After reading Stern’s suit as filed in the New York Supreme Court this week, it appears that Howard tried to be a good guy and not press Sirius for his payments while it was hurtling toward bankruptcy two years ago. All companies with huge debt loads were trashed at that time and Sirius was at the top of that list of over leveraged companies.
Poor decisions by Mel Karmazin CEO based on very bad advice from CFO David Frear left the company with insufficient cash and cash flow to pay the interest on its debt. On February 11, 2009, just a month before the markets bottomed on March 9, 2009, Sirius collapsed to a low of $ .0520. That’s right, a nickel. Bankruptcy was imminent when John Malone and Liberty Media (LINTA) swept in with enough cash to buy 40% of Sirius. That also provided the company with an ability to make its interest payments and recast its debt maturities over the year that followed. Malone loves tax loss carry-forwards and Sirius has them in spades. However, they will evaporate if Liberty moves to acquire the rest of Sirius prior to May 2012 so we have another year to wait to find out how that will play out.
In his suit, Howard states that during the time that Sirius was hurtling toward bankruptcy, he didn’t want to pile on and make things look even worse by asserting his claims to money he felt he was owed. So he kept silent. Even though he had recently signed a new agreement with Sirius now merged with its competitor XM, the implication in the suit is that negotiations were going on about this “back bonus pay.” In response to the suit, SIRI has said it feels it owes him nothing more. With regard to the finer details, we, of course, have no idea of knowing what’s in the Private Parts of the contract.
Some portion of the disagreement seems to hinge on how or whether the XM subscribers are to be counted with regard to the bonus hurdles that were in his original agreement. His attorneys assert that they were included in distributing Howard’s content to XM subscribers and therefore those subscribers should count for the bonus. There is no question that when Howard came subscribers were about a quarter of a million. Combined subs now are expected to exceed 21 million this year
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