Sirius XM Radio filed a preliminary proxy statement today with the SEC. While the document is lengthy, the biggest two items of note appear on the first page:

- To approve an amendment to our certificate of incorporation to increase the number of authorized shares of our common stock from 4,500,000,000 to 8,000,000,000 shares.

- To approve an amendment to our certificate of incorporation to (i) effect a reverse stock split of our common stock by a ratio of not less than one-for-ten and not more than one-for-fifty at any time prior to December 31, 2009, with the exact ratio to be set at a whole number within this range to be determined by our board of directors in its discretion, and (ii) reduce the number of authorized shares of our common stock as set forth in the proxy statement.

What does this mean?

Well, first it is a proposal to allow for an increase in authorized shares from 4,500,000,000 to 8,000,000,000. For long term investors this is a scary prospect. It would allow for a substantial amount of dilution, which in turn would carry a negative impact on the stock price. To be clear, this does not mean that any shares will be issued. It simply means that the company would be authorized to issue shares if they deem it in the best interest of the shareholders.

The second issue here is the potential for a reverse split. The company is asking that shareholders approve the ability to conduct a reverse split in a range between 1 for 10 and 1 for 50. In simple terms, a 1 for 10 reverse split means that if you have 10 shares of stock, currently priced at .39 cents each, you would now have 1 share priced at $3.90. In a 1 for 50 reverse split, 50 shares, fifty shares priced at .39 cents each would become one share priced at $19.50.

Now, there seems to be some confusion regarding these two points. If we assume that the authorized share count is accepted at 8,000,000,000 shares, a reverse split would happen after the fact. Thus, a 1 for 10 split would bring the authorized share count to 800,000,000. A 1 for 50 split would bring the share count to 160,000,00 shares.

Reverse splits are never viewed as a positive event. They are typically a function of a company that is running out of options. While satellite radio may be a great service, the current situation has backed this company into a position that is indeed uncomfortable. Is there anything positive that can come out of reverse split? Yes, in this case there may be. Many institutional investors have bylaws that will not allow them to invest in an equity under $5 in share price. With Sirius XM Radio at .39 cents, it is well below this threshold. Should a reverse split be in the future, it will open up Sirius XM Radio as an investment option for many institutions that currently can not invest. This is not to say that there are institutions chomping at the bit to buy. It is only saying that it makes investment into the company available to more institutions. Additionally, such activity may be a function of trying to obtain financing for the debt due in 2009. With most of the financial institutions in some sort of turmoil, the number of players that a company like Sirius XM Radio can go to has thinned out. Being able to enact a reverse split, and having the latitude of additional available shares may give Sirius XM Radio more players to deal with to get a financing deal done.

Should shareholders trust management with these new choices? That is a decision each investor will have to make. Will these items gain enough votes to be approved? In all likelihood yes. How do you let your opinion be known? Express it here, and VOTE on the proxy. If you do not vote, you are still rendering a decision. Those that do not vote have their shares voted on by the Board.

Take some time, read the proxy, research the issues, and participate in the process. These are crucial times for Sirius XM radio. This is not a proxy to simply toss in the trash. I encourage all readers to participate in this process.

Long SIRI