 2018.

 

Time, Place and Date

 

The Pandora special meeting will be held on [●], 2018, at [●] local time, at [●], unless the Pandora special meeting is adjourned or postponed, if necessary or appropriate.

 

Purpose of the Pandora Special Meeting

 

At the Pandora special meeting, the Pandora stockholders will be asked to consider and vote upon:

 

·

the merger agreement proposal;

 

·

the advisory compensation proposal; and

 

·

the adjournment proposal.

 

Recommendation of the Pandora Board of Directors

 

The Pandora board of directors recommends that the Pandora stockholders vote “FOR” the merger agreement proposal; “FOR” the advisory compensation proposal; and “FOR” the adjournment proposal. See “The Transactions—Recommendation of the Pandora Board of Directors and Reasons for the Transactions” beginning on page [●].

 

Record Date; Stock Entitled to Vote

 

The Pandora board of directors has set [●], 2018 as the record date for the Pandora special meeting. Only holders of record of Pandora common stock and Pandora preferred stock at the close of business on the record date will be entitled to notice of and to vote at the Pandora special meeting and any adjournments or postponements thereof.

 

Quorum

 

The holders of a majority of the combined voting power of all of the outstanding shares of Pandora common stock and Pandora preferred stock entitled to vote at the Pandora special meeting, present in person or represented by proxy, shall constitute a quorum for purposes of the matters to be voted on at the Pandora special meeting. Abstentions and non-votes by brokers will be treated as present at the Pandora special meeting for purposes of determining the presence or absence of a quorum. In the event that a quorum is not present at the Pandora special meeting, the holders of a majority in voting power of the voting interest represented at the Pandora special meeting, in person or represented by proxy, may adjourn the meeting, without notice other than announcement at the meeting, to another time and/or place until a quorum is so present or represented.

 

Required Vote; Outstanding Shares

 

Approval of the merger agreement proposal requires the affirmative vote of the holders of a majority of the combined voting power of the outstanding shares of Pandora common stock and Pandora preferred stock entitled to vote thereon, voting together as a single class. Abstention, failure to vote or failure to instruct your bank, broker or other nominee with respect to the merger agreement proposal will have the same effect as a vote “AGAINST” the merger agreement proposal. Pandora stockholders must vote to approve the merger agreement proposal in order for the transactions to occur.

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Assuming a quorum is present, approval of each of the advisory compensation proposal and the adjournment proposal, if necessary or required, requires the affirmative vote of the holders of a majority of the shares of Pandora common stock and Pandora preferred stock present in person or represented by proxy at the Pandora special meeting and entitled to vote thereon. If a quorum is not present, the adjournment proposal may still be approved by the affirmative vote of the holders of a majority in voting power of the shares of Pandora common stock and Pandora preferred stock held by the Pandora stockholders present in person or represented by proxy at the Pandora special meeting. Abstentions will have the same effect as a vote “AGAINST” each of the advisory compensation proposal and the adjournment proposal, but the failure to vote or failures to instruct your bank, broker or other nominee will have no effect on the advisory compensation proposal or the adjournment proposal. Abstentions will, however, be counted towards establishing a quorum.

 

Each holder of record of shares of Pandora common stock is entitled to one vote for each share of Pandora common stock owned as of the close of business on the record date. As of the close of business on the record date, there were [●] shares of Pandora common stock issued and outstanding. The Pandora preferred stock is entitled to vote on an as-converted basis. As of the close of business on the record date, there were 480,000 shares of Pandora preferred stock issued and outstanding, all of which were owned by Sirius XM Radio, and which are, in the aggregate, entitled to [●] votes (which number is equal to the number of shares of Pandora common stock into which the shares of Pandora preferred stock could be converted and constitutes approximately [●]% of the voting power of Pandora stockholders). Sirius XM has agreed to vote, or cause to be voted, all of such shares of Pandora preferred stock beneficially owned by it in favor of the merger agreement proposal.

 

Voting Procedures for Record Holders

 

If you are a stockholder of record of Pandora common stock as of the close of business on the record date, you can submit your proxy before the Pandora special meeting in any of the following ways:

 

·

By mail: Complete, sign, date and return the enclosed proxy card to Pandora using the enclosed postage-paid envelope. The envelope requires no additional postage if mailed in the United States.

 

·

Via the Internet: Use the Internet to submit a proxy to vote your shares of Pandora common stock by accessing the website [●] and following the instructions on the website to obtain your records and submit a vote electronically. Please have your proxy card and your social security number or tax identification number available when you access this voting site. You may submit a proxy via the Internet 24 hours a day, 7 days a week until 11:59 p.m. Eastern Time on the day before the Pandora special meeting.

 

·

By telephone: Use any touch-tone telephone to submit a proxy to vote your shares of Pandora common stock by calling toll-free [●] and following the voice recorded instructions. Please have your proxy card and your social security number or tax identification number available when you call. You may submit a proxy by telephone 24 hours a day, 7 days a week until 11:59 p.m., Eastern Time, on the day before the Pandora special meeting.

 

If you hold your shares in “street name” through a broker, bank or other nominee, your broker, bank or other nominee will separately send you a voting instruction card describing the procedure for voting your shares of Pandora common stock, including whether you may submit a proxy via the Internet or by telephone.

 

If you submit an executed proxy prior to the Pandora special meeting but do not indicate how you want to vote, your vote will be counted as a vote “FOR” the approval for each of the merger agreement proposal, the advisory compensation proposal and the adjournment proposal, if necessary or appropriate.

 

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF PANDORA COMMON STOCK YOU OWN. Accordingly, each Pandora stockholder should complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope, or vote via the Internet or by telephone as soon as possible, whether or not such Pandora stockholder plans to attend the Pandora special meeting in person.

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Voting in Person

 

Shares of Pandora common stock held directly in your name as stockholder of record may be voted in person by ballot at the Pandora special meeting. If you choose to vote your shares of Pandora common stock in person at the Pandora special meeting, please bring a valid, government-issued photo identification. Even if you plan to attend the Pandora special meeting, the Pandora board of directors recommends that you submit a proxy to vote your shares of Pandora common stock in advance as described above so that your vote will be counted if you later decide not to attend the Pandora special meeting.

 

If you are a beneficial holder, you will receive separate voting instructions from your broker, bank or other nominee explaining how to vote your shares. Please note that if your shares of Pandora common stock are held in “street name” by a broker, bank or other nominee and you wish to vote at the Pandora special meeting, you will not be permitted to vote in person unless you first obtain a legal proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee. You are encouraged to request a legal proxy from your broker, bank or other nominee promptly as the process can be lengthy. In addition to such legal proxy, if you plan to attend the Pandora special meeting, but hold your shares in “street name”, please also bring evidence of your beneficial ownership of your shares (e.g., a copy of a recent brokerage statement showing the shares) and valid photo identification with you to the Pandora special meeting.

 

Revoking a Proxy

 

If you are a stockholder of record of Pandora, whether you submit a proxy to vote your shares of Pandora common stock by mail, via the Internet or by telephone, you can change or revoke your proxy before it is voted at the Pandora special meeting by:

 

·

submitting a new proxy card bearing a later date, which new proxy card must be received prior to your shares of Pandora common stock being voted at the Pandora special meeting;

 

·

submitting voting instructions again via the Internet or by telephone at any time before 11:59 p.m. Eastern Time on the day before the Pandora special meeting;

 

·

delivering a written notice of your revocation, which may be delivered to the Pandora corporate secretary at Pandora Media, Inc., Attention: Corporate Secretary, 2100 Franklin Street, Suite 700, Oakland, California 94612, and must be received before your shares of Pandora common stock are voted at the Pandora special meeting; or

 

·

voting in person at the Pandora special meeting. Please note that your attendance at the Pandora special meeting will not alone serve to revoke your proxy.

 

If you are a beneficial owner of Pandora common stock as of the close of business on the record date, you must follow the instructions of your bank, broker or other nominee to revoke or change your voting instructions.

 

Vote of Pandora’s Directors and Executive Officers

 

At the close of business on the record date, Pandora’s directors and executive officers, as a group, owned and were entitled to vote [●] shares of Pandora common stock, or approximately [●]% of the outstanding voting power entitled to vote at the Pandora special meeting.

 

Pandora currently expects that all of its directors and executive officers will vote their shares “FOR” the merger agreement proposal, “FOR” the advisory compensation proposal and “FOR” the adjournment proposal.

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Proxy Solicitation Costs

 

The enclosed proxy card is being solicited on behalf of the Pandora board of directors. In addition to solicitation by mail, Pandora’s directors, officers and employees may solicit proxies in person, by telephone or by electronic means. These persons will not be specifically compensated for doing this.

 

Pandora has retained Innisfree M&A Incorporated, which we refer to as Innisfree, to assist in the proxy solicitation process. Pandora will pay Innisfree a fee of approximately $25,000, as well as reasonable and documented out-of-pocket expenses. Pandora also has agreed to indemnify Innisfree against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

 

Pandora will ask banks, brokers and other nominees to forward the proxy solicitation materials to the beneficial owners of shares of Pandora common stock held of record by such nominee holders. Pandora will reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.

 

Stockholder List

 

A list of Pandora stockholders entitled to vote at the Pandora special meeting will be available for examination by any Pandora stockholder at the Pandora special meeting. At least ten days prior to the date of the Pandora special meeting, this stockholder list will be available for inspection by Pandora stockholders, subject to compliance with applicable provisions of Delaware law, during ordinary business hours at the corporate offices of Pandora located at 2100 Franklin Street, Suite 700, Oakland, California 94612.

 

Other Business

 

There are no other matters that the Pandora board of directors intends to present at the Pandora special meeting. If you have submitted a proxy to vote before the Pandora special meeting and other matters are properly presented for voting at the Pandora special meeting, your proxy will have the discretion to vote on those matters for you.

 

Other Information

 

The matters to be considered at the Pandora special meeting are of great importance to Pandora stockholders. Accordingly, you are urged to read and carefully consider the information contained in or incorporated by reference into this proxy statement/prospectus and submit your proxy by mail, via the Internet or by telephone promptly. If you submit your proxy via the Internet or by telephone, you do not need to return the enclosed proxy card.

 

Assistance

 

If you need assistance in completing your proxy card or have questions regarding the Pandora special meeting, please contact:

 

Innisfree M&A Incorporated
501 Madison Avenue, 20^th Floor
New York, NY 10022
Pandora stockholders may call toll-free:
(888) 750-5384
Banks and Brokers may call collect:
(212) 750-5833

 

or

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Pandora Media, Inc.
2100 Franklin Street, Suite 700
Oakland, California 94612
Attn.: Investor Relations
(510) 451-4100

 

Householding

 

The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement or annual report, as applicable, addressed to those stockholders. As permitted by the Exchange Act, only one copy of this proxy statement/prospectus is being delivered to stockholders residing at the same address, unless such stockholders have notified Pandora of their desire to receive multiple copies of the proxy statement/prospectus. This process, which is commonly referred to as “householding,” potentially provides extra convenience for stockholders and cost savings for companies.

 

Brokers with account holders who are Pandora stockholders may be “householding” Pandora’s proxy materials. A single proxy statement/prospectus may be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you notify your broker or Pandora that you no longer wish to participate in “householding.”

 

If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement/prospectus, you may (1) notify your broker, (2) direct your written request to: Pandora Media, Inc., 2100 Franklin Street, Suite 700, Oakland, California 94612, Attention: Investor Relations or (3) contact Pandora’s Investor Relations department by telephone at (510) 842-6960. Stockholders who currently receive multiple copies of this proxy statement/prospectus at their address and would like to request “householding” of their communications should contact their broker. In addition, Pandora will promptly deliver, upon written or oral request made to the address or telephone number above, a separate copy of this proxy statement/prospectus to a stockholder at a shared address to which a single copy of the documents was delivered.

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PANDORA PROPOSALS

 

Proposal 1: The Merger Agreement Proposal

 

As discussed elsewhere in this proxy statement/prospectus, Pandora is asking the Pandora stockholders to consider and vote on the merger agreement proposal.

 

You should carefully read this proxy statement/prospectus in its entirety, including its Annexes and the information incorporated by reference into this proxy statement/prospectus, for more detailed information concerning the merger agreement and the transactions contemplated thereby. In particular, you are urged to read the sections entitled “The Transactions” and “The Merger Agreement,” as well as the merger agreement in its entirety, which is attached as Annex A hereto.

 

The approval by the Pandora stockholders of the merger agreement proposal is required by the DGCL and is a condition to the completion of the transactions. If the merger agreement proposal is not approved, the transactions will not be completed.

 

Sirius XM has agreed to vote, or cause to be voted, all of the shares of Pandora preferred stock beneficially owned by it (constituting approximately [●]% of the outstanding shares of Pandora common stock on an as-converted basis as of [●], 2018, the last practicable date before the filing of this proxy statement/prospectus) in favor of the merger agreement proposal.

 

Required Vote

 

Approval of the merger agreement proposal requires the affirmative vote of the holders of a majority of the combined voting power of the outstanding shares of Pandora common stock and Pandora preferred stock entitled to vote thereon, voting together as a single class. Abstention, failure to vote or failure to instruct your bank, broker or other nominee with respect to the merger agreement proposal will have the same effect as a vote “AGAINST” the merger agreement proposal.

 

Vote Recommendation

 

The Pandora board of directors recommends that Pandora stockholders vote “FOR” the merger agreement proposal.

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Proposal 2: The Advisory Compensation Proposal

 

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Rule 14a-21(c) of the Exchange Act, Pandora is seeking non-binding, advisory stockholder approval of the compensation of Pandora’s named executive officers that is based on or otherwise relates to the transactions as disclosed in “The Transactions—Interests of Pandora’s Directors and Executive Officers in the Transactions” beginning on page [●]. The proposal gives Pandora’s stockholders the opportunity to express their views on the transaction-related compensation of Pandora’s named executive officers. Accordingly, Pandora is requesting stockholders to adopt the following resolution, on a non-binding, advisory basis:

 

“RESOLVED, that the compensation that may be paid or become payable to Pandora’s named executive officers in connection with the transactions, and the agreements or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of Regulation S-K in “The Transactions—Interests of Pandora’s Directors and Executive Officers in the Transactions,” are hereby APPROVED on a non-binding, advisory basis.”

 

The vote on this proposal is a vote separate and apart from the vote of the Pandora stockholders to approve the merger agreement proposal and approval of this advisory compensation proposal is not a condition to completion of the transactions. Accordingly, a Pandora stockholder may vote to not approve this proposal and vote to approve the merger agreement proposal or vice versa. The vote with respect to this advisory compensation proposal is advisory only and will not be binding on Pandora or Sirius XM, regardless of whether the other proposals are approved. If the transactions are completed, the transaction-related compensation may be paid to Pandora’s named executive officers to the extent payable in accordance with the terms of the compensation agreements and arrangements even if Pandora’s stockholders fail to approve this advisory compensation proposal.

 

Required Vote

 

Assuming a quorum is present, approval of the advisory compensation proposal requires the affirmative vote of the holders of a majority of the shares of Pandora common stock and Pandora preferred stock present in person or represented by proxy at the Pandora special meeting and entitled to vote thereon. Abstention will have the same effect as a vote “AGAINST” the advisory compensation proposal, but the failure to vote or failure to instruct your bank, broker or other nominee will have no effect on the advisory compensation proposal. Abstentions will, however, be counted towards establishing a quorum.

 

Vote Recommendation

 

The Pandora board of directors recommends that Pandora stockholders vote “FOR” the advisory compensation proposal.

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Proposal 3: The Adjournment Proposal

 

Pandora stockholders are also being asked to consider and vote on a proposal to adjourn or postpone the Pandora special meeting, if necessary or appropriate, for a minimum period of time reasonable under the circumstances, to solicit additional proxies in the event there are not sufficient votes at the time of the Pandora special meeting to approve the merger agreement proposal.

 

In the adjournment proposal, Pandora is asking its stockholders to authorize the holder of any proxy solicited by the Pandora board of directors to vote in favor of granting discretionary authority to the proxy holders, and each of them individually, to adjourn the Pandora special meeting to another time and/or place for the purpose of soliciting additional proxies. If the Pandora stockholders approve the adjournment proposal, subject to the terms of the merger agreement, Pandora could adjourn the Pandora special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from Pandora stockholders who have previously voted. Pandora does not intend to call a vote on the adjournment proposal if the merger agreement proposal is adopted at the Pandora special meeting.

 

The approval by the Pandora stockholders of the adjournment proposal is not a condition to the completion of the transactions.

 

Required Vote

 

Assuming a quorum is present, approval of the adjournment proposal, if necessary or required, requires the affirmative vote of the holders of a majority of the shares of Pandora common stock and Pandora preferred stock present in person or represented by proxy at the Pandora special meeting and entitled to vote thereon. If a quorum is not present, the adjournment proposal may nevertheless be approved by the affirmative vote of the holders of a majority in voting power of the shares of Pandora common stock held by the Pandora stockholders present in person or represented by proxy at the Pandora special meeting. An abstention will have the same effect as a vote “AGAINST” the adjournment proposal, but the failure to vote or failure to instruct your bank, broker or other nominee will have no effect on the adjournment proposal. Abstentions will, however, be counted towards establishing a quorum.

 

Vote Recommendation

 

The Pandora board of directors recommends that Pandora stockholders vote “FOR” the adjournment proposal, if necessary or appropriate.

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THE PARTIES

 

Sirius XM, Sirius XM Radio and Merger Sub
1290 Avenue of the Americas, 11^th Floor
New York, New York 10104
(212) 584-5100

 

Sirius XM is a Delaware corporation. Sirius XM’s common stock is listed on NASDAQ under the symbol “SIRI”.

 

Sirius XM owns Sirius XM Radio, which is a Delaware corporation. Sirius XM Radio is the world’s largest radio company measured by revenue and has approximately 33.5 million subscribers. Sirius XM Radio transmits music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in the United States on a subscription fee basis through its two proprietary satellite radio systems. Subscribers can also receive music and other channels, plus features such as Sirius XM On Demand, over its Internet radio service, including through applications for mobile devices, home devices and other consumer electronic equipment. Sirius XM also provides connected vehicle services. Sirius XM’s connected vehicle services are designed to enhance the safety, security and driving experience for vehicle operators while providing marketing and operational benefits to automakers and their dealers.

 

Additional information about Sirius XM and its subsidiaries is included in the documents incorporated by reference in this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page [●].

 

Merger Sub is a Delaware corporation and a direct, wholly owned subsidiary of Sirius XM. Merger Sub was formed by Sirius XM solely for the purpose of engaging in the transactions contemplated by the merger agreement, and has not carried on any business or conducted any other operations.

 

Liberty Media owns approximately [●]% of the outstanding Sirius XM common stock as of [●], 2018, the last practicable date before the filing of this proxy statement/prospectus, and upon completion of the transactions, we expect that Liberty Media will own approximately [●]% of the outstanding Sirius XM common stock (based on the number of shares of Sirius XM common stock outstanding on [●], 2018 the last practicable date before the filing of this proxy statement/prospectus).

 

Share Repurchases

 

Historically, Sirius XM’s policy has been to repurchase shares under the “safe harbor” conditions of Rule 10b-18 of the Securities Exchange Act of 1934, as amended, which includes a limitation on the daily volume of repurchases.  Rule 10b-18 imposes an additional daily volume limitation on share repurchases during a pending merger or acquisition in which shares of Sirius XM common stock will constitute some or all of the consideration. Sirius XM management has determined that during the pending acquisition of Pandora, when the safe harbor would otherwise be available, it is in Sirius XM’s best interest to repurchase shares in excess of this additional daily volume limitation.  During this period, Sirius XM intends to repurchase shares in compliance with the other conditions of the safe harbor, including the daily volume limitation that applies whether or not there is a pending merger or acquisition.

 

Since September 23, 2018 through the close of business on [●], 2018 (which is the latest practicable date before the filing of this proxy statement/prospectus), Sirius XM has repurchased an aggregate of [●] shares of its common stock at an average price of $[●]. Regulation M under the federal securities laws prohibits Sirius XM from bidding for or repurchasing its common stock during the period commencing with the mailing of this proxy statement/prospectus through the date of the Pandora special meeting. Accordingly, from the date of the mailing of this proxy statement/prospectus through the date of the meeting, Sirius XM will suspend its repurchase program. Sirius XM may make additional purchases of shares of its common stock after the Pandora special meeting and prior to the completion of the transactions, subject to market conditions and applicable securities laws.

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Pandora, New Holding Company and Holdco Merger Sub
Pandora Media, Inc.
2100 Franklin Street, Suite 700
Oakland, California 94612
(510) 451-4100

 

Pandora is a Delaware corporation. Pandora’s common stock is listed on NYSE under the symbol “P”.

 

Pandora is the world’s most powerful music discovery platform, offering a personalized experience for each of Pandora’s listeners wherever and whenever they want to listen to music—whether through mobile devices, car speakers or connected devices in the home. Unlike traditional radio that broadcasts the same content at the same time to all of its listeners, Pandora enables its listeners to create personalized stations and playlists, as well as search and play songs and albums on-demand. The Music Genome Project, Pandora’s content programming algorithms and data collected from its listeners power Pandora’s ability to predict listener music preferences, play music content suited to the tastes of each individual listener and introduce listeners to the music it thinks they will love. Founded by musicians, Pandora also empowers artists with valuable data and tools to help grow their audience and connect with their fans.

 

Pandora is available as an ad-supported radio service, a radio subscription service called Pandora Plus and an on-demand subscription service called Pandora Premium. The majority of its listener hours occur on mobile devices, with the majority of its revenue generated from advertising on its ad-supported radio service on these devices. With billions of data points that help Pandora understand its users’ preferences, Pandora offers both local and national advertisers the opportunity to deliver targeted messages to its listeners using a combination of audio, display and video advertisements. Pandora also generates increasing revenue from its subscription offerings.

 

Additional information about Pandora and its subsidiaries is included in the documents incorporated by reference in this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page [●].

 

New Holding Company is a Delaware corporation and a wholly owned subsidiary of Pandora, and Holdco Merger Sub is a Delaware corporation and a wholly owned subsidiary of New Holding Company. Each of New Holding Company and Holdco Merger Sub was formed by Pandora solely for the purpose of engaging in the transactions contemplated by the merger agreement and has not carried on any business or conducted any other operations.

 

Certain Relationships Among the Parties

 

On June 9, 2017, Pandora entered into an investment agreement with Sirius XM Radio to sell 480,000 shares of Pandora preferred stock to Sirius XM Radio for $480 million. The shares of Pandora preferred stock were issued in two rounds: an initial closing of 172,500 shares for $172.5 million that occurred on June 9, 2017 upon signing the agreement with Sirius XM Radio, and an additional closing of 307,500 shares for $307.5 million that occurred on September 22, 2017.

 

Pursuant to the investment agreement, upon the second closing, Sirius XM Radio designated, and the Pandora board of directors appointed, Gregory Maffei, James Meyer and David Frear to serve as members of the Pandora board of directors. Mr. Maffei was appointed to serve as chairman of the Pandora board of directors and a member of the board’s nominating and corporate governance committee, and Mr. Meyer was appointed to serve as a member of the board’s compensation committee. Mr. Maffei has served as a director and the president and chief executive officer of Liberty Media (including its predecessor) since May 2007 and has served as a director of Sirius XM since March 2009 and chairman of the Sirius XM board of directors since April 2013. Mr. Meyer has been the chief executive officer of Sirius XM since December 2012 and has served as a director of Sirius XM board of directors since January 2013. Mr. Frear has served as chief financial officer of Sirius XM since June 2003.

 

Messrs. Maffei, Meyer and Frear did not participate in any deliberations of the Pandora board of directors relating to the merger agreement or the acquisition of Pandora by Sirius XM. The Pandora board of directors was

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aware of these relationships and took them into account in considering whether to approve the merger agreement. For more information, see “Background of the Transactions” beginning on page [●].

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THE TRANSACTIONS

 

The following is a discussion of the transactions and the material terms of the merger agreement. This discussion is qualified in its entirety by reference to the merger agreement, and you are urged to read the merger agreement carefully and in its entirety, a copy of which is attached as Annex A to this proxy statement/prospectus and incorporated by reference into this proxy statement/prospectus.

 

Background of the Transactions

 

The Pandora board of directors regularly evaluates the strategic direction and ongoing business plan of Pandora with a view toward strengthening the business and enhancing stockholder value. As part of this evaluation, the Pandora board of directors, from time to time, has considered various potential strategic alternatives for Pandora, including continuation as a standalone enterprise, potential strategic alliances and other commercial arrangements, modifications to its strategy and direction, strategic mergers and acquisitions and other business combinations and/or a possible sale of Pandora, including the possibility of a combination with Sirius XM.

 

In 2015, Pandora undertook several strategic initiatives, under the oversight of the Pandora board of directors, to create substantial new lines of business, including the acquisition of Ticketfly to enter the event promotion and ticket sale markets, the acquisition of certain technology assets to accelerate Pandora’s launch of an interactive, or “on-demand”, music service to complement its non-interactive radio services, and the entry into music licensing agreements with major music publishers and owners of sound recordings to enable the on-demand service. In December 2015, Pandora raised $345 million in convertible debt to strengthen its balance sheet in anticipation of further investments and financial commitments in connection with the launch of the on-demand service. Also in December 2015, Pandora’s management was contacted by representatives of Sirius XM to explore whether Pandora would be willing to discuss the possibility of Pandora being acquired by Sirius XM, which Pandora’s management then raised with the Pandora board of directors.

 

In January 2016, the Pandora board of directors engaged Morgan Stanley & Co. Incorporated, which we refer to as Morgan Stanley, to assist in evaluating a possible sale of the company as an alternative to executing against Pandora’s strategic plan. Sidley Austin, Pandora’s principal outside corporate counsel, briefed the Pandora board of directors on fiduciary and other considerations related to both seeking strategic alternatives as well as maintaining Pandora’s independence. Over the next two months, at the request of the Pandora board of directors, Pandora’s management and Morgan Stanley simultaneously worked to develop preliminary assessments of Pandora’s value as a stand-alone business, and to contact selected potential purchasers of Pandora, including Sirius XM, to assess interest in a potential acquisition of Pandora. On January 25, 2016, Sirius XM signed a confidentiality agreement with Pandora. Sirius XM commenced a due diligence review of Pandora and engaged in discussions with Pandora regarding a potential transaction.

 

In March 2016, having requested indications of interest from parties that had engaged in the process, the Pandora board of directors received a verbal preliminary, non-binding indication from Sirius XM that it was prepared to acquire Pandora for $15.00 per share, which at the time represented a $3.9 billion enterprise value. None of the other parties contacted submitted an indication of interest. In March 2016, the volume weighted average price of Pandora’s common stock on the New York Stock Exchange was $10.02 per share. In considering Sirius XM’s offer, the Pandora board of directors took account of the company’s historical operating results, its financial condition and its strategic initiatives, prospects and projections, among other factors, as well as preliminary valuation and other advice of Morgan Stanley and the legal advice of Sidley Austin. Taking these factors into account, the Pandora board of directors concluded that continuing to execute the company’s strategic plan as a stand-alone business offered the best prospect of creating long-term stockholder value and therefore determined not to further pursue a possible sale of the company at that time.

 

On March 28, 2016, Pandora announced the appointment of Tim Westergren, a founder and board member, as chief executive officer, following the resignation of Brian McAndrews as chief executive officer on March 25, 2016.

 

In June 2016, in response to suggestions by major stockholders of the company that the Pandora board of directors was not sufficiently addressing their concerns about the company’s strategy and prospects, the Pandora board of directors engaged Centerview to advise the board on strategy and investor relations.

 

In August 2016, the Pandora board of directors approved the company’s entry into multi-year music license agreements with major music labels to enable Pandora’s launch of an on-demand music service. In approving the license agreements, the Pandora board of directors considered numerous factors including the prospects and risks of launching such a service, including the near-term adverse effects on the company’s operating results and liquidity in advance of realizing revenue growth, and the potential impact of the strategy on the ability of Pandora to increase stockholder value independently or through a sale transaction. Over the next several months, Pandora announced its

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entry to these content agreements, as well as enhancements to its existing radio music services that were enabled by these content agreements and the anticipated launch of its on-demand music service, Pandora Premium.

 

By the end of 2016, Pandora faced delays in the launch of Pandora Premium, the need for additional capital to fund the minimum guarantees under the music license agreements and resistance from major stockholders to raising additional capital. As such, the Pandora board of directors engaged Centerview and Morgan Stanley to evaluate and pursue alternatives for raising capital and, as an alternative, a potential sale of the business. From December 2016 through the first half of 2017, at the direction of the Pandora board of directors, Centerview and Morgan Stanley contacted numerous strategic parties in the technology, media and telecommunications industries, including Sirius XM, as well as financial sponsors, regarding potential investments in or an acquisition of Pandora. At the same time, at the direction of the Pandora board of directors, Centerview contacted potential purchasers of Pandora’s Ticketfly business, as the Pandora board of directors had determined that it was not core to the company’s strategy.

 

Through the end of April 2017, Pandora’s management, together with Pandora’s financial and legal advisors, continued to pursue parallel paths of either securing financing or finding a buyer for Pandora at an attractive price. By the end of April 2017, Pandora had identified KKR as the leading candidate for a significant minority investment in the company.

 

On May 3, 2017, the Sirius XM board of directors held a meeting at which Sirius XM’s management and Sirius XM’s financial advisors, Allen & Company and Bank of America Merrill Lynch (which we refer to as BofA Merrill Lynch), provided updates on discussions with Pandora. At the conclusion of the meeting, the Sirius XM board of directors approved Sirius XM submitting a non-binding indication of interest for an acquisition of Pandora, and entering into discussions with Pandora regarding such a transaction.

 

On May 4, 2017, Sirius XM submitted a letter to the Pandora board of directors indicating, on a preliminary and non-binding basis, that it was prepared to discuss acquiring Pandora in exchange for Sirius XM common stock, valuing Pandora at $11.00 per share. The letter from Sirius XM included a condition that there be no material change in Pandora’s capital structure, and accordingly the proposed KKR investment would result in the withdrawal of Sirius XM’s offer. In subsequent conversations, Gregory Maffei, the chairman of the board of Sirius XM (and the chief executive officer of Liberty Media, Sirius XM’s majority stockholder), told Robert Pruzan of Centerview that Sirius XM may be willing to pay up to $11.50 per share in Sirius XM stock to acquire Pandora should the Pandora board of directors agree to pursue a transaction. After several meetings held to discuss the KKR investment and the Sirius XM indication of interest, the Pandora board of directors determined that it was in the best interest of stockholders to secure the commitment from KKR to invest and thereby ensure Pandora’s ability to meet near term liquidity needs, while at the same time preserving the ability to evaluate the proposed acquisition by Sirius XM. The Pandora board of directors believed that if it did not pursue such investment, there was substantial risk that Pandora could suffer a liquidity crisis prior to completing an agreement with Sirius XM for the acquisition of Pandora. The Pandora board of directors determined that the KKR commitment would enable the Pandora board of directors to conduct a disciplined discussion with Sirius XM with a stable balance sheet, providing a stronger negotiating position. Based on these determinations, the Pandora board of directors secured a provision in the investment agreement with KKR that would permit Pandora to terminate the agreement without accepting the investment within 30 days in order to accept a proposal for the acquisition of 50% or more of Pandora in exchange for the payment of a $15 million termination fee.

 

On May 8, 2017, Pandora announced that KKR had agreed to invest $150 million in a new issue of Pandora’s Series A Convertible Preferred Stock, with a conversion price of $13.50 per share and the right to a cumulative dividend at the rate of up to 8% per annum.

 

Following the announcement of the proposed KKR investment, management and representatives of Pandora and Sirius XM held a series of meetings, conducted due diligence and evaluated potential structures for a possible acquisition of Pandora by Sirius XM. At the same time, Pandora’s management worked to complete the KKR transaction and also continued discussions with potential purchasers of Ticketfly as an additional means of raising capital.

 

On June 5, 2017, on behalf of Sirius XM, Mr. Maffei told Mr. Pruzan that Sirius XM was no longer prepared to pursue the proposed acquisition of Pandora for $11.50 in Sirius XM stock and proposed to Mr. Pruzan that Pandora

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terminate the investment agreement with KKR and accept a larger minority investment from Sirius XM modeled after the terms of the KKR transaction. The Pandora board of directors determined that, provided acceptable terms could be negotiated, the potential transaction with Sirius XM would be in the best interest of Pandora’s stockholders, as it offered the company substantially greater capital as well as the possibility of strategic collaboration with Sirius XM. Over the next few days, representatives of Pandora and Sirius XM negotiated the size, conversion price, governance provisions and other terms of the proposed investment. At the same time, Pandora and KKR agreed on a revised termination right in favor of Pandora, which would enable Pandora to accept the Sirius XM minority investment in exchange for a $22.5 million termination fee should the Pandora board of directors determine it to be in the best interest of the company to do so.

 

On June 7-8, 2017, the Pandora board of directors held several meetings at which Pandora’s management and Pandora’s financial and legal advisors provided updates on discussions with Sirius XM, and the Pandora board of directors discussed the terms and relative merits of the KKR investment versus the Sirius XM investment, as well as the status and prospects for completing Pandora’s negotiations to sell Ticketfly to Eventbrite for $200 million. At the conclusion of these meetings, the Pandora board of directors determined that it was in the best interest of the company, and authorized the officers of the company, to terminate the KKR investment agreement, enter into the investment agreement with Sirius XM and sell Ticketfly to Eventbrite. Under the investment agreement with Sirius XM, Pandora agreed to sell Sirius XM $480 million of Series A Convertible Preferred Stock, which represented approximately 19.99% of Pandora’s then-outstanding common stock on as as-converted basis, with a conversion price of $10.50 per share and the right to a cumulative dividend at the rate of 6% per annum. The Sirius XM investment agreement provided that 172,500 shares of Series A Convertible Preferred Stock would initially be issued and sold to Sirius XM on June 9, 2017 and the remaining 307,500 shares would be issued and sold to Sirius XM at a second closing following the satisfaction of certain customary closing conditions, including obtaining clearance under the HSR Act. Under the terms of the Sirius XM investment, Sirius XM became entitled to name three members of the Pandora board of directors following the second closing and Sirius XM agreed to certain “standstill” restrictions on purchasing additional shares of Pandora stock and engaging in activities aimed at influencing the strategy or governance of Pandora other than through membership on the Pandora board of directors.

 

On June 7, 2017, the Sirius XM board of directors held a meeting at which Sirius XM’s management and Sirius XM’s financial and legal advisors provided updates on discussions with Pandora. At the conclusion of the meeting the Sirius XM board approved the investment agreement with Pandora on the terms submitted for consideration. Following the entry into the investment agreement, Sirius XM publicly disclosed that it had no intention to pursue an acquisition of Pandora at that time, however, Sirius XM intended to review its investment on a continuing basis and would from time to time consider pursuing or proposing alternative transactions with Pandora, subject to the restrictions set forth in the investment agreement.

 

On June 9, 2017, Pandora announced the termination of the KKR investment agreement, the entry into the Sirius XM investment agreement and the entry into the agreement to sell Ticketfly to Eventbrite for $200 million. On June 9, 2017, Sirius XM and Pandora completed the initial closing under the investment agreement, and Sirius XM purchased $172.5 million of the Series A Convertible Preferred Stock.

 

On June 27, 2017, Pandora announced that Mr. Westergren had resigned as chief executive officer and as a director of the company, and that the company had commenced a search for his successor.

 

On August 9, 2017, Pandora announced the appointment of Roger Lynch as chief executive officer and a member of the Pandora board of directors, effective September 18, 2017.

 

On September 22, 2017, after receiving approval under the HSR Act, Sirius XM and Pandora completed the second closing under the investment agreement, and Sirius XM purchased the remainder of the aggregate $480 million of Series A Convertible Preferred Stock. Pursuant to the terms of the investment agreement, Mr. Maffei, James Meyer, the chief executive officer of Sirius XM, and David Frear, the chief financial officer of Sirius XM then joined the Pandora board of directors, and Mr. Maffei became the chairman of the Pandora board of directors. Also in connection with the second closing, Roger Faxon, who has served on the Pandora board of directors since 2015, was named Lead Director, and Elizabeth Nelson resigned from the Pandora board of directors.

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With its balance sheet strengthened by the Sirius XM investment and the proceeds from the Ticketfly sale that was completed on September 1, 2017, the Pandora board of directors began evaluating the company’s strategy and assessing its operations in order to enhance the ability of Pandora to grow its hybrid advertising/subscription model.

 

In late March 2018, Mr. Frear advised Mr. Faxon that Sirius XM was undertaking a strategic review of its investment in Pandora, including whether the Sirius XM board of directors would be willing to explore an acquisition of Pandora by Sirius XM. Messrs. Frear and Faxon discussed the possibility that Sirius XM might wish to explore an acquisition of Pandora later in the year, and Mr. Frear advised Mr. Faxon that Sirius XM and its board of directors had not developed any plan or made any decision to explore the possibility of such a transaction at this time.

 

Hereafter, Messrs. Maffei, Meyer and Frear recused themselves from all deliberations and actions of the Pandora board of directors, and waived notice of all meetings of the Pandora board of directors, related to any potential transaction with Sirius XM, including any alternatives to any such transaction with any third party and no representatives of Sirius XM attended any closed sessions of the Pandora board of directors from which Messrs. Maffei, Meyer and Frear were recused.

 

On April 17, 2018, the Pandora board of directors held a meeting, which meeting was also attended by members of Pandora’s management and representatives of Sirius XM, during which members of Pandora’s management presented an overview of recent product feature launches and the company’s product development roadmap for the remainder of 2018. Pandora’s management also updated the Pandora board of directors on the development of the company’s podcast publishing technology and efforts to license podcast content. The meeting was adjourned until the following morning.

 

On April 18, 2018, the Pandora board of directors resumed its meeting from the prior day and, after a closed session, the full Pandora board of directors was joined by Pandora’s management, representatives of Sirius XM, and representatives from Sidley Austin. Members of Pandora’s management updated the Pandora board of directors on current audience trends with respect to the company’s services, the marketing plan for 2018 and the closing of the company’s acquisition of AdsWizz. Pandora’s management also updated the Pandora board of directors on the company’s recent and forecasted financial performance and Pandora’s management’s plans for refinancing the company’s outstanding convertible debt to extend the maturity of the notes and improve Pandora’s liquidity. After discussion, the Pandora board of directors approved the exchange of the company’s 1.75% convertible senior notes due 2020 for a new series of notes and authorized a Transaction Committee to determine the terms of the new notes, the selection of financial advisors and the terms of the exchange. Pandora’s management also reviewed with the Pandora board of directors its proposed plans regarding enhanced operational efficiency and the status of ongoing negotiations of the company’s music content-licensing agreements. Messrs. Meyer and Frear and the representatives of Sirius XM departed. Mr. Maffei then discussed with the Pandora board of directors other industry participants and consolidation opportunities. Mr. Maffei then left the meeting, representatives of Centerview joined the meeting and the Pandora board of directors continued the meeting with Pandora’s management and representatives of Sidley Austin and Centerview in attendance. Sidley Austin reviewed with the Pandora board of directors its fiduciary obligations with respect to any consolidation transaction and the various roles that Sirius XM and Liberty Media could play in such a transaction. Representatives from Centerview also provided business and strategic observations and the Pandora board of directors engaged in a lengthy discussion, focusing on the recent activities of Sirius XM and Liberty Media and Centerview’s perspective on their investment objective, the company’s pending acquisition of AdsWizz and the proposed convertible note exchange. After the discussion, the Pandora board of directors determined that it would continue to pursue its existing strategy and pending transactions (including the convertible note exchange).

 

On April 26, 2018, Mr. Faxon updated Mr. Frear on the Pandora board of directors’ determinations, and they discussed the convertible note offering and the ongoing valuation analysis to be used to inform the Pandora board of directors (excluding the Sirius XM board designees) on alternatives to maximize stockholder value, including a potential transaction with Sirius XM, as well as timing considerations related to the pursuit of these potential transactions.

 

On June 1, 2018, Pandora completed the exchange of $192.9 million aggregate principal amount of its 1.75% convertible senior notes due 2020 for a like amount of 1.75% convertible senior notes due 2023. Sirius XM

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declined to exercise its pre-emptive rights under the investment agreement to purchase a portion of the newly issued notes.

 

On June 8, 2018, Mr. Frear called Mr. Faxon to explore whether Pandora would be interested in considering a potential transaction once Sirius XM completed a strategic review of its investment in Pandora. Mr. Faxon conveyed to Mr. Frear his view that any such consideration would be premature as the results of Pandora’s efforts in the areas of improving Pandora’s advertising technology, organizational efficiency and listenership metrics were only beginning to emerge, and that Pandora’s management expected to update the strategic plan for discussion at the July Pandora board meeting. Mr. Frear acknowledged this timing and stated he believed Sirius XM might not decide whether it was interested in exploring a transaction with Pandora, in any event, until its standstill obligations under the investment agreement expired. Mr. Faxon reiterated the Pandora board of directors’ willingness to consider any proposal from Sirius XM if and when Sirius XM chose to make one.

 

On June 15, 2018, Mr. Frear called Mr. Faxon and encouraged the Pandora board of directors to complete its work on Pandora’s operating model and valuation analysis by the July board meeting so that the Pandora board of directors would be in a position to discuss whether to explore an acquisition by Sirius XM. Mr. Faxon noted that the work was in process, and agreed to convey Mr. Frear’s message to the Pandora board of directors.

 

On June 28, 2018, the Pandora board of directors (excluding the Sirius XM board designees) held a meeting, which meeting was also attended by members of Pandora’s management and representatives of Sidley Austin and Centerview to receive a report on management’s revised operating model and discuss whether and how to engage with Sirius XM regarding a potential transaction. During the meeting Pandora’s management discussed work and progress to date on the company’s model and corporate development strategies, including several drivers behind its financial planning and analysis. Pandora’s management discussed certain strategic considerations, including tailwinds and headwinds facing the business, and the expected timing of certain developments in the business, in each case as context for the assumptions underlying management’s forward operating model. Pandora’s management then discussed projected operating results under four scenarios, including the projections previously shared with the Pandora board of directors in October 2017, an updated version of such projections, reflecting both actual results for the interim period and updated assumptions based on new information about trends and company plans, and two additional scenarios reflecting varying assumptions regarding greater achievement of operating efficiencies and greater deployment of capital against growth strategies. The representatives of Sidley Austin advised the Pandora board of directors on its fiduciary duties regarding its potential exploration of any sale of the company. The Pandora board of directors discussed a range of strategic alternatives, including exploring a potential sale of the company to Sirius XM or other parties, potential acquisitions by the company and potential capital raising and refinancing activities. Representatives of LionTree were invited to the meeting by the Pandora board of directors to share their perspectives on the company and its prospects and opportunities, and so that the Pandora board of directors could consider whether the firm’s industry relationships would be complementary to those of Centerview. After the representatives of LionTree exited the meeting, the Pandora board of directors discussed LionTree’s perspective with Pandora’s management and the representative from Sidley Austin. The Pandora board of directors also considered the fact that LionTree had extensive prior dealings representing companies in which the Chairman of the Board of Liberty Media owns or has owned a large voting position, including Liberty Global plc and other related entities in which it has a significant direct or indirect interest. Before concluding the meeting, the Pandora board of directors instructed Pandora’s management to request that Centerview begin preparing a preliminary financial analysis of Pandora, taking into account its long-term operating plans.

 

On July 2, 2018, at Mr. Faxon’s suggestion, Naveen Chopra, the chief financial officer of Pandora, called Mr. Frear and offered to review Pandora’s work on its long-term operating model with him in advance of the scheduled July 19, 2018 Pandora board meeting, so as to share a similar discussion as had been held with the Pandora board of directors on June 28, 2018. Mr. Frear requested that Mr. Chopra send him the materials to review to allow Sirius XM to evaluate whether a call or meeting to discuss the model would be useful. Mr. Chopra then sent the materials to Mr. Frear.

 

On July 9, 2018, Messrs. Frear and Faxon had a call regarding Pandora’s operating plans and the possibility that the parties may, in the future, decide to explore a transaction. Mr. Frear expressed his view that Pandora’s current stock price did not adequately reflect the risk that Pandora would not achieve long term results consistent with Pandora management’s projections. Mr. Faxon indicated that he believed that Pandora’s management was

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executing a strategy that would build stockholder value, and that as such he believed the timing was not optimal to pursue a sale. Mr. Faxon added that the Pandora board of directors would, however, consider any proposal Sirius XM wished to make, but he noted that the Pandora board of directors had not yet received Centerview’s preliminary financial analysis.

 

On July 13, 2018, Mr. Frear called Mr. Faxon to ask about the status of Centerview’s preliminary financial analysis of Pandora’s long-term operating plans. Mr. Faxon replied that Centerview was expected to present its analysis to the Pandora board of directors at its meeting the following week. Mr. Frear asked if the Pandora board of directors (other than the Sirius XM board designees) was developing a sense of the value of Pandora in the event that the parties did, in the future, decide to pursue a transaction. Mr. Faxon replied that he did not wish to speculate. Mr. Frear and Mr. Faxon also discussed the standstill obligations of Sirius XM in the investment agreement.

 

On July 18, 2018, the Sirius XM board of directors held a meeting at which they discussed, among other things, Sirius XM’s investment in Pandora and Pandora’s long-term plans. The meeting was also attended by Sirius XM’s management and Sirius XM’s financial advisors who presented a preliminary valuation analysis of Pandora. Allen & Company and BofA Merrill Lynch had each advised Sirius XM in connection with the 2017 investment in Pandora’s Series A Convertible Preferred Stock, the 2016 preliminary, non-binding indication of interest from Sirius XM and other transactions unrelated to Pandora. The Sirius XM board of directors discussed the investment in Pandora, particularly in light of the information learned and perspectives gained over the last year since the investment was made, Sirius XM’s standstill obligations and whether Pandora would be interested in exploring a transaction with Sirius XM. The Sirius XM board authorized Messrs. Maffei, Meyer and Frear to discuss with Pandora and its advisors whether Pandora would be interested in exploring a transaction and if so, on what terms, in order to determine whether a viable transaction could be presented to the Sirius XM board of directors for its consideration. Throughout July, August and September, Mr. Maffei provided the members of the Sirius XM board periodic updates regarding their exploratory discussions with Pandora and its advisors.

 

Later on July 18, 2018, following a dinner held with the full Pandora board of directors, Mr. Meyer told Timothy Leiweke, a director of Pandora, that while he would personally support having Sirius XM evaluate an acquisition of Pandora in a stock-for-stock merger, the Sirius XM board of directors had not made any determination yet as to whether it was prepared to proceed with discussions regarding a transaction. Mr. Leiweke responded that in his view any proposal would need to be higher than $10.00 per share or else the Pandora board of directors would not engage with Sirius XM.

 

On July 19, 2018, the Pandora board of directors held a meeting, which was also attended by members of Pandora’s management and representatives of Sidley Austin. At the conclusion of the regular business of the meeting, Messrs. Maffei, Meyer and Frear recused themselves, and representatives of Centerview joined the meeting. Centerview then presented its preliminary financial analyses of the company’s operating plans and assessment of various potential aspects of a potential transaction with Sirius XM. Sidley Austin reviewed with the Pandora board of directors a relationship disclosure letter from Centerview that was previously circulated to the Pandora board of directors. The Pandora board of directors discussed with the group what stock price might reasonably be attainable in a bid from Sirius XM or another party, how to structure a process in a manner that would allow the Pandora board of directors to actively seek to obtain the greatest value for stockholders and the relative desirability of pursuing alternative paths. The Pandora board of directors also discussed the company’s historical financial performance and the prospects for AdsWizz, and the likely timing of that platform achieving success on a scale that is material to the company, as well as the likely timing and level of success of the company’s strategy for increasing its share of listening in automobiles. The Pandora board of directors (excluding the Sirius XM board designees) also discussed prior conversations with Messrs. Maffei, Meyer and Frear and expressed confidence in Pandora’s management team and strategy, although the Pandora board of directors was willing to consider an appropriate premium to the current stock price in a near term sale process. The consensus of the Pandora board of directors was to remain open to considering a potential combination with Sirius XM at an appropriate valuation, but to communicate clearly that any transaction would need to be structured to allow the directors to seek and obtain offers of higher value for the company’s stockholders.

 

After the Pandora board meeting on July 19, 2018, Mr. Lynch had a conversation with Mr. Meyer, during which Mr. Meyer suggested that $9.00 per share would be an appropriate price. Mr. Lynch expressed skepticism to Mr. Meyer that the Pandora board of directors would engage in discussions regarding a transaction unless the implied

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share price was substantially in excess of $10.00. Mr. Lynch also told Mr. Meyer that he believed any transaction would need to include appropriate protective terms, such as a go-shop, that would allow the Pandora board of directors to actively explore whether a more favorable deal from another party was available.

 

Also after the meeting of the Pandora board of directors on July 19, 2018, Mr. Frear had a conversation with Michael Lynton, a director of Pandora, in which Mr. Frear suggested that Sirius XM might be willing to explore an all-stock transaction in which the Pandora stockholders would own up to approximately 8% of the combined company after the merger. Mr. Lynton expressed to Mr. Frear his view that Pandora would be better served waiting at least a year before engaging with Sirius XM so that it could demonstrate further execution against its strategic plan, and that therefore if Sirius XM wished to pursue any strategic transaction with Pandora it should lead with its highest possible price.

 

On July 20, 2018, Mr. Frear contacted Mr. Faxon and stated that Sirius XM intended to confer internally and revert to Pandora with a view as to whether Sirius XM would be willing to explore a potential transaction between Sirius XM and Pandora, and if so what its views were as to possible valuation.

 

On July 22, 2018, the Pandora board of directors (excluding the Sirius XM board designees) held a telephonic meeting, which was also attended by members of Pandora’s management and representatives of Sidley Austin and Centerview, during which Mr. Lynch recounted his conversation with Mr. Meyer on July 19, 2018, Mr. Lynton recounted his conversation with Mr. Frear on July 19, 2018 and Mr. Faxon relayed his discussions with Mr. Frear on July 20, 2018. The representatives of Sidley Austin briefed the Pandora board of directors about its fiduciary duties and other considerations in the event a transaction was explored. Representatives of Centerview discussed with the Pandora board of directors the transaction dynamics, negotiation leverage and timing and cadence of any transaction between Sirius XM and Pandora. Representatives of Centerview were then excused from the meeting. Certain members of the Pandora board of directors then discussed whether to engage LionTree as a financial advisor to the company and concluded that it might be desirable to do so in light of LionTree’s relationships in the media sector with companies (other than Sirius XM and its affiliates) that were viewed as complementary to those relationships of Centerview, and the Pandora board of directors then directed Pandora’s management to pursue the engagement.

 

On July 27, 2018, the Pandora board of directors (excluding the Sirius XM board designees) held a telephonic meeting, which meeting was also attended by members of Pandora’s management and representatives of Sidley Austin and LionTree. At the meeting, LionTree shared its perspective on industry dynamics and considerations related to potential strategies and timing for eliciting the highest possible value for Pandora in a transaction with Sirius XM or any other party. The Pandora board of directors then discussed the relative trading multiples of the stock of both Sirius XM and the company, potential strategy and tactics for interaction with Sirius XM and the relative merits of pursuing any strategic transaction at the present time versus deferring consideration of any transaction. The representatives of LionTree left the meeting and the group continued to discuss the company’s posture in communicating with Sirius XM as it considered whether or not to pursue a transaction.

 

Over the next few days, at the direction of the Pandora board of directors, Mr. Pruzan had several conversations with Mr. Maffei during which they discussed the process for a transaction should Pandora wish to engage with Sirius XM.

 

On August 1, 2018, Mr. Faxon spoke to Mr. Maffei who stated that, while the Sirius XM board had not approved any acquisition proposal, he believed that Sirius XM would consider a possible 100% stock-for-stock transaction with Pandora on the basis of a value of $9.00 per share.

 

On August 1, 2018, the Pandora board of directors (excluding the Sirius XM board designees) held a telephonic meeting, which meeting was also attended by members of Pandora’s management and representatives of Sidley Austin, during which the attendees reviewed the potential engagement of LionTree. As part of the discussion, Sidley Austin reviewed with the Pandora board of directors certain disclosures by LionTree regarding potential conflicts of interest. The Pandora board of directors then engaged in a discussion of the relative merits of engaging LionTree, including a discussion as to whether any potential conflicts of interest could compromise LionTree’s advice, subsequently concluding that LionTree should be engaged as a financial advisor to the Pandora board of directors. The Pandora board of directors also directed Pandora’s management to continue to maintain Centerview as the exclusive financial advisor point of contact between the company and Sirius XM. The Pandora board of

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directors invited representatives of LionTree and Centerview to join the meeting and the group discussed the current state of discussions with Sirius XM, including the discussions that had been held with Mr. Maffei during the prior few days. Following these discussions, the Pandora board of directors agreed that they did not see value in engaging with Sirius XM regarding a potential transaction on the terms generally discussed in light of the view of the Pandora board of directors regarding the company’s current operations, its financial plans and forecasts and its prospects. The Pandora board of directors in particular believed that the potential management distraction of pursuing any such discussions with Sirius XM was not justified, and that management resources would be better applied in building stockholder value through execution of the company’s plans. The Pandora board of directors instructed Centerview to respond to Mr. Maffei that while the Pandora board of directors would be willing to discuss any proposal Sirius XM might actually make, that it would not be interested in actively engaging regarding any proposal unless the implied price was substantially higher than the $9.00 per share indication from Mr. Maffei.

 

On August 2, 2018, Mr. Pruzan contacted Mr. Maffei to convey the decisions made at the Pandora board meeting.

 

On August 4, 2018, Mr. Maffei contacted Mr. Pruzan to ask whether the Pandora board of directors would be willing to explore a transaction if Sirius XM were prepared to offer $9.25 in Sirius XM common stock. Mr. Pruzan said he would convey the question to Pandora.

 

On August 5, 2018, after conferring with Messrs. Faxon and Lynch, as well as with Sidley Austin, Mr. Pruzan contacted Mr. Maffei and advised him that such price, which Mr. Pruzan indicated implied an exchange ratio of 1.34, was not acceptable, and that Mr. Pruzan believed the Pandora board of directors would not be interested in pursuing a possible transaction unless it were well in excess of $10.00 per share.

 

On August 23, 2018, Mr. Maffei informed Mr. Pruzan that Sirius XM may be willing to explore a transaction at a price of $9.75 per share.

 

On August 30, 2018, the Pandora board of directors (excluding the Sirius XM board designees) held a telephonic meeting, which meeting was also attended by members of Pandora’s management and representatives of Sidley Austin, Centerview and LionTree during which Centerview summarized to the Pandora board of directors Centerview’s conversation with Mr. Maffei on August 23, 2018. Representatives of LionTree presented a preliminary analysis of potential revenue and cost synergies that might be achieved if Pandora were acquired by one of several buyers, including Sirius XM. The representatives of LionTree also cautioned that they had not contacted any potential buyers and that there was no assurance any buyers would emerge if the company were marketed to third parties or that any such buyer would have the same view of synergies, but offered examples of counterparties that the company might approach in the event of a go-shop. Sidley Austin led a discussion on a typical go-shop structure and market terms for duration, break-fee and legal terms. The representatives from Centerview discussed exchange ratio floors or collars that could be used to hedge against fluctuations in stock prices. The financial advisors and Pandora’s management exited the meeting and the Pandora board of directors continued the meeting in a closed session with representatives of Sidley Austin, during which the Pandora board of directors (excluding the Sirius XM board designees) unanimously agreed that any transaction would need to include an exchange ratio implying a value per share substantially in excess of $10.00 and would require a go-shop and exchange ratio collar.

 

On August 31, 2018, Centerview conveyed to Mr. Maffei the decisions made at the Pandora board meeting.

 

On September 3, 2018, Mr. Maffei discussed with Mr. Pruzan the possibility of exploring a transaction at a price of $9.80 per share (or an exchange ratio of 1.38 based on the respective closing stock prices of Pandora and Sirius XM on August 31, 2018) with a 3% break-up fee for a customary fiduciary out allowing the Pandora board of directors to terminate the transaction to accept a superior proposal but without a go-shop provision in an agreement. Mr. Pruzan agreed to convey the discussion to the company.

 

On September 4 and 5, 2018, Mr. Pruzan discussed with Mr. Maffei that, following consultation with Messrs. Faxon and Lynch, as well as Sidley Austin, it was the position of the Pandora board of directors that the price would need to be in excess of $10.00 per share for it to have interest in engaging in a transaction.

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On September 5, 2018, Mr. Maffei discussed with Mr. Lynton that Sirius XM was not inclined to move any higher on price, and Mr. Lynton informed Mr. Maffei that it was his sense that the Pandora board of directors would not approve a transaction on those terms. A few days later , Mr. Maffei informed Mr. Pruzan that Sirius XM may be willing to explore a transaction at an exchange ratio of 1.425 (with an implied price per share of $10.15 based on the respective closing stock prices of Pandora and Sirius XM on September 12, 2018), without a go-shop provision or a collar on the exchange ratio, but with a no-shop provision, a customary fiduciary out and a break-up fee of 3.0%. Mr. Pruzan agreed to convey the discussion to the company.

 

On September 14, 2018, the Pandora board of directors (excluding the Sirius XM board designees) held a telephonic meeting, which meeting was also attended by representatives of Sidley Austin and Centerview. Centerview referred to the 1.425 exchange ratio it had discussed with Mr. Maffei the day before, noting that it implied a $10.25 per share price based on the prior day’s closing price, or approximately $10.00 per share based on the one, two or three month volume-weighted average price, or VWAP, of Sirius XM common stock. Members of the Pandora board of directors discussed the company’s operating performance and outlook for the quarter and full year. Centerview noted that the company had not done reverse diligence on Sirius XM to understand future events that could affect Sirius XM’s stock price. The Pandora board of directors concluded that while they were prepared to engage with Sirius XM to evaluate a transaction with Sirius XM and have the company conduct reverse diligence of Sirius XM, they still viewed the value offered by the proposed exchange ratio as too low, and directed Centerview to convey to Mr. Maffei that getting to any agreement would require Sirius XM to substantially increase the proposed exchange ratio and agree to a go-shop provision to allow Pandora to affirmatively seek a superior offer. The Pandora board of directors also concluded that an exchange ratio collar may be desirable to hedge risk, but that it was willing to re-consider the necessity of the collar depending on the findings of reverse diligence. Members of Pandora’s management then joined the meeting and updated the Pandora board of directors on Pandora’s management’s efforts since April to extend Pandora’s existing debt maturities and potentially raise additional capital should the opportunity to do so on favorable terms be available. Mr. Chopra noted that Pandora’s management had been actively developing a proposal for raising convertible debt both to repay or repurchase convertible notes due in 2020 and to strengthen the company’s balance sheet. Mr. Chopra discussed with the Pandora board of directors the expected financial terms of an offering as well as execution considerations and the interplay between pursuing either a transaction with Sirius XM or a new financing. Mr. Chopra explained that Pandora’s management had selected investment banking firms to facilitate a financing and was pursuing both the financing and a possible acquisition by Sirius XM in parallel to preserve optionality in the event that Sirius XM and Pandora were unable to come to terms on a potential acquisition of Pandora.

 

Later on September 14, 2018, based on the instructions from the Pandora board of directors, Mr. Pruzan contacted Mr. Maffei, indicating that after extensive discussion, the Pandora board of directors would be willing to explore a transaction with Sirius XM only if the transaction was based on an exchange ratio of 1.44 and any agreement included a go-shop provision, the terms of which Mr. Pruzan proposed would include a 45 day go-shop period wherein a 1% break-up fee would apply, with the break-up fee going to 3% for any party that did not submit a bona fide proposal during the go-shop period. Mr. Pruzan also stated that the Pandora board of directors continued to view a collared exchange ratio as important, but that it was willing to re-engage on the issue after completion of due diligence. Mr. Maffei replied that he was not optimistic Sirius XM would be interested in evaluating a transaction on those terms.

 

On September 16, 2018, Mr. Maffei informed Mr. Pruzan that Sirius XM may be willing to agree to a 30-day go-shop period with a 1.5% break-up fee during the go-shop period, but that Sirius XM was not inclined to evaluate a transaction at a higher exchange ratio.

 

Later on September 16, 2018, after conferring with Messrs. Faxon and Lynch, as well as Sidley Austin, Mr. Pruzan contacted Mr. Maffei and indicated that Pandora was not prepared to reconvene the Pandora board of directors to consider whether the Pandora board of directors would be willing to evaluate a transaction without further improvement in Sirius XM’s proposed terms. Specifically, Mr. Pruzan indicated that the Pandora board of directors would require a higher exchange ratio and a go-shop period that was longer and permitted any party submitting an offer during the shopping period to be “grandfathered” under the lower break-up fee, regardless of whether such party actually signed a definitive agreement during the go-shop period. Mr. Pruzan and Mr. Maffei also discussed the desirability of an exchange ratio collar. Both agreed that the desirability of a collar, as well as the feasibility of a transaction generally, required Pandora to conduct due diligence on Sirius XM. Mr. Maffei agreed

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that due diligence work should proceed, and that Sidley Austin and Simpson Thacher, counsel to Sirius XM, should discuss next steps, so as to better evaluate whether a mutually acceptable potential transaction was a realistic possibility.

 

On September 17, 2018, Sidley Austin and Simpson Thacher conferred on the state of conversations between their respective clients and discussed the process for moving forward if their clients decided to pursue a transaction. As directed by Pandora, Sidley Austin reminded Simpson Thacher of the standstill obligations under the investment agreement, including that Sirius XM was not permitted to make any public disclosure with respect thereto, without the consent of the Pandora board of directors, and the Pandora board of directors had not provided such consent at this time. Simpson Thacher stated that they would confer further with their client and that, if Sirius XM wished to proceed, Simpson Thacher expected to deliver a first draft of a merger agreement for Pandora’s consideration by the following day.

 

On September 18, 2018, Centerview contacted BofA Merrill Lynch and Allen & Company to begin coordinating due diligence work between their respective clients. The respective management, financial advisory, legal and accounting teams each began work to evaluate the potential transaction, and these activities continued for the balance of the week.

 

Also on September 18, 2018, Simpson Thacher provided a draft merger agreement to Sidley Austin, Pandora and Sirius XM executed an extension to their pre-existing non-disclosure agreement to facilitate due diligence and Baker Botts, also representing Sirius XM, contacted Sidley Austin to begin evaluation of competition law filings that may be required should the parties decide to enter into a transaction. Throughout the week, legal advisors to the parties were in regular contact regarding the terms of a potential transaction with the objective of having satisfactory documentation ready should the parties decide to transact. To that end, Sidley Austin sent a revised version of the draft merger agreement to Simpson Thacher late in the evening of September 20, 2018, California time. Negotiation of the definitive agreement and related schedules continued through September 23.

 

On September 21, 2018, representatives of Sirius XM, Simpson Thacher, BofA Merrill Lynch and Allen & Company met telephonically with representatives of Pandora, Sidley Austin, Centerview and LionTree for purposes of facilitating each party’s due diligence of the other party’s businesses, operating results and financial condition, legal and accounting matters, human resources and prospects.

 

Also on September 21, 2018, Mr. Maffei informed Mr. Lynton that Sirius XM remained interested in pursuing a transaction. Mr. Lynton replied that, at the exchange ratio under discussion, he was not certain whether or not the Pandora board of directors would approve a transaction, and he encouraged Sirius XM to raise the price it would be willing to offer.

 

On September 22, 2018, Mr. Pruzan and Mr. Maffei were in contact throughout the day with regard to a potential exchange ratio. Mr. Pruzan noted that Sirius XM’s stock price had declined over the course of the week, and consistent with instructions from the Pandora board of directors expressed concern that the Pandora board of directors would not approve a transaction at the proposed exchange ratio. Based on instructions from the Pandora board of directors, Mr. Pruzan relayed that should Sirius XM offer an exchange ratio of 1.45, Mr. Pruzan believed the Pandora board of directors would be willing to accept the proposal.

 

Also on September 22, 2018, the Pandora board of directors (excluding the Sirius XM board designees) held a telephonic meeting, which meeting was also attended by members of Pandora’s management and representatives of Sidley Austin, Centerview and LionTree. Prior to inviting the representatives from Centerview and LionTree to join the meeting, Sidley Austin reminded the Pandora board of directors of prior discussions of fiduciary obligations in considering a potential merger with Sirius XM or any other party. Sidley Austin also reviewed with the Pandora board of directors updated relationship disclosure letters from each of Centerview and LionTree that were previously circulated to the Pandora board of directors and reminded the Pandora board of directors of prior discussions regarding these matters. Sidley Austin also noted that Pandora’s senior management had not conducted any discussions of future roles for themselves post-acquisition with Sirius XM, and that there had been no assurances given to such persons by Sirius XM in that regard. Centerview and LionTree then joined the meeting. Sidley Austin described to the Pandora board of directors the principal terms of the draft merger agreement with Sirius XM and discussed considerations relating to such terms, including the parties’ positions on the exchange ratio and the

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terms that had been proposed for the go-shop provision. Sidley Austin also noted that, after due diligence on Sirius XM and its prospects, Pandora’s management had concluded that there was a relatively low likelihood of catalysts related to Sirius XM’s business that would adversely affect the price of Sirius XM common stock. Centerview discussed the potential effects on the price of Sirius XM common stock of the announcement of the proposed merger, and also recounted repeated statements by Mr. Maffei that a collared exchange ratio would not be acceptable to Sirius XM. Sidley Austin then explained that, taking into account these factors, and the desirability of not constraining the upside of a fixed exchange ratio in the interest of hedging downside risk, Pandora’s management recommended that the company not insist on a collar as part of the transaction. The Pandora board of directors and Pandora’s management then discussed the proposed non-executive retention plan to be implemented during the period between the signing and closing of the transaction. Thereafter, Centerview and LionTree each presented their preliminary financial analyses of the exchange ratio in the transaction, assuming for purposes of their analysis the 1.425 exchange ratio then suggested by Sirius XM. Both Centerview and LionTree discussed the assumptions, methodologies and considerations taken into account in preparing their preliminary financial analyses of the 1.425 exchange ratio. Centerview then provided a summary to the Pandora board of directors of Pandora management’s reverse diligence findings, noting that Sirius XM’s historical operating performance continually surpassed analysts’ financial projections and was expected to surpass expectations again in the third quarter based on available data through September 21, 2018. Centerview and LionTree reviewed with the Pandora board of directors the outlined plan of outreach and parties to be contacted in the go-shop process should the Pandora board of directors determine to proceed with a transaction. The Pandora board of directors then excused Centerview and LionTree and discussed with Pandora’s management and Sidley Austin their views of the financial and legal terms of the proposed transaction, Centerview’s and LionTree’s analyses of the transaction and negotiation strategies to increase the exchange ratio. Pandora management also advised the Pandora board of directors that, should the company be unable to reach a deal with Sirius XM, the company was prepared to launch a convertible debt financing the week of September 24. The Pandora board of directors did not approve the transaction at that time but rather instructed Centerview to seek an increase in the exchange ratio.

 

On the morning of September 23, 2018, the Sirius XM board of directors held a meeting, which meeting was also attended by members of Sirius XM management and representatives of Allen & Company, BofA Merrill Lynch and Simpson Thacher. Simpson Thacher reviewed with the Sirius board of directors its fiduciary duties, and Allen & Company and BofA Merrill Lynch presented a financial analysis of Pandora. The board discussed the potential acquisition of Pandora. Following discussion, including the proposed terms of the merger agreement submitted for consideration, the Sirius XM board of directors unanimously adopted resolutions to approve the merger agreement, subject to Messrs. Maffei and Meyer finalizing the exchange ratio negotiations.

 

On September 23, 2018, discussion continued between Mr. Pruzan and Mr. Maffei, and Mr. Maffei indicated that Sirius XM may be interested in entering into a transaction with a proposed exchange ratio of 1.435. Mr. Pruzan expressed concern that, at that exchange ratio, the Pandora board of directors would not approve the transaction. After further discussion, Mr. Maffei informed Mr. Faxon that Sirius XM might be willing to consider entering into a transaction at an increased exchange ratio of 1.44, and Mr. Faxon agreed to recommend to the Pandora board of directors that it accept this proposal.

 

Also on September 23, 2018, the Pandora board of directors (excluding the Sirius XM board designees) held a telephonic meeting, which meeting was also attended by members of Pandora’s management and representatives of Sidley Austin, Centerview and LionTree. Prior to inviting the representatives from Centerview and LionTree to join the meeting, Mr. Faxon described to the Pandora board of directors the conversation he had with Mr. Maffei regarding the increase of the exchange ratio offered by Sirius XM. Mr. Faxon noted that at the 1.44 exchange ratio offered by Sirius XM, the implied price per share of Pandora stock was in excess of $10.00 per share based on the closing price of Sirius XM common stock on Friday, September 21, 2018 which engendered Mr. Faxon’s support. Sidley Austin reminded the Pandora board of directors about their fiduciary duties when considering the proposed transaction with Sirius XM. Centerview and LionTree then joined the meeting and Sidley Austin described the final terms of the merger agreement to the extent they varied from the terms described the previous day, noting that based on an exchange ratio of 1.44, the go-shop termination fee had been set at $52,500,000 and the non-go-shop termination fee had been set at $105,000,000. Pandora’s management discussed restrictions on the company’s operations after signing and prior to closing and the non-executive retention plan. Centerview and LionTree each discussed their financial analysis based on the 1.44 exchange ratio and provided a brief recap of its prior financial analysis revised to incorporate the higher exchange ratio. Centerview reviewed with the Pandora board of directors

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Centerview’s financial analysis of the exchange ratio, and rendered to the Pandora board of directors an oral opinion, which was subsequently confirmed by delivery of a written opinion dated September 23, 2018, that, as of such date and based upon and subject to various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken in preparing its opinion, the exchange ratio provided pursuant to the merger agreement was fair, from a financial point of view, to the holders of shares of Pandora common stock other than shares held by the company and Sirius XM and its affiliates. For a detailed discussion of Centerview’s opinion, please see below under the section entitled “Opinion of Centerview Partners LLC.” Representatives of LionTree reviewed with the Pandora board of directors LionTree’s financial analysis of the exchange ratio, and rendered to the Pandora board of directors an oral opinion, which was subsequently confirmed by delivery of a written opinion dated September 23, 2018, that, as of such date and based upon and subject to various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken in preparing its opinion, the exchange ratio was fair, from a financial point of view, to the holders of shares of Pandora common stock other than shares held by the company and Sirius XM and its affiliates. For a detailed discussion of LionTree’s opinion, please see below under the section entitled “Opinion of LionTree Advisors LLC.” Centerview and LionTree discussed the outreach plan, and noted that they would commence outreach to alternative bidders immediately after announcement of the transaction, should it be approved.

 

At this point in the meeting, both Centerview and LionTree left the meeting and the Pandora board of directors (excluding the Sirius XM board designees) discussed observations and questions regarding the advisability of accepting the Sirius XM offer versus remaining an independent company, balancing a variety of considerations including the fact that the Pandora board of directors had confidence in Pandora’s management team and Pandora’s progress toward executing the operating plan versus the need for greater financial resources and the strategic value for the company’s stockholders in combining with a better capitalized and much larger company in light of competitive dynamics in the market. The Pandora board of directors also discussed the relative merits of effecting a transaction now versus deferring to a later time, the legal terms of the transaction, including the go-shop provisions and termination rights, the advice of Centerview and LionTree as to the fairness of the transaction from a financial point of view and each director’s views that the transaction was fair to, and in the best interests of, the company’s stockholders. After each such member of the Pandora board of directors provided his or her opinion and after further discussion, the Pandora board of directors (excluding the Sirius XM board designees) unanimously adopted the resolutions to approve the merger agreement and the transactions contemplated thereby. Sidley Austin then explained the process to signing and led a discussion regarding the company’s schedule after the announcement of the transaction.

 

On September 24, 2018, Mr. Chopra spoke with the investment banks that had been working on the proposed financing transaction to thank them for their efforts to ensure that the company was prepared to launch the convertible note offering, and advise them that the offering would not go forward in light of the transaction with Sirius XM.

 

On October 24, 2018 at 12:01 a.m., the go-shop period under the merger agreement expired. On October 24, 2018, Pandora announced and informed Sirius XM that it and its representatives had actively solicited alternative acquisition proposals during the go-shop period from 40 potential acquirers. During such time, none of these parties executed a confidentiality agreement or otherwise expressed an interest in pursuing a transaction, and no other party proposed an alternative transaction.

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Pandora’s Purpose and Reasons for the Transactions; Recommendations of the Pandora Board of Directors

 

The Pandora board of directors recommends that the Pandora stockholders vote “FOR” the merger agreement proposal.

 

As described above, Messrs. Maffei, Meyer and Frear, which we refer to as the Sirius XM board designees, recused themselves from all deliberations and actions of the Pandora board of directors, and waived notice of all meetings of the Pandora board of directors, related to any potential transaction with Sirius XM, including any alternatives to any such transaction with any third party. In reaching the decision to approve the merger agreement and to recommend that the Pandora stockholders vote to approve the merger agreement proposal, the Pandora board of directors (excluding the Sirius XM board designees) consulted extensively with Pandora’s senior management and outside legal and financial advisors and also considered other potential strategic alternatives.

 

After such discussions and considering such alternatives, at a meeting on September 23, 2018, the Pandora board of directors (excluding the Sirius XM board designees) unanimously determined the proposed merger agreement and the transactions to be fair to, and in the best interest of, Pandora and the Pandora stockholders. In reaching its decision, the Pandora board of directors considered and evaluated numerous factors at such meeting and at other meetings at which it considered the proposed transactions.

 

The reasons considered by the Pandora board of directors (excluding the Sirius XM board designees) in favor of such determination included the following (which factors are not presented in order of relative importance):

 

	·	the Pandora board of directors’ and Pandora’s management’s knowledge of Pandora’s business, operations, financial condition, and prospects, and its and their understanding of Sirius XM and Sirius XM’s operations, financial condition, and prospects, including the information about Sirius XM obtained through a due diligence review conducted by Pandora management and its advisors;
	·	the current and prospective competitive climate in the respective audio entertainment markets in which Pandora and Sirius XM operate and the belief that the transactions would create the world’s largest audio entertainment company with greater cross-promotional opportunities to the largest digital audio audience in the U.S., enhanced scale of investments in content and technology and expanded monetization opportunities and optimized programming resulting in improved opportunities for growth, cost savings and innovation relative to what Pandora could achieve on a standalone basis;
	·	the fact that the current financial market conditions, historical market prices, volatility and trading information with respect to Pandora common stock and the stock of other companies that the Pandora board of directors considered similar to Pandora and Sirius XM demonstrated the value of the merger consideration to the Pandora stockholders, including in light of the analysis of the Pandora board of directors of other strategic alternatives available to Pandora;
	·	the aggregate value of the merger consideration to be received by the Pandora stockholders in the transactions, which, (i) based on the two-month volume-weighted average price of $7.03 per share

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		of Sirius XM common stock as of September 21, 2018, the last trading day prior to the announcement of the merger agreement, represented a premium of approximately 19% over the two-month volume-weighted average price of $8.50 per share of Pandora common stock on the same date, (ii) based on the two-week volume-weighted average price of $7.08 per share of Sirius XM common stock as of September 21, 2018, the last trading day prior to the announcement of the merger agreement, represented a premium of approximately 7% over the two-week volume-weighted average price of $9.54 per share of Pandora common stock as of the same date and (iii) based on the price of $6.98 per share of Sirius XM common stock on September 21, 2018, the last trading day prior to the announcement of the merger agreement, represented a premium of approximately 11% over the price of $9.09 per share of Pandora common stock on the same date;
	·	that the exchange ratio represents a fixed number of shares of Sirius XM common stock, which affords the Pandora stockholders the opportunity to benefit from any increase in the trading price of Sirius XM common stock between the announcement of the execution of the merger agreement and the closing of the transactions;
	·	the potential that the value of Sirius XM common stock the Pandora stockholders will receive as consideration for the transactions will increase after the completion of the transactions compared to the shares of Pandora common stock, and the participation of the Pandora stockholders in the future growth of the combined company;
	·	the financial presentation and the opinion of Centerview rendered to the Pandora board of directors on September 23, 2018, which was subsequently confirmed by delivery of a written opinion dated such date that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, the exchange ratio was fair, from a financial point of view, to the holders of shares of Pandora common stock (other than, generally, holders affiliated with Sirius XM and Liberty Media, in each case as described in the opinion of Centerview reproduced in its entirety in Annex B of this proxy statement/prospectus);
	·	the financial presentation and the opinion of LionTree rendered to the Pandora board of directors on September 23, 2018, which was subsequently confirmed by delivery of a written opinion dated such date that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by LionTree in preparing its opinion, the exchange ratio was fair, from a financial point of view, to the holders of shares of Pandora common stock (other than, generally, holders affiliated with Sirius XM and Liberty Media, in each case as described in the opinion of LionTree reproduced in its entirety in Annex C of this proxy statement/prospectus);
	·	the efforts made to negotiate a merger agreement favorable to Pandora and its stockholders and the terms and conditions of the merger agreement;
	·	the ability of Pandora under the terms of the merger agreement to, during the “go-shop” period, (i) initiate, solicit, facilitate and encourage any inquiry or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, a competing acquisition proposal, (ii) furnish to any person that is a party to an acceptable confidentiality agreement any information that is reasonably requested by any person in connection with their potentially making a competing acquisition proposal, and (iii) participate or engage in discussions or negotiations with such person regarding a competing acquisition proposal;
	·	the ability of the Pandora board of directors to change its recommendation, terminate the merger agreement and enter into a transaction that the Pandora board of directors determines to be a superior proposal, subject to the terms and conditions of the merger agreement, including payment of a termination fee;

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	·	the likelihood that the transactions would be completed; and
	·	the fact that Pandora had not received an offer from any other person for the acquisition of Pandora, despite its efforts over the years to sell the company as further described in the “Background of the Transactions”.

 

In the course of its deliberations, the Pandora board of directors (excluding the Sirius XM board designees) also weighed the factors described above against certain factors, uncertainties and potential risks associated with entering into the merger agreement, including, among others, the following (which factors are not presented in order of relative importance):

 

	·	the lack of opportunity for the Pandora stockholders to participate in Pandora’s potential upside as a stand-alone company after the transactions, including potential earnings and growth as a result of Pandora management’s recent initiatives to improve Pandora’s advertising technology, organizational efficiency and listenership metrics, other than indirectly as part of the combined company through the ownership of shares of Sirius XM common stock received as merger consideration;
	·	the possibility of significant costs and delays resulting from seeking regulatory approvals necessary to complete the transactions, the possibility that the transactions may not be completed if such approvals are not obtained, and the potential negative impacts on Pandora, its business, and the price of Pandora common stock if such approvals are not obtained;
	·	the potential decrease of the implied value of the merger consideration that would result from a decrease in the trading price of Sirius XM common stock because the merger consideration is based on a fixed exchange ratio and the merger agreement does not provide Pandora with a price-based termination right or adjustment for fluctuations in the trading price of Sirius XM common stock between the announcement of the execution of the merger agreement and the closing of the transactions;
	·	the fact that the integration of Pandora and Sirius XM may be complex and time consuming and may require substantial resources and effort, and the risk that if Pandora and Sirius XM are not successfully integrated the anticipated strategic and operational benefits of the transactions may not be fully realized or at all or may take longer to realize than expected;
	·	the risks and costs that could be borne by Pandora if the transactions are not completed, including the potential for diversion of Pandora’s management and employee attention and for increased employee attrition during the period prior to completion of the transactions, and the potential effect of the transactions on Pandora’s business and relations with customers, vendors, and suppliers;
	·	the risk that certain employees and customers of Pandora might not choose to remain with the combined company;
	·	the restrictions on the conduct of Pandora’s business prior to completion of the transactions, requiring Pandora to conduct its business only in the ordinary course, subject to specific limitations, which could delay or prevent Pandora from undertaking business opportunities that may arise pending completion of the transactions and could negatively impact Pandora’s relationships with its employees, customers, vendors, and suppliers;
	·	the fact that if the merger agreement is terminated under certain circumstances, Pandora will be required to pay Sirius XM a termination fee of $105 million or $52.5 million;
	·	the transaction costs to be incurred by Pandora in connection with the transactions;

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	·	the fact that certain of Pandora’s directors may have interests in the transactions or that are different from, or in addition to, those of the Pandora stockholders generally and the manner in which they would be affected by the transactions as more fully described in the section entitled “—Interests of Pandora’s Directors and Executive Officers in the Transactions;” and
	·	various other risks described in the section entitled “Risk Factors.”

 

The Pandora board of directors (excluding the Sirius XM board designees) considered all of these factors as a whole, including the analyses and opinions of its financial advisors, in reaching their respective determinations that the proposed transactions were fair to, and in the best interests of, Pandora and the Pandora stockholders. The foregoing discussion of the information and factors considered by the Pandora board of directors (excluding the Sirius XM board designees) is not exhaustive. In view of the wide variety of factors considered by the Pandora board of directors (excluding the Sirius XM board designees) in connection with their evaluation of the transactions and the complexity of these matters, the Pandora board of directors (excluding the Sirius XM board designees) did not consider it practical to, nor did they attempt to, quantify, rank or otherwise assign relative weights to the specific factors that they considered in reaching their respective decisions. In considering the factors described above and any other factors, individual directors may have viewed factors differently or given different weight or merit to different factors.

 

The foregoing discussion of the information and factors considered by the Pandora board of directors (excluding the Sirius XM board designees) is forward-looking in nature. This information should be read in light of the factors described in the section entitled “Cautionary Statement Concerning Forward-Looking Statements” beginning on page [●].

 

Certain Financial Forecasts

 

Pandora, as a matter of course, does not make public long-term projections as to future revenues, earnings or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. The unaudited forecasted financial information set forth below was prepared by Pandora’s management and made available to (i) the members of the Pandora board of directors who are not affiliated with Sirius XM, (ii) Centerview and (iii) LionTree, in each case solely in connection with the evaluation of the transactions by the members of the Pandora board of directors who are not affiliated with Sirius XM. In addition, following review by the members of the Pandora board of directors who are not affiliated with Sirius XM, the unaudited forecasted financial information set forth below with respect to fiscal years 2018 through 2023 only, was also made available to Sirius XM and the members of the Pandora board of directors who are affiliated with Sirius XM. The inclusion of this information in this proxy statement/prospectus should not be regarded as an indication that any of the Pandora board of directors, Centerview, LionTree or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results. Readers of this proxy statement/prospectus are cautioned not to place undue reliance on the unaudited forecasted financial information.

 

The unaudited forecasted financial information was, in general, prepared solely for internal use and is subjective in many respects. As a result, there can be no assurance that the forecasted results will be realized or that actual results will not be significantly higher or lower than estimated. Since the unaudited forecasted financial information covers multiple years, such information by its nature becomes less predictive with each successive year. The estimates and assumptions underlying the unaudited forecasted financial information involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions which may not be realized and that are inherently subject to significant uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of Pandora. Pandora stockholders are urged to review the SEC filings of Pandora for a description of risk factors with respect to the business of Pandora. See “Cautionary Statement Concerning Forward-Looking Statements” beginning on page [●] and “Where You Can Find More Information” beginning on page [●]. Pandora stockholders are also urged to review the section entitled “Risk Factors” beginning on page [●]. The unaudited forecasted financial information was not prepared with a view toward public disclosure and is included in this proxy statement/prospectus only because such unaudited forecasted financial information was, with respect to fiscal years 2018 through 2023, made available to Sirius XM and certain of their representatives in connection with their due diligence review of Pandora, and Centerview and LionTree for use in connection with their respective financial analyses. The unaudited forecasted

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financial information also was not prepared with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or GAAP (including because certain metrics are non-GAAP measurements) but, in the view of Pandora’s management, was prepared on a reasonable basis, reflected the best currently available estimates and judgments, and presented, to the best of Pandora’s management’s knowledge and belief, the expected course of action and the expected future financial performance of Pandora. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus are cautioned not to place undue reliance on the unaudited forecasted financial information. Neither the independent registered public accounting firm of Pandora nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the unaudited forecasted financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability. The report of the independent registered public accounting firm of Pandora contained in its Annual Report on Form 10-K for the year ended December 31, 2017, which is incorporated by reference into this proxy statement/prospectus, relates to the historical financial information of Pandora. It does not extend to the unaudited forecasted financial information and should not be read to do so. Furthermore, the unaudited forecasted financial information does not take into account any circumstances or events occurring after the date it was prepared and does not give effect to the transactions. Further, the unaudited forecasted financial information does not take into account the potential consequences should the transactions fail to be consummated, and should not be viewed in that context.

 

PANDORA DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE UNAUDITED FORECASTED FINANCIAL INFORMATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE, EXCEPT AS MAY BE REQUIRED BY LAW.

 

Unaudited Forecasted Financial Information

 

The following tables present the selected unaudited forecasted financial information of Pandora prepared by Pandora’s management, which consist of two different financial and operating scenarios, each for the fiscal years ending 2018 through 2025, and were provided to the members of the Pandora board of directors, Centerview, LionTree and, with respect to fiscal years 2018 through 2023, Sirius XM.

 

At the time the forecasts were prepared, the Pandora board of directors and Pandora’s management concurred that the Pandora Scenario 1a Forecasts and the Pandora Scenario 2 Forecasts were the best approximations of likely future outcomes and that they expected actual future results to fall somewhere between. On the September 21, 2018 diligence call held among representatives of Sirius XM and its advisors and representatives of Pandora and its advisors, including Centerview and Liontree, Pandora management indicated that there was significant uncertainty with respect to the Company’s forecasts for 2019, and that on the downside Pandora management believed that Adjusted EBITDA for 2019 could be as much as $20-30 million lower than projected in the Pandora Scenario 1a Forecasts and the Pandora Scenario 2 Forecasts. Pandora management also previously shared this update with the Pandora board of directors.

 

Pandora Scenario 1a Forecasts

 

Certain unaudited forecasted financial information was initially prepared by Pandora’s management in October 2017 and provided to the Pandora board of directors and was updated in July 2018 to take into account certain updated assumptions including, among other things, new information about market trends and Pandora’s plans after October 2017. We refer to such July 2018 unaudited forecasted financial information as the Pandora Scenario 1a Forecasts.

 

 

		Pandora Unaudited Forecasted Financial Information
		(U.S. dollars in millions, except per share data)(a)
		Fiscal Years Ending Decmber 31,
		2018				2019				2020				2021				2022				2023				2024				2025
Advertising		$	1,071			$	1,152			$	1,240			$	1,370			$	1,511			$	1,629			$	1,735			$	1,828
Subscription & Other			471				569				647				703				766				829				893				956
Total Revenue		$	1,542			$	1,721			$	1,887			$	2,073			$	2,277			$	2,458			$	2,627			$	2,784
% Growth			11.3	%			11.7	%			9.6	%			9.9	%			9.9	%			7.9	%			6.9	%			6.0	%

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Content Costs		$	889			$	915			$	992			$	1,080			$	1,156			$	1,235			$	1,305			$	1,371
Other COGS			129				169				188				207				223				243				264				285
Total COGS		$	1,017			$	1,084			$	1,179			$	1,287			$	1,379			$	1,478			$	1,569			$	1,656
Gross Profit		$	524			$	637			$	707			$	786			$	898			$	980			$	1,059			$	1,128
% Margin			34.0	%			37.0	%			37.5	%			37.9	%			39.4	%			39.9	%			40.3	%			40.5	%
Product Development		$	132			$	173			$	173			$	177			$	178			$	183			$	188			$	192
Sales & Marketing			448				390				396				404				410				418				428				437
General & Administrative			112				117				115				117				118				120				122				124
Total Operating Expenses		$	693			$	680			$	684			$	698			$	706			$	721			$	737			$	753
Operating Income / (Loss)(b)		($	168	)		($	43	)		$	23			$	88			$	192			$	259			$	321			$	375
% Margin			(10.9	%)			(2.5	%)			1.2	%			4.2	%			8.4	%			10.5	%			12.2	%			13.5	%
Depreciation			49				54				53				55				49				49				52				55
Adjusted EBITDA(c)		($	119	)		$	11			$	76			$	143			$	241			$	307			$	373			$	430
% Growth			(13.2	%)			nm				nm				87.7	%			69.0	%			27.5	%			21.5	%			15.3	%
% Margin			(7.7	%)			0.7	%			4.0	%			6.9	%			10.6	%			12.5	%			14.2	%			15.5	%

 

 

	(a)	Certain totals in the tables included in this proxy statement/prospectus may not sum due to rounding.  Table does not reflect stock-based compensation.
	(b)	Excludes amortization of intangible assets.
	(c)	Adjusted EBITDA, which is calculated as consolidated net earnings before interest, income taxes, stock-based compensation expense and depreciation and amortization expense, is a non-GAAP financial measure as it excluded these amounts, which are included in net earnings, the most directly comparable measure calculated in accordance with GAAP.  This measure should not be considered as an alternative to net earnings or other measures derived in accordance with GAAP.

 

	Pandora Unaudited Forecasted Financial Information (Continued) Pandora Unlevered Free Cash Flows(a) (U.S. dollars in millions, except per share data)(b)(c)
	Fiscal Years Ending December 31,
		2H’ 2018				2019				2020				2021				2022				2023				2024				2025
Advertising Revenue		$	586			$	1,153			$	1,241			$	1,371			$	1,512			$	1,630			$	1,736			$	1,829
Subscription Revenue			251				568				646				702				765				828				892				955
Total Revenue		$	838			$	1,721			$	1,887			$	2,073			$	2,277			$	2,458			$	2,627			$	2,784
% Growth							11.7	%			9.6	%			9.9	%			9.9	%			7.9	%			6.9	%			6.0	%
Adjusted EBITDA(d)		($	11	)		$	11			$	76			$	143			$	241			$	307			$	373			$	430
% Margin			(1.3	%)			0.7	%			4.0	%			6.9	%			10.6	%			12.5	%			14.2	%			15.5	%
(-) Stock Compensation			(59	)			(117	)			(107	)			(98	)			(90	)			(86	)			(83	)			(82	)
Adjusted EBITDA less SBC		($	70	)		($	106	)		($	31	)		$	45			$	151			$	221			$	290			$	349
% Margin			(8.4	%)			(6.1	%)			(1.7	%)			2.2	%			6.6	%			9.0	%			11.0	%			12.5	%
(-) D&A			(27	)			(60	)			(59	)			(55	)			(49	)			(49	)			(52	)			(55	)
EBIT		($	98	)		($	166	)		($	90	)		($	11	)		$	102			$	172			$	239			$	293
% Margin			(11.6	%)			(9.6	%)			(4.8	%)			(0.5	%)			4.5	%			7.0	%			9.1	%			10.5	%
(-) Taxes			—				—				—				—				(24	)			(41	)			(56	)			(69	)
NOPAT		($	98	)		($	166	)		($	90	)		($	11	)		$	78			$	132			$	182			$	224
(+) D&A			27				60				59				55				49				49				58				55
(-) Capex			(23	)			(48	)			(50	)			(54	)			(43	)			(46	)			(63	)			(68	)
(+)/(-) Δ NWC			(37	)			22				6				(20	)			(24	)			(19	)			(14	)			(14	)
Unlevered Free Cash Flow			(131	)		($	131	)		($	75	)		($	30	)		$	59			$	115			$	157			$	198

 

(a)

Source: Pandora’s management, Pandora’s public filings, FactSet and Wall Street research as of September 21, 2018.

(b)

Valuation date of June 30, 2018 applying mid-year convention through the fiscal year ending December 31, 2025. Terminal value based on range of multiples applied to forward EBITDA in the fiscal year ending December 31, 2025. Includes present value of future cash tax savings related to NOLs.

(c)

Certain totals in the tables included in this proxy statement/prospectus may not sum due to rounding.  Table does not reflect stock-based compensation.

(d)

Adjusted EBITDA, which is calculated as consolidated net earnings before interest, income taxes, stock-based compensation expense and depreciation and amortization expense, is a non-GAAP financial measure as it excluded these amounts, which are included in net earnings, the most directly comparable measure calculated in accordance with GAAP.  This measure should not be considered as an alternative to net earnings and other measures derived in accordance with GAAP.

The Pandora unaudited forecasted financial information in the Pandora Scenario 1a Forecasts is based on various assumptions, including the following key assumptions:

 

	·	approximately $80-90 million of external marketing spend annually with increases to efficiency beyond that realized in 2018 to-date;
	·	hours per active user (“HPA”) would decrease slightly in 2019 and increase after 2020 as new users expand feature usage;
	·	the number of ad-supported service users would reach 77.1 million by 2025;
	·	advertising revenue per thousand listener hours (“RPM”) would increase from $67.95 in 2018 to $80.22 million in 2022, including increases in audio RPM, slight decreases in display RPM and increases in video RPM;
	·	there would be no material improvement in the monthly free-trial starts for Pandora Plus, while the monthly free-trial starts for Pandora Premium would improve slightly with the mix shifting towards family plan subscriptions;
	·	the percentage of the family plan subscriptions in the new Pandora Premium additions would increase from 2% in 2018 to 25% by 2025;
	·	direct Pandora Premium acquisition spending would reach $5 million annually by 2020;
	·	non-music content share would account for 10% of total listening by 2025;

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	·	headcount costs would remain materially flat, with many functions to shift to lower-cost geographies;
	·	costs saved from the reduction in force plans relative to the end of 2017 run rate would be $70 million in 2019 and $100 million annually in each of the years from 2020 to 2025, with a component of the savings reinvested; and
	·	the stock-based compensation expenses would decrease from $117 million in 2019 to $86 million in 2023.

 

Pandora Scenario 2 Forecasts

 

In June 2018, Pandora’s management also updated the unaudited forecasted financial information that was initially prepared in October 2017 to present a more optimistic view driven primarily by audience and hours growth from improvements in marketing efficiency, higher marketing spending and growth in audience engagement through Pandora’s new content and product capabilities, which we refer to as the Pandora Scenario 2 Forecasts. The Pandora Scenario 2 Forecasts are based on the assumptions of greater achievement of operating efficiencies as Pandora implements these plans and greater deployment of capital toward growth strategies, which are described below.

 

 

		Pandora Unaudited Forecasted Financial Information
		(U.S. dollars in millions, except per share data)(a)
		Fiscal Years Ending December 31,
		2018				2019				2020				2021				2022				2023				2024				2025
Advertising		$	1,071			$	1,210			$	1,357			$	1,553			$	1,747			$	1,917			$	2,083			$	2,236
Subscription & Other			471				596				712				829				947				1,064				1,189				1,303
Total Revenue		$	1,542			$	1,806			$	2,069			$	2,382			$	2,694			$	2,981			$	3,272			$	3,540
% Growth			11.3	%			17.1	%			14.6	%			15.1	%			13.1	%			10.6	%			9.8	%			8.2	%
Content Costs		$	889			$	958			$	1,086			$	1,240			$	1,367			$	1,496			$	1,614			$	1,725
Other COGS			129				176				200				226				250				279				309				338
Total COGS		$	1,017			$	1,133			$	1,286			$	1,466			$	1,617			$	1,775			$	1,923			$	2,064
Gross Profit		$	524			$	673			$	783			$	916			$	1,077			$	1,205			$	1,349			$	1,476
% Margin			34.0	%			37.2	%			37.8	%			38.5	%			40.0	%			40.4	%			41.2	%			41.7	%
Product Development		$	132			$	174			$	188			$	205			$	217			$	233			$	248			$	264
Sales & Marketing			448				418				425				450				471				490				511				531
General & Administrative			112				111				116				120				123				128				133				137
Total Operating Expenses		$	693			$	704			$	730			$	775			$	811			$	851			$	892			$	932
Operating Income / (Loss)(b)		($	168	)		($	31	)		$	53			$	141			$	265			$	354			$	457			$	544
% Margin			(10.9	%)			(1.7	%)			2.6	%			5.9	%			9.8	%			11.9	%			14.0	%			15.4	%
Depreciation			49				54				53				56				52				53				58				63
Adjusted EBITDA(c)		($	119	)		$	23			$	107			$	198			$	317			$	407			$	515			$	606
% Growth			(13.2	%)			nm				nm				85.0	%			60.3	%			28.4	%			26.6	%			17.7	%
% Margin			(7.7	%)			1.3	%			5.2	%			8.3	%			11.8	%			13.6	%			15.7	%			17.1	%

 

 

	(a)	Certain totals in the tables included in this proxy statement/prospectus may not sum due to rounding.  Table does not reflect stock-based compensation.
	(b)	Excludes amortization of intangible assets.
	(c)	Adjusted EBITDA, which is calculated as consolidated net earnings before interest, income taxes, stock-based compensation expense and depreciation and amortization expense, is a non-GAAP financial measure as it excluded these amounts, which are included in net earnings, the most directly comparable measure calculated in accordance with GAAP.  This measure should not be considered as an alternative to net earnings or other measures derived in accordance with GAAP.

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	Pandora Unaudited Forecasted Financial Information (Continued) Pandora Unlevered Free Cash Flows(a) (U.S. dollars in millions, except per share data)(b)(c)
	Fiscal Years Ending December 31,
		2H’ 2018				2019				2020				2021				2022				2023				2024				2025
Advertising Revenue		$	586			$	1,211			$	1,358			$	1,554			$	1,748			$	1,918			$	2,084			$	2,237
Subscription Revenue			251				595				711				828				946				1,063				1,188				1,303
Total Revenue		$	838			$	1,806			$	2,069			$	2,382			$	2,694			$	2,981			$	3,272			$	3,540
% Growth							17.1	%			14.6	%			15.1	%			13.1	%			10.6	%			9.8	%			8.2	%
Adjusted EBITDA(d)		($	11	)		$	23			$	107			$	198			$	317			$	407			$	515			$	606
% Margin			(1.3	%)			1.3	%			5.2	%			8.3	%			11.8	%			13.6	%			15.7	%			17.1	%
(-) Stock Compensation			(59	)			(120	)			(116	)			(109	)			(100	)			(93	)			(90	)			(89	)
Adjusted EBITDA less SBC		($	70	)		($	97	)		($	9	)		$	88			$	217			$	314			$	425			$	517
% Margin			(8.4	%)			(5.4	%)			(0.4	%)			3.7	%			8.0	%			10.5	%			13.0	%			14.6	%
(-) D&A			(27	)			(60	)			(59	)			(57	)			(52	)			(53	)			(58	)			(63	)
EBIT		($	98	)		($	158	)		($	68	)		$	31			$	165			$	261			$	367			$	455
% Margin			(11.6	%)			(8.7	%)			(3.3	%)			1.3	%			6.1	%			8.8	%			11.2	%			12.8	%
(-) Taxes			—				—				—				(7	)			(39	)			(61	)			(86	)			(107	)
NOPAT		($	98	)		($	158	)		($	68	)		$	24			$	126			$	200			$	281			$	348
(+) D&A			27				60				59				57				52				53				58				63
(-) Capex			(23	)			(48	)			(53	)			(59	)			(47	)			(52	)			(72	)			(79	)
(+)/(-) Δ NWC			(37	)			13				8				(22	)			(26	)			(20	)			(22	)			(19	)
Unlevered Free Cash Flow			(131	)		($	133	)		($	54	)		($	1	)		$	105			$	181			$	244			$	313

 

(a)

Source: Pandora’s management, Pandora’s public filings, FactSet and Wall Street research as of September 21, 2018.

(b)

Valuation date of June 30, 2018 applying mid-year convention through the fiscal year ending December 31, 2025. Terminal value based on range of multiples applied to forward EBITDA in the fiscal year ending December 31, 2025. Includes present value of future cash tax savings related to NOLs.

(c)

Certain totals in the tables included in this proxy statement/prospectus may not sum due to rounding.  Table does not reflect stock-based compensation.

(d)

Adjusted EBITDA, which is calculated as consolidated net earnings before interest, income taxes, stock-based compensation expense and depreciation and amortization expense, is a non-GAAP financial measure as it excluded these amounts, which are included in net earnings, the most directly comparable measure calculated in accordance with GAAP.  This measure should not be considered as an alternative to net earnings and other measures derived in accordance with GAAP.

The Pandora unaudited forecasted financial information in the Pandora Scenario 2 Forecasts is based on various assumptions, including the following key assumptions:

 

	·	annual external marketing spending would increase by 10% to 20% compared to the Pandora Scenario 1a Forecasts and there would be a 10% efficiency improvement in user acquisition costs compared to the Pandora Scenario 1a Forecasts;
	·	HPA would be 2.5% higher in 2019 than in  the Pandora Scenario 1a Forecasts, increasing to 10% higher in 2025;
	·	the number of ad-supported service users would reach 84.3 million by 2025;
	·	advertising RPM would increase from $67.95 in 2018 to $78.48 in 2022, including modest increases in audio RPM, decreases in display RPM and increases in video RPM;
	·	data licensing revenue would achieve robust growth and reach $12 million to $15 million by 2025;
	·	monthly free-trial starts for Pandora Plus would increase by 20-25% from 2018 to 2025, and 20-35% for Pandora Premium from 2018 to 2025, both driven primarily by the improved on-platform marketing;
	·	the percentage of family plan subscriptions in the new Pandora Premium additions would increase from 2% in 2018 to 25% by 2025;
	·	the trial conversion rate to Pandora Premium would improve by 1% to 3% by 2025, driven primarily by the improved on-platform marketing and user experience;
	·	direct Pandora Premium acquisition spending would reach $5 million annually by 2020;
	·	non-music content share would account for 12% of total listening by 2025;
	·	operating expenses would increase by 2% year-over-year in 2019, with the annual growth rate thereafter increasing to 5% year-over-year in 2022, with many functions shifting towards lower-cost geographies;
	·	costs saved from the reduction in force plans relative to the end of 2017 run rate would be $70 million in 2019 and $100 million annually in each of the years from 2020 to 2025, with a component of the savings reinvested; and
	·	stock-based compensation expenses would decrease from $120 million in 2019 to $93 million in 2023.

 

For the foregoing and other reasons, inclusion of the Pandora unaudited forecasted financial information in this proxy statement/prospectus should not be regarded as a representation by any person that the results contained in the Pandora unaudited forecasted financial information will be achieved.

 

Opinions of Pandora’s Financial Advisors

 

Opinion of Centerview Partners LLC

 

On September 23, 2018, Centerview rendered to the Pandora board of directors its oral opinion, subsequently confirmed in a written opinion dated such date, that, as of such date and based upon and subject to various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the

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review undertaken by Centerview in preparing its opinion, the exchange ratio was fair, from a financial point of view, to the holders of shares of Pandora common stock other than excluded shares.

 

The full text of Centerview’s written opinion, dated September 23, 2018, which describes the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, is attached as Annex B and is incorporated herein by reference. The summary of the written opinion of Centerview set forth below is qualified in its entirety to the full text of Centerview’s written opinion attached as Annex B. In accordance with Centerview’s engagement letter, Centerview’s financial advisory services and opinion were provided for the information and assistance of the non-Sirius XM board members (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the transactions, and Centerview’s opinion only addressed the fairness, from a financial point of view, as of the date thereof, to the holders of shares of Pandora common stock (other than excluded shares) of the exchange ratio. Centerview’s opinion did not address any other term or aspect of the merger agreement or the transactions and does not constitute a recommendation to any stockholder of Pandora or any other person as to how such stockholder or other person should vote or otherwise act with respect to the transactions or any other matter.

 

The full text of Centerview’s written opinion should be read carefully in its entirety for a description of the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion.

 

In connection with rendering the opinion described above and performing its related financial analyses, Centerview reviewed, among other things:

 

	·	a draft of the merger agreement dated September 23, 2018, referred to in this summary of Centerview’s opinion as the “draft merger agreement”;
	·	Annual Reports on Form 10-K, as amended, of Pandora for the years ended December 31, 2017, December 31, 2016 and December 31, 2015 and Annual Reports on Form 10-K of Sirius XM for the years ended December 31, 2017, December 31, 2016 and December 31, 2015;
	·	certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Pandora and Sirius XM;
	·	certain publicly available research analyst reports for Pandora and Sirius XM;
	·	certain other communications from Pandora and Sirius XM to their respective stockholders;
	·	certain internal information relating to the business, operations, earnings, cash flow, assets, liabilities and prospects of Pandora, including certain financial forecasts, analyses and projections relating to Pandora prepared by management of Pandora and furnished to Centerview by Pandora for purposes of Centerview’s analysis, which are referred to in this summary of Centerview’s opinion as the “Pandora Forecasts,” and which are collectively referred to in this summary of Centerview’s opinion as the “Pandora Internal Data;”
	·	certain internal information relating to the business, operations, earnings, cash flow, assets, liabilities and prospects of Sirius XM (collectively, the “Sirius XM Internal Data”);
	·	certain publicly available research analysts’ estimates relating to Sirius XM suggested by Sirius XM for purposes of Centerview’s analysis and deemed relevant by Centerview (the “Sirius XM Public Forecasts”); and
	·	certain cost savings and operating synergies projected by the management of Pandora to result from the transactions furnished to Centerview by Pandora for purposes of Centerview’s analysis (the “Synergies”).

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Centerview also participated in discussions with members of the senior management and representatives of Pandora and Sirius XM regarding their assessment of the Pandora Internal Data (including, without limitation, the Pandora Forecasts), the Sirius XM Internal Data, the Sirius XM Public Forecasts and the Synergies, as appropriate) and the strategic rationale for the transactions. In addition, Centerview reviewed publicly available financial and stock market data, including valuation multiples, for Pandora and compared that data with similar data for certain other companies, the securities of which are publicly traded, in lines of business that Centerview deemed relevant. Centerview also compared certain of the proposed financial terms of the transactions with the financial terms, to the extent publicly available, of certain other transactions that Centerview deemed relevant, and conducted such other financial studies and analyses and took into account such other information as Centerview deemed appropriate.

 

Centerview assumed, without independent verification or any responsibility therefor, the accuracy and completeness of the financial, legal, regulatory, tax, accounting and other information supplied to, discussed with, or reviewed by Centerview for purposes of its opinion and, with Pandora’s consent, Centerview relied upon such information as being complete and accurate. In that regard, Centerview assumed, at Pandora’s direction, that the Pandora Internal Data (including, without limitation, the Pandora Forecasts) and the Synergies were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Pandora as to the matters covered thereby and that the Sirius XM Public Forecasts are a reasonable basis upon which to evaluate the future financial performance of Sirius XM, and Centerview relied, at Pandora’s direction, on the Pandora Internal Data (including, without limitation, the Pandora Forecasts), the Sirius XM Internal Data, the Sirius XM Public Forecasts and the Synergies for purposes of Centerview’s analysis and opinion. Centerview expressed no view or opinion as to the Pandora Internal Data (including, without limitation, the Pandora Forecasts), the Sirius XM Internal Data, the Sirius XM Public Forecasts or the Synergies or the assumptions on which they were based. In addition, at Pandora’s direction, Centerview did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet or otherwise) of Pandora or Sirius XM, nor was Centerview furnished with any such evaluation or appraisal, and was not asked to conduct, and did not conduct, a physical inspection of the properties or assets of Pandora or Sirius XM. Centerview assumed, at Pandora’s direction, that the final executed merger agreement would not differ in any respect material to Centerview’s analysis or opinion from the draft merger agreement reviewed by Centerview. Centerview also assumed, at Pandora’s direction, that the transactions will be consummated on the terms set forth in the merger agreement and in accordance with all applicable laws and other relevant documents or requirements, without delay or the waiver, modification or amendment of any term, condition or agreement, the effect of which would be material to Centerview’s analysis or Centerview’s opinion and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the transactions, no delay, limitation, restriction, condition or other change, including any divestiture requirements or amendments or modifications, will be imposed, the effect of which would be material to Centerview’s analysis or opinion. Centerview did not evaluate and did not express any opinion as to the solvency or fair value of Pandora or Sirius XM, or the ability of Pandora or Sirius XM to pay their respective obligations when they come due, or as to the impact of the transactions on such matters, under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. Centerview is not a legal, regulatory, tax or accounting advisor, and Centerview expressed no opinion as to any legal, regulatory, tax or accounting matters.

 

Centerview’s opinion expressed no view as to, and did not address, Pandora’s underlying business decision to proceed with or effect the transactions, or the relative merits of the transactions as compared to any alternative business strategies or transactions that might be available to Pandora or in which Pandora might engage. Centerview’s opinion was limited to and addressed only the fairness, from a financial point of view, as of the date of Centerview’s written opinion, to the holders of the shares of Pandora common stock (other than excluded shares) of the exchange ratio. For purposes of its opinion, Centerview was not asked to, and Centerview did not, express any view on, and its opinion did not address, any other term or aspect of the merger agreement or the transactions, including, without limitation, the structure or form of the transactions, or any other agreements or arrangements contemplated by the merger agreement or entered into in connection with or otherwise contemplated by the transactions, including, without limitation, the fairness of the transactions or any other term or aspect of the transactions to, or any consideration to be received in connection therewith by, or the impact of the transactions on, the holders of any other class of securities, creditors or other constituencies of Pandora or any other party. In addition, Centerview expressed no view or opinion as to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to be paid or payable to any of the officers, directors or employees of Pandora or any party, or class of such persons in connection with the transactions, whether relative to the exchange

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ratio or otherwise. Centerview’s opinion was necessarily based on financial, economic, monetary, currency, market and other conditions and circumstances as in effect on, and the information made available to Centerview as of, the date of Centerview’s written opinion, and Centerview does not have any obligation or responsibility to update, revise or reaffirm its opinion based on circumstances, developments or events occurring after the date of Centerview’ written opinion. Centerview expressed no view or opinion as to what the value of shares of Sirius XM common stock actually would be when issued pursuant to the transactions or the prices at which the shares of Pandora common stock or shares of Sirius XM common stock will trade or otherwise be transferable at any time, including following the announcement or consummation of the transactions. Centerview’s opinion does not constitute a recommendation to any stockholder of Pandora or any other person as to how such stockholder or other person should vote with respect to the merger or otherwise act with respect to the transactions or any other matter. In accordance with Centerview’s engagement letter, Centerview’s financial advisory services and its written opinion were provided for the information and assistance of the non-Sirius XM board members (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the transactions. The issuance of Centerview’s opinion was approved by the Centerview Partners LLC Fairness Opinion Committee.

 

Summary of Centerview Financial Analysis

 

The following is a summary of the material financial analyses prepared and reviewed with the Pandora board of directors in connection with Centerview’s opinion, dated September 23, 2018. The summary set forth below does not purport to be a complete description of the financial analyses performed or factors considered by, and underlying the opinion of, Centerview, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses by Centerview. Centerview may have deemed various assumptions more or less probable than other assumptions, so the reference ranges resulting from any particular portion of the analyses summarized below should not be taken to be Centerview’s view of the actual value of Pandora. Some of the summaries of the financial analyses set forth below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses performed by Centerview. Considering the data in the tables below without considering all financial analyses or factors or the full narrative description of such analyses or factors, including the methodologies and assumptions underlying such analyses or factors, could create a misleading or incomplete view of the processes underlying Centerview’s financial analyses and its opinion. In performing its analyses, Centerview made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Pandora or any other parties to the transactions. None of Pandora, Sirius XM, Merger Sub or Centerview or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of Pandora do not purport to be appraisals or reflect the prices at which Pandora may actually be sold. Accordingly, the assumptions and estimates used in, and the results derived from, the financial analyses are inherently subject to substantial uncertainty. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before September 21, 2018 (the last trading day before the public announcement of the transactions) and is not necessarily indicative of current market conditions.

 

Selected Public Companies Analyses

 

Centerview performed a selected public companies analysis in which Centerview reviewed certain financial and stock market information relating to Pandora and selected publicly traded companies that Centerview, in its experience and professional judgment, deemed relevant to consider in relation to Pandora. The financial data that was used with respect to these selected companies were based on Wall Street research consensus estimates, public filings and other publicly available information.

 

In performing this analysis, Centerview reviewed the enterprise value (calculated as fully-diluted market capitalization plus total debt, plus minority interests, less cash and cash equivalents and investments), which is referred to in this summary of Centerview’s opinion as “EV,” as a multiple of the next-twelve-months revenue (“NTM Revenue”) of the public companies noted below, referred to as the selected companies. The overall low to

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high estimated EV / NTM Revenue multiples observed for the selected companies as of September 21, 2018 were 3.60x to 4.12x, as reflected below:

 

		EV / NTM Revenue
Spotify Technology S.A.			4.12	x
TripAdvisor, Inc.			3.79	x
YELP INC.			3.60	x

 

Based on its analysis and other considerations that Centerview deemed relevant in its professional judgment (including the fact that Pandora’s common stock had historically traded at a lower EV / NTM multiple compared to those selected companies), Centerview applied a range of EV / NTM Revenue multiples of 1.25x to 2.00x to (a) Pandora’s NTM Revenue as of September 21, 2018 of $1.67 billion as reflected in the Pandora Scenario 1a Forecasts, which resulted in a range of implied values per share of Pandora common stock of $5.50 to $9.75, and to (b) Pandora’s NTM Revenue as of September 21, 2018 of $1.73 billion as reflected in the Pandora Scenario 2 Forecasts, which resulted in a range of implied values per share of Pandora common stock of $5.75 to $10.25, in each case, rounded to the nearest $0.25. Centerview then compared this range to the $10.05 per share value of the merger consideration implied by the exchange ratio, based on the closing price of Sirius XM common stock on September 21, 2018 (the “Implied Consideration Value”).

 

Although none of the selected companies is directly comparable to Pandora, the companies listed above were chosen by Centerview, among other reasons, because they are publicly traded U.S. companies in the consumer internet business that have certain operational, business and/or financial characteristics that, for purposes of Centerview’s analysis, may be considered similar to those of Pandora. However, because none of the selected companies is exactly the same as Pandora, Centerview believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected company analysis. Accordingly, Centerview also made qualitative judgments, based on its experience and professional judgment, concerning differences between the business, financial and operating characteristics and prospects of Pandora and the selected companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis.

 

Selected Transactions Analysis

 

Centerview performed a selected transactions analysis in which Centerview reviewed and compared certain information relating to the following selected transactions in the public consumer internet industry in the past five years involving publicly traded target companies with EBITDA margins of less than 20% that Centerview, based on its experience and professional judgment, deemed relevant to consider in relation to Pandora and the transactions.

 

The selected transactions were:

 

Announcement Date		Acquiror		Target		EV / LTM Revenues
May 2017		HomeAdvisor, Inc.		Angie’s List, Inc.			1.68	x
November 2016		Adobe Systems Incorporated		TubeMogul, Inc.			2.55	x
July 2016		Verizon Communications Inc.		Yahoo! Inc.			0.99	x
May 2015		Verizon Communications Inc.		AOL Inc.			1.71	x
February 2015		Expedia, Inc.		Orbitz Worldwide, Inc.			1.72	x
September 2014		News Corporation		Move, Inc.			3.96	x

 

No company or transaction used in this analysis is identical or directly comparable to Pandora or the transactions, respectively. The target companies included in the selected transactions listed above were selected,

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among other reasons, because they have certain characteristics that, for the purposes of this analysis, may be considered similar to certain characteristics of Pandora. The reasons for and the circumstances surrounding each of the selected transactions analyzed were diverse and there are inherent differences in the business, operations, financial conditions and prospects of Pandora and the target companies included in the selected transactions analysis. Accordingly, Centerview believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected transactions analysis. This analysis involves complex considerations and qualitative judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading, acquisition or other values of the selected target companies and Pandora.

 

Financial data for the selected transactions were based solely on publicly available information at the time of the initial announcement of the relevant transactions as noted in the preceding table that Centerview obtained from SEC filings and other publicly available data sources.

 

Centerview calculated, for each selected transaction set forth above, among other things, the enterprise value implied for the applicable target company based on the consideration payable in the applicable selected transactions, which is referred to in this summary of Centerview’s opinion as “TEV,” as a multiple of the target company’s revenue for the last-twelve-month period (“LTM Revenue”) for which financial information had been made public at the time of the announcement of such transactions. The results of this analysis are summarized as follows:

 

		TEV / LTM Revenue
25th Percentile		1.69	x
Median		1.71	x
Mean		2.10	x
75th Percentile		2.34	x

 

Based on its analysis and other considerations that Centerview deemed relevant in its professional judgment, Centerview applied a range of TEV / LTM Revenue multiples of 1.75x to 2.50x to Pandora’s last-twelve-month revenue as of June 30, 2018 of $1.46 billion (excluding revenue of the divested ticket service business) as reflected in public filings of Pandora, which resulted in a range of implied values per share of Pandora common stock of $7.25 to $10.75, rounded to the nearest $0.25. Centerview then compared this range to the Implied Consideration Value of $10.05.

 

Discounted Cash Flow Analyses

 

Centerview performed a discounted cash flow analysis of Pandora based on the Pandora Scenario 1a Forecasts and the Pandora Scenario 2 Forecasts, respectively, other Pandora Internal Data and information reflected in public filings of Pandora. A discounted cash flow analysis is a traditional valuation methodology used to derive a valuation of an asset by calculating the “present value” of estimated future cash flows of the asset. “Present value” refers to the current value of future cash flows and is obtained by discounting those future cash flows by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors.

 

In performing this analysis based on the Pandora Scenario 1a Forecasts, Centerview calculated a range of illustrative equity values for Pandora by discounting to present value as of June 30, 2018, using discount rates ranging from 9.50% to 11.50% (reflecting Centerview’s analysis of Pandora’s weighted average cost of capital in Centerview’s professional judgment): (a)  the forecasted unlevered after-tax free cash flows of Pandora over the period beginning June 30, 2018 and ending December 31, 2025, as reflected in the Pandora Scenario 1a Forecasts and the assumptions provided by Pandora’s management, and (b) a range of illustrative terminal values of Pandora, calculated by Centerview applying a range of illustrative enterprise value to earnings before interest, taxes, depreciation and amortization (adjusted to include stock-based compensation expense), which is referred to in this summary of Centerview’s opinion as “Adjusted EBITDA,” multiples of 10.0x to 12.5x, based on Centerview’s experience and professional judgment, to Pandora’s estimated forward Adjusted EBITDA as of December 31, 2025, as provided by Pandora’s management based on Pandora Scenario 1a Forecasts. Centerview then (i) added the estimated value of the tax benefits from Pandora’s net operating loss carryforwards, as of June 30, 2018, and (ii) subtracted from the foregoing results (A) the value of Pandora’s net debt (calculated as the face value of long-term

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debt minus cash and cash equivalents) and (B) minority interests, each as of June 30, 2018, as reflected in public filings of Pandora. Centerview divided the result of the foregoing calculations by the number of fully diluted outstanding shares of Pandora common stock as of September 21, 2018 to derive a range of implied values per share of Pandora common stock of $4.50 to $7.00, rounded to the nearest $0.25. Centerview then compared this range to the Implied Consideration Value of $10.05.

 

In performing this analysis based on the Pandora Scenario 2 Forecasts, Centerview calculated a range of illustrative equity values for Pandora by discounting to present value as of June 30, 2018, using discount rates ranging from 9.50% to 11.50% (reflecting Centerview’s analysis of Pandora’s weighted average cost of capital in Centerview’s professional judgment): (a) the forecasted unlevered after-tax free cash flows of Pandora over the period beginning June 30, 2018 and ending December 31, 2025, as reflected in the Pandora Scenario 2 Forecasts and the assumptions provided by Pandora’s management, and (b) a range of illustrative terminal values of Pandora, calculated by Centerview applying a range of illustrative enterprise value to Adjusted EBITDA multiples of 10.5x to 13.0x, based on Centerview’s experience and professional judgment, to Pandora’s estimated forward Adjusted EBITDA as of December 31, 2025, as provided by Pandora’s management based on Pandora Forecasts - Scenario 2. Centerview then (i) added the estimated value of the tax benefits from Pandora’s net operating loss carryforwards, as of June 30, 2018, and (ii) subtracted from the foregoing results (A) the value of Pandora’s net debt (calculated as the face value of long-term debt minus cash and cash equivalents) and (B) minority interests, each as of June 30, 2018, as reflected in public filings of Pandora. Centerview divided the result of the foregoing calculations by the number of fully diluted outstanding shares of Pandora common stock as of September 21, 2018 to derive a range of implied values per share of Pandora common stock of $8.50 to $11.75, rounded to the nearest $0.25. Centerview then compared this range to the Implied Consideration Value of $10.05.

 

Other Factors

 

Centerview also reviewed and considered other factors, which were not considered part of its financial analysis in connection with rendering its opinion, but were referenced for informational purposes, including, among other things, the following:

 

·

trading prices for the Pandora common stock during the 52 week period ended September 21, 2018, which ranged from $4.13 to $9.97;

 

·

publicly available stock price targets of selected research analysts for Pandora common stock, which indicated stock price targets of $7.00 to $13.00 per share;

 

·

Illustrative Present Value of Future Share Price Analysis of Pandora on an EV / Adjusted EBITDA Multiple Basis. Centerview performed an illustrative analysis of the implied present value of the future price per share of Pandora common stock based on an EV / NTM Adjusted EBITDA multiple (based on the Pandora Scenario 1a Forecasts and the Pandora Scenario 2 Forecasts, respectively):

 

o

In calculating the implied present value of future share price of Pandora common stock based on the Pandora Scenario 1a Forecasts, Centerview first calculated a range of implied enterprise values of Pandora at the end of year 2024 by multiplying the estimated NTM Adjusted EBITDA of Pandora (as indicated in the Pandora Scenario 1a Forecasts) at the end of year 2024 by an NTM Adjusted EBITDA multiple range of 10.0x to 12.5x, based on Centerview’s experience and professional judgment. Centerview then calculated a range of implied equity values of Pandora at the end of year 2024 by (i) adding the estimated value of the tax benefits from Pandora’s net operating loss carryforwards at the end of year 2024, and (ii) subtracting the estimated net debt of Pandora at the end of year 2024 from the implied enterprise values. Centerview then divided the implied equity values by the total number of outstanding shares of Pandora common stock on a fully diluted basis. Centerview then discounted those implied values to June 30, 2018 by using an equity discount rate equal to 11.5%, reflecting Centerview’s analysis of Pandora’s cost of equity. The analysis resulted in a range of implied present values of one share of

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Pandora common stock as of June 30, 2018 equal to $5.65 to $6.70; and

 

o

In calculating the implied present value of future share price of Pandora common stock based on the Pandora Scenario 2 Forecasts, Centerview first calculated a range of implied enterprise values of Pandora at the end of year 2024 by multiplying the estimated NTM Adjusted EBITDA of Pandora (as indicated in the Pandora Scenario 2 Forecasts) at the end of year 2024 by an NTM Adjusted EBITDA multiple range of 10.5x to 13.0x, based on Centerview’s experience and professional judgment. Centerview then calculated a range of implied equity values of Pandora at the end of year 2024 by (i) adding the estimated value of the tax benefits from Pandora’s net operating loss carryforwards at the end of year 2024, and (ii) subtracting the estimated net debt of Pandora at the end of year 2024 from the implied enterprise values. Centerview then divided the implied equity values by the total number of outstanding shares of Pandora common stock on a fully diluted basis. Centerview then discounted those implied values to June 30, 2018 by using an equity discount rate equal to 11.5%, reflecting Centerview’s analysis of Pandora’s cost of equity. The analysis resulted in a range of implied present values of one share of Pandora common stock as of June 30, 2018 equal to $8.56 to $9.94;

 

·

Illustrative Present Value of Future Share Price Analysis of Pandora on an EV / Revenue Multiple Basis. Centerview performed an illustrative analysis of the implied present value of the future price per share of Pandora common stock based on EV / NTM Revenue multiple (based on the Pandora Scenario 1a Forecasts and the Pandora Scenario 2 Forecasts, respectively):

 

o

In calculating the implied present value of future share price of Pandora common stock based on the Pandora Scenario 1a Forecasts, Centerview first applied EV / NTM Revenue multiples of 1.50x and 1.75x, respectively, based on Centerview’s experience and professional judgment, to Pandora’s NTM Revenue at the end of year 2020, 2021 and 2022 of $2.07 billion, $2.28 billion and $2.46 billion, respectively, in each case, as provided by Pandora. Centerview then calculated the implied equity values of Pandora at the end of each such year by (i) adding the estimated value of the tax benefits from Pandora’s net operating loss carryforwards at the end of each such year, and (ii) subtracting the estimated net debt of Pandora at the end of each such year from the applicable implied enterprise value. Centerview then divided the applicable equity values by the total number of outstanding shares of Pandora common stock on a fully diluted basis at the end of each such year. Centerview then discounted those implied values to June 30, 2018 by using an equity discount rate equal to 11.5%, reflecting Centerview’s analysis of Pandora’s cost of equity. The analysis resulted in a range of implied present values of one share of Pandora common stock as of June 30, 2018 equal to $6.27 to $7.55; and

 

o

In calculating the implied present value of future share price of Pandora common stock based on the Pandora Scenario 2 Forecasts, Centerview first applied EV / NTM Revenue multiples of 1.75x and 2.00x, respectively, based on Centerview’s experience and professional judgment, to Pandora’s NTM Revenue at the end of year 2020, 2021 and 2022 of $2.38 billion, $2.69 billion and $2.98 billion, respectively, in each case, as provided by Pandora. Centerview then calculated the implied equity values of Pandora at the end of each such year by (i) adding the estimated value of the tax benefits from Pandora’s net operating loss carryforwards at the end of each such year, and (ii) subtracting the estimated net debt of Pandora at the end of each such year from the applicable implied enterprise value. Centerview then divided the applicable equity values by the total number of outstanding shares of Pandora common stock on a fully diluted basis at the end of each such year. Centerview then discounted those implied values to June 30, 2018 by using an equity discount rate equal to 11.5%, reflecting Centerview’s analysis of Pandora’s cost of equity. The analysis resulted in a range of implied present values of one share of Pandora common stock as of June 30, 2018 equal to $9.02 to $10.43; and

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·

Illustrative Future Share Price Analysis of Sirius XM Pro Forma for the transactions on an EV / Adjusted EBITDA Multiple Basis. Centerview performed an illustrative analysis of the implied future price per share of Sirius XM common stock pro forma for the transactions based on EV / NTM Adjusted EBITDA multiple (based on both the Sirius XM Public Forecasts and the Pandora Scenario 1a Forecasts and the Pandora Scenario 2 Forecasts, respectively) and assuming, at the direction of Pandora’s management, approximately $50 million run-rate Synergies to be phased in over two years after the closing of the transactions:

 

o

In calculating the illustrative future share price of Sirius XM common stock based on the Sirius XM Public Forecasts and the Pandora Scenario 1a Forecasts, Centerview first applied EV / NTM Adjusted EBITDA multiples of 17.4x and 18.4x, respectively, based on Centerview’s experience and professional judgment, to Sirius XM’s NTM pro forma Adjusted EBITDA at the end of year 2018, 2019, 2020 and 2021 (in each case, as indicated in the Sirius XM Public Forecasts and the Pandora Scenario 1a Forecasts). Centerview then calculated the implied pro forma equity values of Sirius XM at the end of each such year by (i) adding the estimated value of the tax benefits from Sirius XM’s pro forma net operating loss carryforwards at the end of each such year, and (ii) subtracting the estimated pro forma net debt of Sirius XM at the end of each such year from the applicable implied enterprise value. Centerview then divided the applicable equity values by the total number of pro forma outstanding shares of Sirius XM common stock on a fully diluted basis. The analysis resulted in a range of illustrative future pro forma Sirius XM share prices of $6.14 to $10.53, implying illustrative future value to Pandora shareholders of $8.84 to $15.16 at the exchange ratio. Centerview compared these implied future pro forma per share values for Pandora shareholders to a range of $7.06 to $10.88 per share based on an illustrative analysis of the implied value of the future price per share of Pandora common stock based on an EV / NTM Revenue multiple basis; and

 

o

In calculating the illustrative future share price of Sirius XM common stock based on the Sirius XM Public Forecasts and the Pandora Scenario 2 Forecasts, Centerview first applied EV / NTM Adjusted EBITDA multiples of 17.4x and 18.4x, respectively, based on Centerview’s experience and professional judgment, to Sirius XM’s NTM pro forma Adjusted EBITDA at the end of year 2018, 2019, 2020 and 2021 (in each case, as indicated in the Sirius XM Public Forecasts and the Pandora Scenario 2 Forecasts). Centerview then calculated the implied pro forma equity values of Sirius XM at the end of each such year by (i) adding the estimated value of the tax benefits from Sirius XM’s pro forma net operating loss carryforwards at the end of each such year, and (ii) subtracting the estimated pro forma net debt of Sirius XM at the end of each such year from the applicable implied enterprise value. Centerview then divided the applicable equity values by the total number of pro forma outstanding shares of Sirius XM common stock on a fully diluted basis. The analysis resulted in a range of illustrative future pro forma Sirius XM share prices of $6.17 to $10.83, implying illustrative future value to Pandora shareholders of $8.88 to $15.60 at the exchange ratio. Centerview compared these implied future pro forma per share values for Pandora shareholders compared to a range of $9.01 to $15.26 per share based on an illustrative analysis of the implied value of the future price per share of Pandora common stock based on an EV / NTM Revenue multiple basis.

 

General

 

The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. In arriving at its opinion, Centerview did not draw, in isolation, conclusions from or with regard to any factor or analysis that it considered. Rather, Centerview made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.

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Centerview’s financial analyses and opinion were only one of many factors taken into consideration by the Pandora board of directors in its evaluation of the transactions. Consequently, the analyses described above should not be viewed as determinative of the views of the Pandora board of directors or management with respect to the exchange ratio or as to whether the Pandora board of directors would have been willing to determine that a different consideration was fair. The consideration for the transactions was determined through arm’s-length negotiations between Pandora and Sirius XM and was approved by the Pandora board of directors. Centerview provided advice to Pandora during these negotiations. Centerview did not, however, recommend any specific amount of consideration to Pandora or the Board or that any specific amount of consideration constituted the only appropriate consideration for the transactions.

 

Centerview is a securities firm engaged directly and through affiliates and related persons in a number of investment banking, financial advisory and merchant banking activities. In the two years prior to the date of its written opinion, Centerview was engaged to provide financial advisory services to Pandora from time to time, including in connection with Sirius XM’s preferred equity investment in Pandora, Pandora’s sale of its Ticketfly business to Eventbrite and Pandora’s ongoing review of strategic alternatives, and Centerview has received compensation of approximately $21 million from Pandora for such services. In the two years prior to the date of its written opinion, Centerview was not engaged to provide financial advisory or other services to Sirius XM or Merger Sub, and Centerview did not receive compensation from Sirius XM. Centerview may provide investment banking and other services to or with respect to Pandora or Sirius XM or their respective affiliates in the future, for which Centerview may receive compensation. Certain of (i) Centerview’s and Centerview’s affiliates’ directors, officers, members and employees, or family members of such persons, (ii) Centerview’s affiliates or related investment funds and (iii) investment funds or other persons in which any of the foregoing may have financial interests or with which they may co-invest, may at any time acquire, hold, sell or trade, in debt, equity and other securities or financial instruments (including derivatives, bank loans or other obligations) of, or investments in, Pandora, Sirius XM, or any of their respective affiliates, or any other party that may be involved in the transactions.

 

As disclosed to the Pandora board of directors prior to entry into its engagement letter with respect to the transactions, Centerview also acted as financial advisor to the special committee of the board of directors of HSN, Inc. in connection with HSN, Inc.’s sale to Liberty Interactive Corporation (now known as Qurate Retail, Inc.), an entity in which the Chairman of the Board of Liberty Media also holds a large voting interest. In connection with such transaction, Centerview orally advised Liberty Interactive Corporation that, to the extent Centerview was to be engaged in the future to provide investment banking advisory services to Liberty Interactive Corporation or certain entities controlled by it, Centerview would provide, depending on the circumstances, a credit of up to $5,000,000 toward such engagement. The foregoing discussion did not include any commitment or agreement by Liberty Interactive Corporation or any other entity to hire Centerview for future work or any commitment or agreement by Centerview to provide any future investment banking advisory services to Liberty Interactive Corporation or any other entity.

 

The Pandora board of directors selected Centerview as its financial advisor in connection with the transactions based on Centerview’s reputation and experience. Centerview is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transactions.

 

In connection with Centerview’s services as the financial advisor to the Pandora board of directors, Pandora has agreed to pay Centerview an aggregate fee that is estimated, based on the information available as of the date of announcement, to be $21 million, $3 million of which is payable upon the earlier of (i) the consummation of the transactions and (ii) the 13-month anniversary of the execution of the merger agreement, and the remainder of which is payable contingent upon consummation of the transactions. In addition, Pandora has agreed to reimburse certain of Centerview’s expenses arising, and to indemnify Centerview against certain liabilities that may arise, out of Centerview’s engagement.

 

Opinion of LionTree Advisors LLC

 

On September 23, 2018, at a meeting of the Pandora board of directors, LionTree rendered an oral opinion to the Pandora board of directors (which was subsequently confirmed in writing by delivery of LionTree’s written opinion dated September 23, 2018) as to the fairness, from a financial point of view, as of such date, of the exchange ratio to the holders of Pandora common stock (other than the excluded parties), based upon and subject to the

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procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by LionTree in preparing its opinion.

 

LionTree’s opinion was provided to the Pandora board of directors and only addressed the fairness, from a financial point of view, of the exchange ratio to the holders of Pandora common stock (other than the excluded parties) (without giving effect to any impact of the transactions on any particular stockholder of Pandora other than in its capacity as a holder of Pandora common stock). The summary of LionTree’s opinion in this proxy statement/prospectus is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex C to this proxy statement/prospectus and incorporated herein by reference, and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken, and other matters considered by LionTree in preparing its opinion. However, neither LionTree’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus constitute a recommendation to any holder of Pandora common stock as to how such stockholder should vote or act on any matter relating to the transactions or any other matter.

 

In arriving at its opinion, LionTree, among other things:

 

	·	reviewed a draft, dated September 23, 2018, of the merger agreement;
	·	reviewed certain publicly available business and financial information relating to Pandora and Sirius XM;
	·	reviewed certain historical financial information and other data relating to Pandora that were provided to LionTree by the management of Pandora, approved for LionTree’s use by Pandora, and not publicly available;
	·	reviewed certain internal financial forecasts, estimates, and other data relating to the business and financial prospects of Pandora that were provided to LionTree by the management of Pandora, approved for LionTree’s use by Pandora, and not publicly available, including financial forecasts and estimates for the fiscal years ending December 31, 2018 through December 31, 2025, prepared by the management of Pandora;
	·	conducted discussions with members of the senior management of Pandora concerning the business, operations, historical financial results, and financial prospects of Pandora and the transactions;
	·	conducted limited discussions with members of the senior management of Sirius XM concerning near term financial prospects of Sirius XM;
	·	reviewed current and historical market prices of Pandora common stock and Sirius XM common stock;
	·	reviewed certain publicly available financial and stock market data with respect to certain other companies;
	·	reviewed and compared data regarding the premiums paid in certain other transactions;
	·	reviewed certain financial performance data of Pandora and compared that data with similar data for certain other companies; and
	·	conducted such other financial studies, analyses and investigations, and considered such other information, as LionTree deemed necessary or appropriate.

 

In connection with LionTree’s review, with Pandora’s consent, LionTree assumed and relied upon, without independent verification, the accuracy and completeness of the information provided to, discussed with, or reviewed

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by LionTree for the purpose of its opinion. In addition, with Pandora’s consent, LionTree did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of Pandora or Sirius XM, or any of their respective subsidiaries, nor was LionTree furnished with any such evaluation or appraisal. Pandora’s management provided to LionTree Pandora Scenario 1a Forecasts and Pandora Scenario 2 Forecasts (which forecasts are summarized in the section entitled “The Transactions—Certain Financial Forecasts” and which we refer to collectively as the “forecasts”). LionTree assumed, with Pandora’s consent (and based on advice of the management of Pandora), that the forecasts have been reasonably prepared in good faith on a basis reflecting the best currently available estimates and judgments of the management of Pandora as to the future financial performance of Pandora and its subsidiaries and will be achieved at the times and in the amounts projected. LionTree expressed no opinion with respect to such forecasts. LionTree assumed, with Pandora’s consent, that the transactions will have the tax consequences contemplated by the merger agreement. LionTree’s opinion did not address any legal, regulatory, taxation, or accounting matters, and LionTree assumed the accuracy and veracity of all assessments made by Pandora’s professional advisors with respect to such matters. LionTree’s opinion is necessarily based on economic, monetary, market, and other conditions as in effect on, and the information available to LionTree as of, the date of its opinion and LionTree’s opinion speaks only as of the date thereof.

 

In rendering its opinion, LionTree assumed, with Pandora’s consent, that except as would not be in any way meaningful to LionTree’s analysis: (a) the final executed form of the merger agreement would not differ from the draft that LionTree reviewed, (b) the representations and warranties of the parties to the merger agreement were true and correct, (c) the parties to the merger agreement will comply with and perform all covenants and agreements required to be complied with or performed by such parties under the merger agreement, and (d) the transactions will be consummated in accordance with the terms of the merger agreement without any waiver or amendment of any term or condition thereof. LionTree also assumed, with Pandora’s consent, that all governmental, regulatory or other third-party consents and approvals necessary for the consummation of the transactions or otherwise contemplated by the merger agreement will be obtained without any adverse effect on Pandora, Sirius XM, or on the expected benefits of the transactions in any way meaningful to LionTree’s analysis.

 

LionTree’s opinion was provided solely for the benefit of the Pandora board of directors (in its capacity as such) in connection with, and for the sole purpose of, its evaluation of the transactions, and does not constitute a recommendation to any holder of Pandora common stock as to how such stockholder should vote or act with respect to the transactions or any other matter.

 

LionTree’s opinion did not address Pandora’s underlying business decision to engage in the transactions or any related transaction, the relative merits of the transactions or any related transaction as compared to other business strategies or transactions that might be available to Pandora, or whether the consideration to be received by the holders of Pandora common stock pursuant to the merger agreement represents the best price obtainable. In connection with its engagement, LionTree did not negotiate the exchange ratio or any other matter with Sirius XM or its representatives on behalf of Pandora, and LionTree was not asked to, and did not, solicit interest from other parties prior to the date of its opinion with respect to an acquisition of, or other business combination with, Pandora or any other alternative transaction. LionTree expressed no view as to, and its opinion does not address, the solvency of Pandora or any other entity under any state, federal, or other laws relating to bankruptcy, insolvency, or similar matters. LionTree’s opinion addressed only the fairness, from a financial point of view, of the exchange ratio as of the date of the merger agreement, to the holders of Pandora common stock (other than the excluded parties). LionTree was not asked to, nor did LionTree, offer any opinion as to the terms (other than the exchange ratio to the extent expressly specified therein) of the merger agreement or the form of the transactions or any related transaction (including any agreement or transaction between any excluded party and Pandora or between any excluded party and Sirius XM), including the fairness of the transactions to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of Pandora, Sirius XM, or any of their respective affiliates. LionTree was not asked to, nor did LionTree, offer any opinion with respect to the fair market value of Pandora, Sirius XM, the Pandora common stock, or the Sirius XM common stock. In addition, LionTree expressed no opinion as to the fairness of the amount or nature of any compensation to be received by any officers, directors, or employees of any parties to the transactions, any excluded parties, or any class of such persons, whether relative to the exchange ratio or otherwise. LionTree expressed no opinion as to what the value of the Sirius XM common stock will be when issued pursuant to the transactions or the prices at which the shares of Sirius XM common stock or Pandora common stock will trade at any time.

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In rendering its opinion to the Pandora board of directors, LionTree performed a variety of analyses, including those described below. The summary of LionTree’s analyses is not a complete description of the analyses underlying LionTree’s opinion. The preparation of a fairness opinion involves various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. Consequently, neither a fairness opinion nor its underlying analyses is readily susceptible to summary description. LionTree arrived at its opinion based on the results of all analyses undertaken by it, assessed as a whole, and did not draw, in isolation, conclusions from or with regard to any individual analysis, methodology or factor. Accordingly, LionTree believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies and factors or focusing on information presented in tabular format, without considering all analyses, methodologies and factors or the narrative description of the analyses, could create a misleading or incomplete view of the process underlying LionTree’s analyses and opinion. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques.

 

In performing its analyses, LionTree considered general business, economic, industry, regulatory and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. LionTree’s analyses involved judgments and assumptions with regard to general business, economic, industry, regulatory and market conditions, financial and otherwise, and other matters, many of which are beyond the control of the parties to the merger agreement, such as the impact of competition on the business of the parties and on the industry generally, industry growth and the absence of any material change in the financial condition and prospects of the parties or the proposed transactions, and an evaluation of the results of those analyses is not entirely mathematical. LionTree believes that mathematical derivations (such as determining mean and median) of financial data are not by themselves meaningful and should be considered together with qualities, judgments, and informed assumptions. The estimates contained in the forecasts and the implied reference range values indicated by LionTree’s analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. Additionally, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of the parties. Much of the information used in, and accordingly the results of, LionTree’s analyses are inherently subject to substantial uncertainty.

 

LionTree’s opinion was provided to the Pandora board of directors in connection with its evaluation of the transactions and was only one of many factors considered by the Pandora board of directors in evaluating the transactions. Neither LionTree’s opinion nor its analyses were determinative of the consideration selected for the transactions or of the views of the Pandora board of directors or Pandora’s management with respect to their decision to pursue the transactions or the consideration to be paid thereunder. The type and amount of consideration payable in the transactions were determined through negotiation between Pandora and Sirius XM and the decision to enter into the merger agreement was solely that of the Pandora board of directors. LionTree did not recommend any specific type or amount of consideration to Pandora or the Pandora board of directors, nor did it recommend that any specific type or amount of consideration constituted the only appropriate consideration for the transactions.

 

The following is a summary of the material analyses performed by LionTree in connection with LionTree’s presentation to the Pandora board of directors and opinion rendered on September 23, 2018. The order of the analyses does not represent relative importance or weight given to those analyses by LionTree. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of LionTree’s analyses.

 

For purposes of its analyses, LionTree reviewed a number of financial and operating metrics, including:

 

·

equity value, calculated as the value of the relevant company’s outstanding equity securities (taking into account its shares outstanding, outstanding restricted stock awards, and outstanding

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		vested and unvested options, warrants, and other in-the-money convertible securities, based on the treasury stock method), based on the relevant company’s closing stock price;
	·	enterprise value (which we refer to as EV), calculated as the relevant company’s equity value plus net debt (calculated as outstanding indebtedness, out-of-the-money convertible securities, preferred stock, and capital lease obligations minus the amount of cash and cash equivalents on its balance sheet) plus the value of interests of others in majority (but not wholly-owned) subsidiaries, or minority interests, minus the value of interests in entities for which the relevant company owns less than 50% of the equity, or associates, as of a specified date; and
	·	EBITDA, calculated as the relevant company’s earnings before interest, taxes, depreciation and amortization, adjusted to exclude stock-based compensation expense (unless otherwise indicated).

 

Unless the context indicates otherwise, EVs and equity values derived from the selected companies analyses described below were calculated using the closing price of Pandora common stock, Sirius XM common stock, and the common equity of the selected publicly traded companies listed below as of market close on September 21, 2018. Accordingly, this information may not reflect current or future market conditions.

 

In addition, unless the context indicates otherwise, per share amounts for Pandora common stock and Sirius XM common stock were calculated on a fully diluted basis using the treasury stock method, taking into account outstanding restricted stock awards and outstanding vested and unvested options and other in-the-money convertible securities.

 

Financial Analyses

 

Implied Value of the Merger Consideration. LionTree calculated an implied value of $10.05 for each share of Pandora common stock reflected by the exchange ratio, by multiplying the closing price per share of Sirius XM common stock of $6.98 on September 21, 2018, the last completed trading day before LionTree delivered its opinion to the Pandora board of directors, by 1.44. The closing price per share of Pandora common stock was $9.09 on September 21, 2018.

 

Historical Exchange Ratio Analysis. LionTree reviewed the historical trading prices for Pandora common stock and Sirius XM common stock for the two year period ended September 21, 2018, and analyzed the exchange ratio compared to the relative values of Pandora common stock and Sirius XM common stock. This analysis resulted in the following:

 

Historical Date or Period		Average Exchange Ratio during Period
September 21, 2018			1.302	x
1-Month			1.275	x
3-Months			1.187	x
6-Months			1.067	x
1-Year			1.023	x
2-Years			1.647	x

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DCF Analysis for Pandora on a Stand-Alone Basis. LionTree performed a discounted cash flow (which we refer to as DCF) analysis of Pandora by calculating the estimated net present value of the unlevered, after-tax free cash flows that Pandora was forecasted to generate through the fiscal year ending December 31, 2025 (which we refer to as FY 2025) for each of the Pandora Scenario 1a Forecasts and the Pandora Scenario 2 Forecasts.

 

Scenario 1a Forecasts

 

For the DCF analysis with respect to the Pandora Scenario 1a Forecasts, LionTree calculated terminal values for Pandora by applying a range of terminal value multiples of 9.5x to 11.5x to Pandora’s estimated EBITDA for FY 2025 based on the Pandora Scenario 1a Forecasts (which analysis implied exit terminal year EBITDA (including stock based compensation expense) multiples of 11.7x to 14.2x). These terminal value multiple estimates were derived by LionTree utilizing its professional judgment and experience, taking into account, among other things, estimated operational metrics for Pandora based on the Pandora Scenario 1a Forecasts and the operational metrics and EBITDA multiples for selected publicly traded companies. The present values of the cash flows and terminal values were then calculated using discount rates ranging from 9.00% to 10.50%, reflecting estimates of Pandora’s weighted average cost of capital (which we refer to as WACC). In each case, LionTree included the estimated net present value (which we refer to as NPV) of Pandora’s net operating losses (which we refer to as NOLs) of $179.4 million as calculated and provided by Pandora’s management using a cost of equity of 10.5%. LionTree then subtracted from the range of implied enterprise values Pandora’s net debt to derive a range of implied equity values for Pandora. LionTree divided the range of implied equity values it derived by the number of fully diluted outstanding shares of Pandora common stock as of September 21, 2018. Using the Pandora Scenario 1a Forecasts, the DCF analysis indicated a standalone implied per share equity value reference range of $5.53 to $7.81 for the Pandora common stock.

 

Scenario 2 Forecasts

 

For the DCF analysis with respect to the Pandora Scenario 2 Forecasts, LionTree calculated terminal values for Pandora by applying a range of terminal value multiples of 10.0x to 12.0x to Pandora’s estimated EBITDA for FY 2025 based on the Pandora Scenario 2 Forecasts (which analysis implied exit terminal year EBITDA (including stock based compensation expense) multiples of 11.7x to 14.1x). These terminal value multiple estimates were derived by LionTree utilizing its professional judgment and experience, taking into account, among other things, estimated operational metrics for Pandora based on the Pandora Scenario 2 Forecasts and the operational metrics and EBITDA multiples for selected publicly traded companies. The present values of the cash flows and terminal values were then calculated using discount rates ranging from 9.00% to 10.50%, reflecting estimates of Pandora’s WACC. In each case, LionTree included the estimated NPV of Pandora’s NOLs of $194.0 million as calculated and provided by Pandora’s management using a cost of equity of 10.5%. LionTree then subtracted from the range of implied enterprise values Pandora’s net debt to derive a range of implied equity values for Pandora. LionTree divided the range of implied equity values it derived by the number of fully diluted outstanding shares of Pandora common stock as of September 21, 2018. Using the Pandora Scenario 2 Forecasts, the DCF analysis indicated a standalone implied per share equity value reference range of $9.41 to $12.22 for the Pandora common stock.

 

Selected Publicly Traded Companies Analysis for Pandora. Using publicly available information, LionTree compared selected financial data of Pandora to corresponding financial data for the following publicly traded companies in the subcategories described below:

 

		Satellite Radio
	·	Sirius XM Holdings Inc.
		Digital Music
	·	Spotify Technology S.A.
		Terrestrial Radio

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	·	Entercom Communications Corp.
	·	Townsquare Media, Inc.
		Internet
	·	Alphabet Inc.
	·	eBay Inc.
	·	Expedia Group, Inc.
	·	Facebook, Inc.
	·	Groupon Inc.
	·	Netflix, Inc.
	·	Roku, Inc.
	·	TripAdvisor, Inc.
	·	Twitter, Inc.
	·	Yelp Inc.

 

Although none of the selected companies is directly comparable to Pandora, the companies included were chosen because they are publicly traded companies with operations that for purposes of this analysis may, in certain respects, be considered similar to certain operations of Pandora. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than they would affect Pandora.

 

Using publicly available information, for each of the selected companies, LionTree calculated valuation multiples, including (a) EV as a multiple of sales for the last reported twelve-month (which we refer to as LTM) period and estimated 2018 and 2019 sales (with respect to estimates, based on consensus equity research analyst estimates), (b) EV as a multiple of EBITDA for the LTM period, and for estimated 2018 and 2019 EBITDA (with respect to estimates, based on consensus equity research analyst estimates), (c) EV as a multiple of EBITDA for the LTM period (adjusted to include stock based compensation expense), and (d) share price as a multiple of estimated 2018 earnings per share (which we refer to as EPS) and estimated 2019 EPS (based on consensus equity research analyst estimates).

 

The multiples of the selected companies were compared to the corresponding multiples of Pandora derived from (a) the Pandora Scenario 1a Forecasts and Pandora Scenario 2 Forecasts, and (b the Pandora Scenario 1a Forecasts and Pandora Scenario 2 Forecasts, in each case adjusted to include the NPV of Pandora’s NOLs of $179.4 million and $194.0 million, respectively, as calculated and provided by Pandora’s management using a cost of equity of 10.5%. LionTree noted that Pandora’s EBITDA and EPS multiples were negative or uncharacteristically high because the forecasts included no profitability in the fiscal year ending December 31, 2018 and limited profitability in the fiscal year ending December 31, 2019, whereas the majority of the selected companies had meaningful EBITDA and EPS multiples because of significant estimated profitability in such periods (based on consensus equity research analyst estimates).

 

The multiples for each selected company in the Satellite Radio, Digital Music, Terrestrial Radio and Internet subcategories, the low, high and median multiples for the selected companies in the Internet subcategory, and the multiples for Pandora (at its closing price as of September 21, 2018) are set forth below:

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Selected Companies

EV / LTM Sales

EV / 2018E Sales

EV / 2019E Sales

EV / LTM EBITDA

EV / 2018E EBITDA

EV / 2019E EBITDA

EV / (EBITDA - SBC)

Price / 2018E EPS

Price / 2019E EPS

Satellite Radio

Sirius XM Holdings Inc.

6.70x

6.50x

6.14x

17.3x

17.1x

15.9x

18.4x

28.3x

25.3x

Sirius XM Holdings Inc. (Adj. for NPV of NOLs) (1)

6.65x

6.45x

6.10x

17.1x

17.0x

15.7x

18.3x

28.3x

25.3x

Digital Music

Spotify (2)

5.66x

4.98x

3.87x

n.m.

n.m.

n.m.

n.m.

n.m.

n.m.

Terrestrial Radio

Entercom

1.86x

1.88x

1.87x

6.9x

7.6x

7.5x

7.2x

6.5x

6.0x

Townsquare Media

1.75x

1.72x

1.70x

7.9x

7.7x

7.6x

8.0x

9.2x

9.0x

Internet

Alphabet Inc.

5.89x

5.32x

4.46x

15.6x

14.5x

12.0x

19.1x

26.3x

24.7x

eBay Inc.

3.48x

3.24x

3.01x

9.9x

9.7x

9.1x

11.6x

19.5x

16.7x

Expedia Group, Inc.

1.95x

1.85x

1.66x

12.3x

11.0x

9.6x

13.5x

30.9x

24.9x

Facebook, Inc.

9.12x

7.94x

6.36x

14.1x

13.2x

11.2x

16.1x

20.6x

18.0x

Groupon Inc.

0.68x

0.71x

0.70x

7.2x

6.6x

6.0x

10.2x

19.1x

15.5x

Netflix, Inc. (2)

12.08x

10.58x

8.50x

n.m.

n.m.

n.m.

n.m.

n.m.

n.m.

Roku, Inc. (2)

14.77x

12.41x

9.20x

n.m.

n.m.

n.m.

n.m.

n.m.

n.m.

TripAdvisor, Inc.

4.18x

4.02x

3.70x

19.0x

17.6x

16.0x

27.8x

35.2x

31.3x

Twitter, Inc.

7.50x

6.95x

6.13x

19.8x

18.9x

16.1x

30.3x

47.7x

35.9x

Yelp Inc.

4.33x

4.03x

3.44x

23.8x

20.4x

15.8x

69.4x

53.7x

47.5x

Low (Internet only)

0.68x

0.71x

0.70x

7.2x

6.6x

6.0x

10.2x

19.1x

15.5x

High (Internet only)

14.77x

12.41x

9.20x

23.8x

20.4x

16.1x

69.4x

53.7x

47.5x

Median (Internet only)

5.11x

4.68x

4.08x

14.9x

13.8x

11.6x

17.6x

28.6x

24.8x

Pandora (2)(3)

Pandora Scenario 1a Forecasts

2.15x

2.04x

1.82x

n.m.

n.m.

n.m.

n.m.

n.m.

n.m.

Pandora Scenario 2 Forecasts

2.15x

2.04x

1.74x

n.m.

n.m.

n.m.

n.m.

n.m.

n.m.

Pandora Scenario 1a Forecasts (Adj. for NPV of NOLs) (1)

2.03x

1.92x

1.72x

n.m.

n.m.

n.m.

n.m.

n.m.

n.m.

Pandora Scenario 2 Forecasts (Adj. for NPV of NOLs) (1)

2.02x

1.91x

1.63x

n.m.

n.m.

n.m.

n.m.

n.m.

n.m.

 

(1) Included for reference purposes only.

 

(2) Excludes negative or uncharacteristically high EBITDA and EPS multiples resulting from negative or limited profitability.

 

(3) Based on the closing price per share of Pandora common stock on September 21, 2018. EV (adjusted for the NPV of NOLs) as a multiple of sales based on the implied value for each share of Pandora common stock reflecting the exchange ratio are set forth below:

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		EV / LTM Sales		EV / 2018E Sales		EV / 2019E Sales
Pandora Scenario 1a Forecasts (Adj. for NPV of NOLs)		2.23x		2.11x		1.89x
Pandora Scenario 2 Forecasts (Adj. for NPV of NOLs)		2.23x		2.10x		1.80x

 

Analyst Price Target Analysis for Sirius XM. LionTree reviewed share price targets for shares of Sirius XM common stock prepared and published by 12 equity research analysts and known to LionTree as of September 21, 2018. The share price targets for Sirius XM common stock ranged from $5.00 to $8.50 per share and the average share price target for Sirius XM common stock was $6.95 per share compared to the closing price per share of Sirius XM common stock of $6.98 on September 21, 2018. The share price targets published by equity research analysts do not necessarily reflect current market trading prices for Sirius XM common stock and these estimates are subject to uncertainties, including future financial performance of Sirius XM and future market conditions.

 

Stock Liquidity Analysis for Sirius XM. LionTree used publicly available information to review Sirius XM’s average daily common stock trading activity for the 5 day, 30 day and 90 day periods ending September 21, 2018. During those periods, Sirius XM’s daily average common stock trading activity ranged from approximately 13.8 million shares to approximately 20.9 million shares per day. Based on an estimated 457.8 million shares of Sirius XM common stock to be issued in connection with the transactions, the analysis indicated that it would take between approximately 22 and 33 trading days to sell all of the shares of Sirius XM common stock issued to the holders of Pandora common stock on a combined basis.

 

Earnings Performance History Analysis for Sirius XM. LionTree used publicly available information to compare Sirius XM’s quarterly sales for the period beginning on July 1, 2015 and ending on June 30, 2018 to the average estimated quarterly sales of Sirius XM prepared and reported by equity research analysts over the same period. The analysis indicated that Sirius XM’s actual sales results over the period outperformed estimates of equity research analysts by 0.8%. In addition, LionTree used publicly available information to compare Sirius XM’s quarterly EBITDA for the period beginning on July 1, 2015 and ending on June 30, 2018 to the average estimated quarterly EBITDA of Sirius XM prepared and reported by equity research analysts over the same period. The analysis indicated that Sirius XM’s actual EBITDA results over the period outperformed estimates of equity research analysts by 2.6%.

 

Other Matters

 

The Pandora board of directors selected LionTree as its financial advisor because LionTree is an internationally recognized investment banking firm that has substantial experience in transactions similar to these transactions, and because of its significant prior experience with the industries in which Pandora and Sirius XM operate. Pursuant to its engagement letter, Pandora will pay LionTree $4.0 million for its services which, subject to the following sentence, is contingent upon the consummation of the transactions. Pandora paid LionTree $2.0 million in connection with LionTree’s delivery of its fairness opinion, which will be credited against the fee described in the preceding sentence upon the closing of the transactions. In addition, Pandora may pay LionTree an additional fee in its sole discretion in connection with the consummation of the transactions. Pandora has also agreed to reimburse LionTree for certain expenses and to indemnify LionTree, its affiliates, and certain related parties against certain liabilities and expenses.

 

LionTree and its affiliates have provided investment banking services and capital markets services to affiliates of Sirius XM and their related entities or entities in which such affiliates or related entities have a significant direct or indirect interest, unrelated to the proposed transactions, for which LionTree and its affiliates received, and may receive, compensation, including having acted as (a) financial advisor to Charter Communications, Inc., Liberty Global plc, Lions Gate Entertainment Corp., Live Nation Entertainment, Inc. and Starz in connection with a number of transactions and (b) co-manager in connection with certain debt offerings of such entities (including Charter Communications, Inc. and Live Nation Entertainment, Inc.). In the past two years,

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LionTree has received approximately $30.4 million in compensation in the aggregate for services provided to affiliates of Sirius XM and their related entities or entities in which such affiliates or related entities have a significant direct or indirect interest. LionTree and its affiliates may in the future provide such services to Pandora, Sirius XM, their respective affiliates and their related entities or entities in which they have a significant direct or indirect interest, and expect to receive fees for the rendering of these services. In addition, from time to time, John C. Malone, who has significant ownership in Liberty Media, which in turn owns approximately [●]% of the outstanding Sirius XM common stock as of [●], 2018, the last practicable date before the filing of this proxy statement/prospectus, and Greg Maffei, who is Chairman of Pandora and Chairman of Sirius XM, have invested in, or alongside with, investment vehicles established by one or more of LionTree’s affiliates. One or more of LionTree’s affiliates may establish investment vehicles in the future in which affiliates of Sirius XM may invest. In connection with the bankruptcy proceedings of iHeart Media, Inc., in which Liberty Media owns certain debt securities, LionTree and its affiliates have been engaged to act as a special financial advisor to iHeart Media, Inc. for which LionTree and its affiliates may receive compensation. In the ordinary course of business, certain of LionTree’s employees and affiliates may hold or trade, for their own accounts and the accounts of their investors, securities of Pandora and Sirius XM and, accordingly, may at any time hold a long or short position in such securities. In the past two years, LionTree has not received any compensation for services provided to Pandora, excluding compensation paid or to be paid to LionTree pursuant to its engagement in connection with the transactions as described in the preceding paragraph.

 

The Sirius XM Board of Directors’ Reasons for the Transactions

 

The Sirius XM board of directors determined that the merger agreement and the transactions contemplated thereby, are advisable and in the best interests of Sirius XM and its stockholders. In reaching this conclusion, the Sirius XM board of directors consulted with Sirius XM’s management and its legal and financial advisors, and considered a variety of factors, including the material factors described below.

 

In reaching its conclusion that the merger agreement and the transactions contemplated thereby, including the transactions, are advisable and in the best interest of Sirius XM and its stockholders, the Sirius XM board of directors considered a number of factors that it believes support its determination, including (not necessarily in order of importance):

 

	·	the expectation that the transactions will enhance the long-term equity value for Sirius XM stockholders;
	·	the in-depth knowledge of Pandora’s business, operations, financial condition and prospects developed by Sirius XM as an investor in Pandora and through its three seats on the Pandora board of directors;
	·	the current and prospective business climate in which Pandora operates and will continue to operate following the completion of the transactions;
	·	the opportunity to improve the competitive position of Sirius XM relative to other participants in the industry in which Sirius XM and Pandora operate;
	·	the expectation of realizing meaningful synergy opportunities;
	·	the opportunity to pursue integration opportunities to enable the combined company to operate more efficiently, fund innovation and enhance customer value (including by leveraging Sirius XM’s exclusive content and programming with Pandora’s free ad-supported and subscription tiers and to expand capabilities across both ad-supported subscription services, in and out of the vehicle);
	·	the belief that the integration of Pandora can be completed in a timely and efficient manner with minimal disruption to employees; and

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·

the likelihood that the transactions will be completed, including after consideration of, among other things, (i) antitrust laws and the risks related to certain conditions and requirements that may be imposed by such regulatory authorities to obtain the necessary approvals and clearances, and (ii) the likelihood of the Pandora stockholders approving the merger agreement proposal.

 

The Sirius XM board of directors also considered a number of uncertainties, risks and other potentially negative factors in its deliberations concerning the merger agreement and the transactions contemplated thereby. These factors include (not necessarily in order of importance):

 

	·	Sirius XM’s and Pandora’s respective management has committed time and resources to matters relating to the transactions that could otherwise have been devoted to pursuing other beneficial opportunities;
	·	Sirius XM and Pandora may experience negative reactions from the financial markets, including negative impacts on their respective stock prices, or from their respective customers and employees;
	·	Sirius XM and Pandora may have reputational harm due to the adverse perception of any failure to successfully complete the transactions;
	·	the substantial costs to be incurred by Sirius XM in connection with the transactions and the merger agreement, regardless of whether the transactions are consummated, and the impact of such costs on Sirius XM’s financial position;
	·	the fact that not all of the conditions to completion of the transactions, including the receipt of the approval of the Pandora stockholders and regulatory approvals, are within the parties’ control;
	·	the risk that the pendency of the transactions could result in the disruption of Sirius XM’s and Pandora’s respective business, including the possible diversion of management and employee attention away from day-to-day operations and potential adverse effects on Sirius XM’s and Pandora’s business relationships;
	·	the risk that the benefits expected to be obtained following the completion of the transactions may not be fully or timely realized; and
	·	the other risks described in the sections entitled “Risk Factors” beginning on page [●] and “Cautionary Statement Concerning Forward-Looking Statements” beginning on page [●].

 

After considering the positive and negative factors described above, the Sirius XM board of directors determined that the anticipated benefits of the transactions outweighed the risks and costs and approved the merger agreement and the transactions contemplated thereby.

 

The foregoing discussion summarizes the material information and factors considered by the Sirius XM board of directors in its consideration of the merger agreement and the transactions contemplated thereby. The Sirius XM board of directors reached the unanimous decision to approve the merger agreement and the transactions contemplated thereby in light of the factors described above and other factors that each member of the Sirius XM board of directors felt were appropriate. In view of the variety of factors and the quality and amount of information considered, the Sirius XM board of directors did not find it practicable to, and did not, make specific assessments of, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. Individual members of the Sirius XM board of directors may have given different weights to different factors.

 

This explanation of Sirius XM’s reasons for the merger agreement and the transactions, and other information presented in this section is forward-looking in nature and, accordingly, should be read in light of the factors described under “Risk Factors” beginning on page [●] and “Cautionary Statement Concerning Forward-Looking Statements” beginning on page [●].

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Interests of Pandora’s Directors and Executive Officers in the Transactions

 

Members of the Pandora board of directors and Pandora’s executive officers have various interests in the transactions that may be in addition to, or different from, the interests of Pandora’s stockholders. You should keep this in mind when considering the recommendation of the Pandora board of directors “FOR” the adoption of the merger agreement. The members of the Pandora board of directors were aware of these interests and considered them at the time that the Pandora board of directors (other than Messrs. Frear, Maffei and Meyer, who did not participate in any deliberations regarding the transactions) approved the merger agreement and in making their recommendation that Pandora stockholders adopt the merger agreement. These interests are described below.

 

Certain Assumptions

 

Except as otherwise specifically noted, for purposes of quantifying the potential payments and benefits described in this section, the following assumptions, as well as those described in the footnotes to the table in the section titled “—Golden Parachute Compensation” below, were used:

 

	·	the relevant per share equity award consideration is $9.27, which is the average closing market price per share of Pandora common stock as quoted on the NYSE over the first five business days following the first public announcement of the transactions on September 24, 2018;
	·	the effective time is October 19, 2018, which is the assumed date of the effective time of the transactions solely for purposes of the disclosure in this section (the “assumed effective time”);
	·	the employment of each executive officer of Pandora is terminated without “cause” or due to the executive officer’s resignation for “good reason” (as each such term is defined in the relevant plan(s) and/or agreement(s)), in each case, immediately following the assumed effective time; and
	·	all outstanding and unvested Pandora performance awards are cancelled without payment based on the assumed per share equity award consideration of $9.27.

 

Treatment of Outstanding Equity Awards

 

As described in more detail under “The Merger Agreement – Pandora Stock-Based Awards” beginning on page [●], at the closing of the transactions, in general, all outstanding Pandora stock-based awards, including stock options and RSU awards, will convert into equity awards with respect to Sirius XM common stock. All such awards that are then unvested will continue to vest following the effective time in accordance with the terms, time-vesting schedule, exercise conditions, settlement date and other provisions applicable to such award as of immediately prior to the transactions. The vesting of such awards will accelerate on a termination of the executive officer’s employment without “cause” or by the executive officer for “good reason” during the twelve month period (or eighteen month period in the case of Pandora’s chief executive officer) following the effective time pursuant to the terms of the Pandora Media, Inc. Executive Severance and Change of Control Policy, which we refer to as the executive severance policy, described below. Stock options with a per-share exercise price that is equal to or greater than the merger consideration closing value will be cancelled without payment at the closing of the transactions. In addition, if the per-share merger consideration closing value is less than $20.00, then outstanding and unvested Pandora performance awards will also be cancelled without payment at the closing of the transactions.

 

Treatment of Outstanding Equity Awards—Summary Tables

 

Non-Employee Directors

 

The following table sets forth the outstanding RSU awards held by each of Pandora’s non-employee directors as of the assumed effective time and the estimated value of such awards. Under the terms of the outstanding RSU award agreements held by Pandora’s non-employee directors, the outstanding RSUs will vest upon the earlier to occur of (i) May 21, 2019, (ii) the date of the 2019 Annual Meeting of Stockholders of Pandora and (iii) a change of control. Depending on when the effective time occurs, certain of these equity awards may vest and/or be cancelled, in each case, prior to the actual effective time in accordance with their terms and independent of the occurrence of the transactions. All share numbers have been rounded to the nearest whole number.

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Non-Employee Director Equity Summary Table

 

Non-Employee Directors		Number of RSUs (#)(1)		Value of RSUs ($)(1)
Roger Faxon		39,293		364,246
David J. Frear		39,293		364,246
Jason Hirschhorn		39,293		364,246
Timothy Leiweke		39,293		364,246
Michael M. Lynton		39,293		364,246
Gregory B. Maffei		39,293		364,246
James E. Meyer		39,293		364,246
Mickie Rosen		39,293		364,246

 

(1)

Pursuant to the terms of the underlying award agreements, upon a change of control, the unvested RSU awards held by Pandora’s non-employee directors will vest in full.  The amounts reported as the value of RSUs represent the number of shares of common stock subject to the Pandora RSU award multiplied by $9.27, which is the average closing market price per share of Pandora common stock as quoted on the NYSE over the first five business days following the first public announcement of the transactions on September 24, 2018.

 

Executive Officers

 

The following table sets forth the outstanding vested stock option awards held by each of Pandora’s executive officers as of the assumed effective time and the estimated value of such stock options. No executive officer held any other vested equity awards as of the assumed effective time. All share numbers have been rounded to the nearest whole number.

 

Executive Officer Vested Equity Awards Summary Table

 

Executive Officers		Number of Vested Stock Options (#)(1)		Value of Vested Stock Options ($)(1)
Roger Lynch*		322,062		347,827
Naveen Chopra		75,718		-
Stephen Bené		27,916		-
David Gerbitz		81,666		-
Aimée Lapic		-		-
Christopher Phillips		33,750		-
Kristen Robinson		75,366		-
John Trimble		231,813		76,488

 

*	Also a director of Pandora.
(1)	At the effective time, each outstanding vested stock option will be assumed and converted into a stock option to purchase the number of shares of Sirius XM common stock (rounded down to the nearest whole share) determined by multiplying (i) the number of shares of New Holding Company common stock subject to the Pandora stock option as of immediately prior to the effective time by (ii) the exchange ratio, at an exercise price per share of Sirius XM common stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the per share exercise price for the shares subject to such Pandora stock option as of immediately prior to the effective time by (y) the exchange ratio, with each converted Sirius XM stock option subject to the same vesting schedule and exercise conditions as in effect as of immediately prior to the closing of the transactions; provided, that, each Pandora stock option that is outstanding as of immediately prior to the effective time and has an exercise price per share that is equal to or greater than the merger consideration closing value will be cancelled without payment at the closing of the transactions.  The amounts reported as the value of stock options represent (i) the number of shares of common stock subject to vested Pandora stock options multiplied by $9.27, which is the average closing market price per share of Pandora common stock as quoted on the NYSE over the first five business days following the first public announcement of the transactions on September 24, 2018, less (ii) the aggregate exercise price with respect to such vested options.

 

The following table sets forth the unvested stock options, RSUs, and performance awards held by such executive officer as of the assumed effective time and the estimated value of such awards. Under the terms of the executive severance policy, in the event of a termination without cause or due to good reason within twelve months following a change of control (eighteen months in the case of Pandora’s Chief Executive Officer) the executive officer’s outstanding equity awards will accelerate in full, subject to any specific vesting treatment provided for in a

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performance-based award agreement. Depending on when the effective time occurs, certain of these equity awards may vest, be exercised and/or cancelled, in each case, prior to the actual effective time in accordance with their terms and independent of the occurrence of the transactions. All share numbers have been rounded to the nearest whole number.

 

Executive Officer Unvested Equity Awards Summary Table

 

Executive Officers		Number of Unvested Stock Options (#)(1)		Value of Unvested Stock Options ($)(1)		Number of RSUs (#)(2)		Value of RSUs ($)(2)		Number of Performance Awards (#)(3)		Value of Performance Awards ($)(3)		Estimated Total Value of Unvested Equity Awards ($)
Roger Lynch*		2,368,013		6,727,740		510,169		4,729,267		-		-		11,457,007
Naveen Chopra		308,570		818,320		771,518		7,151,972		-		-		7,970,292
Stephen Bené		136,084		411,280		424,368		3,933,891		150,000		-		4,345,171
David Gerbitz		147,334		525,760		466,014		4,319,950		175,000		-		4,845,710
Aimée Lapic		172,000		729,280		499,002		4,625,749		-		-		5,355,029
Christopher Phillips		199,250		644,480		559,925		5,190,505		200,000		-		5,834,985
Kristen Robinson		113,334		381,600		404,993		3,754,285		150,000		-		4,135,885
John Trimble		185,250		585,120		553,787		5,133,605		200,000		-		5,718,725

 

*	Also a director of Pandora.
(1)	At the effective time, each unvested stock option will be assumed and converted into a stock option to purchase the number of shares of Sirius XM common stock (rounded down to the nearest whole share) determined by multiplying (i) the number of shares of New Holding Company common stock subject to the Pandora stock option as of immediately prior to the effective time by (ii) the exchange ratio, at an exercise price per share of Sirius XM common stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the per share exercise price for the shares subject to such Pandora stock option as of immediately prior to the effective time by (y) the exchange ratio, with each converted Sirius XM stock option subject to the same vesting schedule and exercise conditions as in effect as of immediately prior to the closing of the transactions; provided, that, each Pandora stock option that is outstanding as of immediately prior to the effective time and has an exercise price per share that is equal to or greater than the merger consideration closing value will be cancelled without payment at the closing of the transactions.  As discussed further below, under the terms of the executive severance policy, unvested options will accelerate in full upon a qualifying termination of employment following a change of control. The amounts reported as the value of stock options represent (i) the number of shares of common stock subject to unvested Pandora stock options multiplied by $9.27, which is the average closing market price per share of Pandora common stock as quoted on the NYSE over the first five business days following the first public announcement of the transactions on September 24, 2018, less (ii) the aggregate exercise price with respect to such unvested options.
(2)	As of the effective time, each outstanding and unvested RSU award will be assumed and converted into the right to receive a number of shares of Sirius XM common stock (rounded down to the nearest whole share) determined by multiplying (i) the number of shares of New Holding Company common stock subject to the Pandora RSU award as of immediately prior to the effective time by (ii) the exchange ratio, with each converted Sirius XM RSU subject to the same vesting schedule and settlement date as in effect as of immediately prior to the closing of the transactions.  As discussed further below, under the terms of the executive severance policy, RSUs will accelerate in full upon a qualifying termination of employment following a change of control. The amounts reported as the value of RSUs represent the number of shares of common stock subject to the Pandora RSU award multiplied by $9.27, which is the average closing market price per share of Pandora common stock as quoted on the NYSE over the first five business days following the first public announcement of the transactions on September 24, 2018.
(3)	At the effective time, each outstanding Pandora performance award will be cancelled by Pandora without payment pursuant to the terms of the merger agreement and the terms of the applicable award agreement.

 

Change of Control Severance Benefits for Executive Officers

 

Pandora maintains an executive severance policy pursuant to which each executive officer is entitled to certain payments and benefits in the event of a qualifying termination of employment, whether or not in connection with a change of control. Severance payments under the executive severance policy are enhanced if the qualifying termination occurs within a specified time period following a change of control. The severance benefits under the

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executive severance policy are in lieu of any severance benefits payable to an executive officer under any other existing arrangement he or she may have with Pandora.

 

Under the executive severance policy, each executive officer of Pandora will become eligible, subject to his or her continued compliance with confidentiality obligations and the execution and non-revocation of a general release of claims in favor of Pandora, to the following termination payments and benefits if his or her employment with Pandora is terminated (i) by Pandora for any reason other than “cause” or (ii) by the executive officer for “good reason” (each as defined in the executive severance policy), in each case, within twelve months (or, in the case of Mr. Lynch, eighteen months) after a change of control:

 

	·	a lump sum cash payment in an amount equal to (i) twelve times (or, in the case of Mr. Lynch, eighteen times) the executive officer’s monthly base salary plus (ii) the executive officer’s annual target bonus for the year of termination (including the executive officer’s 2018 supplemental bonus);
	·	reimbursement for the monthly cost of maintaining health benefits for the executive officer (and the executive officer’s spouse and dependents) under Pandora’s group health plan for a period of twelve months (or, in the case of Mr. Lynch, eighteen months) following termination of employment, to the extent the executive officer elects continued health coverage under COBRA;
	·	accelerated vesting of any outstanding equity awards held by the executive officer as of the date of termination, subject to any specific vesting treatment provided for in a performance-based award agreement;
	·	outplacement and career continuation services for up to three months following the date of termination; and
	·	the extension of the post-termination exercise period of outstanding stock options to twelve months following the date of termination, if the executive officer so elects.

 

The executive severance policy contains a “Section 280G contingent cutback” provision, which provides that, if the total payments to the executive officer under the executive severance policy would exceed the applicable threshold under Section 280G of the Code, then those payments will be reduced to the applicable Section 280G threshold to avoid the imposition of excise taxes under Section 4999 of the Code in the event, and only to the extent, such reduction would result in a better after-tax result for the executive officer.

 

Under the executive severance policy, “cause” generally means: (i) a willful failure or a refusal to comply in any material respect with the reasonable policies, standards or regulations of Pandora, provided that, Pandora provides the executive officer a 15 day cure period to remedy such failure or refusal; (ii) unprofessional, unethical or fraudulent conduct or conduct that materially discredits Pandora or is materially detrimental to the reputation, character or standing of Pandora; (iii) dishonest conduct or a deliberate attempt to do an injury to Pandora; (iv) an executive officer’s material breach of the executive severance policy or any breach of confidentiality or proprietary information agreements with Pandora, including, without limitation, theft of Pandora’s proprietary information; (v) an unlawful or criminal act which reflects badly, or would, if known, reflect badly on Pandora, in the reasonable judgment of the Pandora board of directors; or (vi) repeated absence from work without an approved leave, resulting in a job abandonment.

 

Under the executive severance policy, in connection with a change of control, “good reason” generally means the executive officer’s resignation from employment after the occurrence of one of the following events without the executive officer’s consent: (i) a material reduction of the executive officer’s base salary or target annual incentive bonus; (ii) any requirement by Pandora (or its successor) that the executive officer engage in any illegal or unethical conduct, after the executive officer has given Pandora 30 days’ notice and opportunity to cure; (iii) Pandora’s failure to fully cure within 30 days any material breach by Pandora of the executive severance policy or of any other material agreement between the executive officer and Pandora, in each case which the executive officer has notified the Pandora board of directors in writing; (iv) a relocation of the executive officer’s principal place of employment by more than 50 miles; or (v) a material reduction in the executive officer’s duties and

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responsibilities; provided that in any event, the executive officer notifies Pandora of the event constituting “good reason” within 90 days and gives Pandora 30 days to cure (to the extent capable of cure), and then the executive officer resigns within 30 days thereafter.

 

For illustrative purposes only, based on the assumptions described above under “—Certain Assumptions,” it is currently estimated that Pandora’s executive officers would be entitled to receive, in the aggregate, approximately $6,128,119 in cash severance benefits under the executive severance policy. See the section titled “—Golden Parachute Compensation” below for an estimate of the amounts that would become payable to each of Pandora’s named executive officers under the executive severance policy.

 

New Employment Arrangements

 

As of the date of this proxy statement/prospectus, none of Pandora’s executive officers has entered into any agreement, arrangement or understanding with Sirius XM or any of its subsidiaries regarding employment with, or the right to purchase equity of, Sirius XM. Although no such agreement, arrangement or understanding exists as of the date of this proxy statement/prospectus, certain of Pandora’s executive officers may, prior to the completion of the transactions, enter into new arrangements with Sirius XM or its subsidiaries regarding employment with, or the right to purchase equity of, Sirius XM or certain of its subsidiaries.

 

Indemnification and Insurance

 

Pursuant to the terms of the merger agreement, members of the Pandora board of directors and executive officers of Pandora will be entitled to certain ongoing indemnification and coverage under directors’ and officers’ liability insurance policies following the transactions. See the section entitled “The Merger Agreement – Indemnification and Insurance” on page [●].

 

Golden Parachute Compensation

 

The information set forth in the table below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of compensation that each named executive officer could receive that is based on or otherwise relates to the transactions. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in this section we use such term to describe the transaction-related compensation payable to Pandora’s named executive officers. For additional details regarding the terms of the payments and benefits described below, see the discussion above. This transaction-related compensation is subject to a non-binding advisory vote of Pandora stockholders, as set forth in Proposal 2: The Advisory Compensation Proposal. See the section entitled “Proposal 2: The Advisory Compensation Proposal” beginning on page [●].

 

The amounts set forth below are estimates of amounts that would be payable to the named executive officers using the assumptions described above under “—Certain Assumptions.” These estimates are based on multiple assumptions that may or may not actually occur, including assumptions described in this proxy statement/prospectus. Some of the assumptions are based on information not currently available, and as a result the actual amounts, if any, to be received by a named executive officer may differ in material respects from the amounts set forth below. All dollar amounts set forth below have been rounded to the nearest whole number.

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Golden Parachute Payments (1)

 

Name		Cash ($)(2)		Equity ($)(3)		Pension/ NQDC (4)		Perquisites/ Benefits ($)(5)		Tax Reimbursement (6)		Other		Total
Roger Lynch
Chief Executive Officer and President		1,172,671		11,457,007		-		29,110		-		-		12,658,788
Naveen Chopra
Chief Financial Officer		833,277		7,970,292		-		21,368		-		-		8,824,937
Aimée Lapic
Chief Marketing Officer		698,667		5,355,029		-		21,368		-		-		6,075,064
Christopher Phillips
Chief Product Officer		788,477		5,834,985		-		30,307		-		-		6,653,769
John Trimble
Chief Revenue Officer		696,363		5,718,725		-		30,144		-		-		6,445,232
Tim Westergren (7)
Former Chief Executive Officer		-		-		-		-		-		-		-
Michael Herring (7)
Former President and Chief Financial Officer		-		-		-		-		-		-		-

 

(1)	All amounts reflected in the table are attributable to “double-trigger” arrangements (i.e., the amounts are triggered by the change of control that will occur upon completion of the transactions and payment is conditioned upon the named executive officer’s qualifying termination of employment within twelve months (or, in the case of Mr. Lynch, eighteen months) following the change of control).
(2)	Amounts reflect cash severance benefits under the executive severance policy that would be payable in a lump sum, assuming a termination of employment by Pandora without cause or by the named executive officer for good reason within twelve months (or, in the case of Mr. Lynch, eighteen months) following a change of control, and subject in each case to the named executive officer’s continuing compliance with confidentiality obligations and the execution and non-revocation of a general release of claims in favor of Pandora, as follows: (i) twelve times (or, in the case of Mr. Lynch, eighteen times) the named executive officer’s monthly base salary (Mr. Lynch, $975,000, Mr. Chopra, $490,000, Ms. Lapic, $450,000, Mr. Phillips, $475,000, and Mr. Trimble, $475,000) and (ii) the named executive officer’s annual target bonus and supplemental bonus for 2018 (Mr. Lynch, $197,671, Mr. Chopra, $343,277, Ms. Lapic, $248,667, Mr. Phillips, $313,477, and Mr. Trimble, $221,363).
(3)	Amounts reflect the acceleration value of the unvested equity awards held by each named executive officer, which will be assumed by Sirius XM in connection with the transactions held by each of the named executive officers, which assumption and conversion will occur as described in more detail above in the section entitled “—Treatment of Outstanding Equity Awards”, and are subject to “double-trigger” acceleration as described below.

 

DOUBLE TRIGGER EQUITY ACCELERATION

 

Pursuant to the terms of the executive severance policy, subject in each case to the named executive officer’s continuing compliance with confidentiality obligations and the execution and non-revocation of a general release of claims in favor of Pandora, in the event a named executive officer’s employment is terminated by Pandora for any reason other than cause or by the named executive officer for good reason in each case, within twelve months (or, in the case of Mr. Lynch, eighteen months) after a change of control, each named executive officer is entitled to full vesting of any outstanding equity awards held by the named executive officer as of the date of termination, subject to any specific vesting treatment provided for in a performance-based award agreement.

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Named Executive Officers		Number of Unvested Stock Options (#)		Value of Unvested Stock Options ($)		Number of RSUs (#)		Value of RSUs ($)		Number of Performance Awards (#)		Value of Performance Awards ($)		Estimated Value of Unvested Equity Awards ($)
Roger Lynch		2,368,013		6,727,740		510,169		4,729,267		-		-		11,457,007
Naveen Chopra		308,570		818,320		771,518		7,151,972		-		-		7,970,292
Aimée Lapic		172,000		729,280		499,002		4,625,749		-		-		5,355,029
Christopher Phillips		199,250		644,480		559,925		5,190,505		200,000		-		5,834,985
John Trimble		185,250		585,120		553,787		5,133,605		200,000		-		5,718,725
Tim Westergren		-		-		-		-		-		-		-
Michael Herring		-		-		-		-		-		-		-

 

(4)	As of the assumed effective time, none of Pandora’s named executive officers participate in or have account balances in a qualified or non-qualified defined benefit plan or a non-qualified deferred compensation plan sponsored or maintained by Pandora.
(5)	Amounts reflect payments, as provided for under the executive severance policy, in respect of (i) reimbursements for the monthly cost of maintaining health benefits under COBRA for the named executive officer under Pandora’s group health plan, based on the insurance premiums in effect as of the assumed effective time, for a period of twelve months (or, in the case of Mr. Lynch, eighteen months) following termination of employment (Mr. Lynch, $24,110, Mr. Chopra, $16,368, Ms. Lapic, $16,368, Mr. Phillips, $25,307, and Mr. Trimble, $25,144) and (ii) the estimated cost of outplacement and career continuation services for up to three months following termination of employment ($5,000 for each of Mr. Lynch, Mr. Chopra, Ms. Lapic, Mr. Phillips, and Mr. Trimble).
(6)	None of the named executive officers are eligible to receive a tax reimbursement based on or otherwise related to the transactions.  The executive severance policy provides that the change of control benefits payable to the named executive officers are subject to reduction to avoid the imposition of excise taxes under Section 4999 of the Code in the event such reduction would result in a better after-tax result for the named executive officer.  The amounts above do not reflect any possible reductions under that provision.
(7)	Per the SEC executive compensation disclosure rules, this individual is a named executive officer of Pandora with respect to 2017.  Because this named executive officer separated from Pandora and ceased having any outstanding equity awards prior to the assumed effective time, this named executive officer will not receive any transaction-related compensation in connection with the transactions.

 

Material U.S. Federal Income Tax Consequences

 

The following discussion sets forth the material U.S. federal income tax consequences of the transactions to U.S. Holders (as defined below) of Pandora common stock, and, subject to the qualifications, assumptions and limitations contained herein, represents the opinion of Simpson Thacher & Bartlett LLP, counsel to Sirius XM, and Sidley Austin LLP, counsel to Pandora. This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010 or under the Foreign Account Tax Compliance Act (Sections 1471 through 1474 of the Code, the Treasury regulations and administrative guidance thereunder or any intergovernmental agreement entered into in connection therewith), nor does it address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under any U.S. federal laws other than those pertaining to the income tax.

 

This discussion is based upon the Code, the regulations promulgated under the Code and court and administrative rulings and decisions, all as in effect on the date of this proxy statement/prospectus. These authorities may change, possibly retroactively, and any change could affect the accuracy of the statements and conclusions set forth in this discussion.

 

This discussion addresses only those U.S. Holders of Pandora common stock that hold their shares of Pandora common stock and will hold their shares of the New Holding Company common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to you in light of your individual circumstances or that may be applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:

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·	a financial institution;
·	a tax-exempt organization;
·	a real estate investment trust;
·	an S corporation or other pass-through entity (or an investor in an S corporation or other pass-through entity);
·	an insurance company;
·	a regulated investment company or a mutual fund;
·	a “controlled foreign corporation” or a “passive foreign investment company”;
·	a dealer or broker in stocks and securities, or currencies;
·	a trader in securities that elects mark-to-market treatment;
·	a holder of Pandora common stock subject to the alternative minimum tax provisions of the Code;
·	a holder of Pandora common stock that received Pandora common stock through the exercise of an employee stock option, through a tax qualified retirement plan or otherwise as compensation;
·	a holder of Pandora common stock that has a functional currency other than the U.S. dollar;
·	a holder of Pandora common stock that holds Pandora common stock as part of a hedge, straddle, constructive sale, conversion or other integrated transaction;
·	a person that is not a U.S. Holder; or
·	a U.S. expatriate.

 

For purposes of this discussion, the term “U.S. Holder” means a beneficial owner of Pandora common stock that is for U.S. federal income tax purposes (1) an individual citizen or resident of the United States, (2) a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) organized in or under the laws of the United States or any state thereof or the District of Columbia, (3) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) such trust has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes or (4) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source.

 

If an entity or an arrangement treated as a partnership for U.S. federal income tax purposes holds Pandora common stock, the U.S. federal income tax consequences of the transactions of a partner in such partnership (or owner of such entity) generally will depend on the status of the partner and the activities of the partnership (or entity). Any entity treated as a partnership for U.S. federal income tax purposes that holds Pandora common stock, and any partners in such partnership, should consult their own tax advisors with respect to the tax consequences of the transactions in their specific circumstances.

 

The tax consequences of the transactions will depend on your specific situation. You should consult with your own tax advisor as to the tax consequences of the transactions in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local, foreign or other tax laws and of changes in those laws.

 

Tax Consequences of the Holding Company Merger, the Conversion, the Merger and the Sirius XM Radio Merger

 

The parties intend for each of (i) the holding company merger and the conversion, taken together, and (ii) the merger and the Sirius XM Radio merger, taken together, to be treated as a “reorganization” for U.S. federal income tax purposes within the meaning of Section 368(a) of the Code. Pandora intends to obtain an opinion from Sidley Austin LLP, or another nationally recognized law firm, dated as of the closing date, to the effect that each of the holding company merger and the conversion, taken together, and the merger and the Sirius XM Radio merger, taken together, will in each case qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code. Sirius XM intends to obtain an opinion from Simpson Thacher & Bartlett LLP, or another nationally recognized law firm, dated as of the closing date, to the effect that each of the holding

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company merger and the conversion, taken together, and the merger and the Sirius XM Radio merger, taken together, will in each case qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code. Pandora and Sirius XM have agreed that if either of the opinions described above cannot be obtained (for example, because there has been a change in facts and circumstances, or because Sirius XM or Pandora is unable to make customary representations), the parties will restructure the transactions so that it will be treated for U.S. federal income tax purposes as a taxable stock sale by the Pandora stockholders. The opinions will be based on facts, representations, assumptions and limitations set forth or referred to in the opinions, including assumptions regarding the absence of changes in existing facts, and the truth and accuracy of certain representations and covenants made in representation letters (the “Representation Letters”) to be provided by Pandora and Sirius XM (the “Representations and Assumptions”) in connection with the consummation of the holding company merger, the conversion, the merger and the Sirius XM Radio merger. If any of the Representations and Assumptions is inaccurate in any way, or any of the covenants are not complied with, these opinions could be adversely affected. Neither of the opinions described above will be binding on the Internal Revenue Service or any court. Pandora and Sirius XM have not sought and will not seek any ruling from the Internal Revenue Service regarding any matters relating to the transactions, and as a result, there can be no assurance that the Internal Revenue Service will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below.

 

Based on the facts and representations set forth or referred to in the opinions included as exhibits to this proxy statement/prospectus filed with the SEC, and subject to the Representations and Assumptions (and the receipt of the Representation Letters) and the qualifications, assumptions and limitations stated in this proxy statement/prospectus, it is the opinion of Simpson Thacher and Bartlett LLP and Sidley Austin LLP that each of (i) the holding company merger and the conversion, taken together, and (ii) the merger and the Sirius XM Radio merger, taken together, will in each case constitute a “reorganization” within the meaning of Section 368(a) of the Code in which case, the material U.S. federal income tax consequences of the transactions will be as follows.

 

You will not recognize gain or loss upon exchanging your Pandora common stock for the New Holding Company common stock. The aggregate tax basis in the shares of the New Holding Company common stock that you receive in the holding company merger will equal your aggregate adjusted tax basis in the shares of Pandora common stock that you surrender. Your holding period for the shares of the New Holding Company common stock that you receive in the holding company merger will include your holding period for the shares of the Pandora common stock that you surrender.

 

You will not recognize gain or loss upon exchanging your New Holding Company common stock for Sirius XM common stock, except for any gain or loss recognized with respect to cash received in lieu of a fractional share of Sirius XM common stock. The aggregate tax basis in the shares of Sirius XM common stock that you receive pursuant to the merger (including any fractional share deemed received and sold as described below) will equal your aggregate adjusted tax basis in the shares of the New Holding Company common stock you surrender. Such aggregate adjusted tax basis will be allocated between the Sirius XM common stock you receive and any fractional share based on their relative fair market values. Your holding period for the shares of Sirius XM common stock that you receive pursuant to the merger (including any fractional share deemed received and sold as described below) will include your holding period for the shares of the New Holding Company common stock you surrender.

 

If you receive cash instead of a fractional share of Sirius XM common stock, you will be treated as having received the fractional share of Sirius XM common stock pursuant to the transactions and then as having sold that fractional share of Sirius XM common stock for cash. As a result, you will recognize gain or loss equal to the difference between the amount of cash received and the basis in your fractional share of Sirius XM common stock as set forth above. This gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if, as of the closing date, the holding period for such fractional share (as described above) is greater than one year. Long-term capital gains of individuals are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

 

If you acquired different blocks of Pandora common stock at different times or different prices, you should consult your tax advisor regarding the manner in which gain or loss should be determined in your specific circumstances.

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Tax Consequences of the Alternative Transaction

 

In the event that Sirius XM and Pandora restructure the transactions to be treated as a taxable stock sale as noted above, you will receive Sirius XM common stock and cash in lieu of fractional shares in exchange for your Pandora common stock, and the material U.S. federal income tax consequences of the transaction will be as follows.

 

You will recognize gain or loss in an amount equal to the difference between (x) the fair market value of the Sirius XM common stock you receive plus the amount of cash you receive in lieu of fractional shares and (y) your adjusted tax basis in the shares of Pandora common stock you surrender. Gain or loss will be calculated separately for each block of Pandora common stock (generally shares acquired at the same cost in a single transaction) surrendered. Such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if your Pandora common stock has been held for more than one year at the time of the alternative transaction. Long-term capital gains of non-corporate U.S. Holders may be eligible for reduced rates of taxation. The deductibility of capital losses is limited. You generally will have an aggregate tax basis in the shares of Sirius XM common stock received equal to the fair market value of such shares as of the date such shares are received, and your holding period in such shares of Sirius XM common stock would begin on the day following the date of the restructured transaction.

 

Backup Withholding

 

If you are a non-corporate holder of Pandora common stock you may be subject, under certain circumstances, to backup withholding at a rate of 24% on any cash payments you receive. You generally will not be subject to backup withholding, however, if you:

 

·	furnish a correct taxpayer identification number, certify that you are not subject to backup withholding on the substitute Form W-9 or successor form included in the letter of transmittal you will receive and otherwise comply with all the applicable requirements of the backup withholding rules; or
·	provide proof acceptable to Sirius XM and the exchange agent that you are otherwise exempt from backup withholding.

 

Any amounts withheld under the backup withholding rules are not an additional tax and will generally be allowed as a refund or credit against your U.S. federal income tax liability, provided you timely furnish the required information to the Internal Revenue Service.

 

All holders of Pandora common stock are urged to consult their tax advisors with respect to the tax consequences of the transactions in their particular circumstances, including tax return reporting requirements, the applicability and effect of the alternative minimum tax, any federal tax laws other than those pertaining to income tax (including estate and gift tax laws), and any state, local, foreign or other tax laws.

 

Antitrust Approvals Required for the Transactions

 

General

 

The transactions are subject to the expiration or termination of the waiting period (and any extensions thereof) under the HSR Act and the receipt of approvals under the competition laws of Germany and Austria. No other regulatory approvals are required for the transactions.

 

HSR Act

 

The transactions are subject to the requirements of the HSR Act, which provides that certain transactions may not be completed until required information and materials are furnished to the Antitrust Division of the Department of Justice, which we refer to as the DOJ, and the Federal Trade Commission, which we refer to as the FTC, and until certain waiting period requirements have been satisfied. Sirius XM and Pandora filed Notification and Report Forms with the DOJ and the FTC on October 18, 2018. The waiting period expires on November 19, 2018 at 11:59 p.m., Eastern Time.

 

The DOJ, the FTC, state attorneys general and others may challenge the transactions on antitrust grounds after the expiration or termination of the applicable waiting period. Accordingly, at any time before or after the

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completion of the transactions, any of the DOJ, the FTC or others could take action under the antitrust laws, including seeking to enjoin the completion of the transactions or permitting completion subject to regulatory concessions or conditions. Neither Sirius XM nor Pandora believes that the transactions violate U.S. antitrust laws, but there can be no assurance that a challenge to the transactions on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful.

 

Austria

 

The transactions are subject to the receipt of approval under the Austrian Cartel Act (Kartellgesetz), which provides that certain transactions may not be completed until required information and materials are furnished to the Federal Competition Authority (which we refer to as the FCA) and the Federal Cartel Prosecutor (which we refer together with the FCA to as the Official Parties), and until certain waiting period requirements have been satisfied. Sirius XM filed a merger notification with the FCA on October 18, 2018. The standard (Phase I) waiting period expires on November 15, 2018 at 11:59 p.m., Central European Time.

 

Until the expiration of the Phase I waiting period, the Official Parties may initiate an in-depth investigation into the transactions, as part of which the Official Parties would have to decide whether to approve (unconditionally or subject to regulatory concessions or conditions) or to prohibit the transactions. Neither Sirius XM nor Pandora believes that the transactions raise concerns under the Austrian Cartel Act, but there can be no assurance that the Official Parties will not initiate an in-depth investigation into the transactions or, if such an investigation is initiated, what outcome will result.

 

Germany

 

The transactions are subject to the receipt of approval under the competition law of Germany (German Act against Restraints of Competition), which provides that certain transactions may not be completed until required information and materials are furnished to the Federal Cartel Office, which we refer to as the FCO, and until certain waiting period requirements have been satisfied. Sirius XM filed a merger notification with the FCO on October 17, 2018. The standard (Phase I) waiting period expires on November 19, 2018 at 11:59 p.m., Central European Time.

 

Until the expiration of the Phase I waiting period, the FCO may initiate an in-depth investigation into the transactions, as part of which the FCO would have to decide whether to approve (unconditionally or subject to regulatory concessions or conditions) or to prohibit the transactions. Neither Sirius XM nor Pandora believes that the transactions raise concerns under the competition law of Germany, but there can be no assurance that the FCO will not initiate an in-depth investigation into the transactions or, if such an investigation is initiated, what outcome will result.

 

Accounting Treatment

 

In accordance with current accounting guidance, the transactions will be accounted for as a business combination using the acquisition method of accounting. As a result, the recorded assets and liabilities of Sirius XM will be carried forward at their recorded amounts, the historical operating results will be unchanged for the prior periods being reported on and the assets and liabilities of Pandora will be adjusted to fair value at the date of the closing of the transactions. In addition, all identified intangible assets will be recorded at fair value and included as part of the net assets acquired. To the extent that the purchase price, at fair value, exceeds the fair value