Stern Deal Clarified

January 10, 2006

The Howard Stern deal is a frequent subject of debate when it comes to the satellite radio equities. Some people see value in the deal some do not. Some people feel Stern brought millions of subscribers, other peg the number at about 1,000,000.

As is oft the case, reports surrounding the deal can be confused, and even some widely read sites get the details of the deal wrong.

With the issuance of new shares, we thought it would be a good time to spell out where the deal sits as of today.

In 2004 when Howard Stern signed with Sirius, a basic outline was established that incorporated cash payments, revenue share, as well as stock payments. The basic deal was outlined at $500,000,000.

The base valuation in 2004 was established by a value of cash payments worth about $390,000,000 and stock worth about $110,000,000 (a bit over 34,000,000 shares). In SEC filings it was fully anticipated that the 34,000,000 shares would be paid out during the course of the contract. Those shares were tied to a specific subscriber number established for each of the years of the Stern contract. If at any point, one of those targets were reached, the shares would be granted.

The agreed upon number of subscribers was reached in 2005, and thus the 34,000,000 shares were issued. At the time of issue these shares had a value of about $220,000,000.

The mistake that many make is when they ADD $220,000,000 to $500,000,000 and arrive at a value of $720,000,000. THIS IS A MISTAKE. The 34,000,000 shares was inclusive in the base deal, and those seeking a value must ADD the $220,000,000 to $390,000,000 for a total of $610,000,000.

Now that the value of the base contract has been established at $610,000,000, we can move forward to the latest shares issued to Stern.

Stern now has received 22,058,824.shares at a maximum value of $3.78 per share. This would total $83,382,355. Thus, those trying to establish a value (or more accurately a cost to Sirius) for the Stern deal would add the $83,382,355 to the $610,000,000 to arrive at a total of $693,382,355 (NOT the $803,382,355 that some are assuming).

Another item of particular note is that of the 34,000,000 shares issued in January of 2006, Stern has retained 17,250,000 shares. Many had assumed that Stern had sold all of those shares. Today’s SEC filing indicated that he likely sold enough shares to cover the taxes for the gain on the originally issued shares.

As of this date Stern now holds 39,308,824 shares of stock. There was a registration for the sale of shares today which was similar in nature to that made in January of 2006 in which Stern sold about half (likely enough to pay taxes). This new registration simply gives Stern the right to sell shares. It does not mean he has to, or will.

1/09/2007 03:50:00 PM

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