<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997
REGISTRATION NO. 333-34769
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CD RADIO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
DELAWARE 52-1700207
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
SIXTH FLOOR, 1001 22ND STREET, N.W.
WASHINGTON, D.C. 20037
202-296-6192
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID MARGOLESE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CD RADIO INC.
SIXTH FLOOR, 1001 22ND STREET, N.W.
WASHINGTON, D.C. 20037
202-296-6192
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
LEONARD V. QUIGLEY DAVID J. BEVERIDGE
MITCHELL S. FISHMAN SHEARMAN & STERLING
PAUL, WEISS, RIFKIND, WHARTON & GARRISON 599 LEXINGTON AVENUE
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10019-6064 212-848-4000
212-373-3000
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
If the securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM
SECURITIES OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C>
Units consisting of Senior
Discount Notes and Warrants... N/A $150,000,000 $ 45,455(2)
Senior Discount Notes......... N/A N/A (3)
Warrants...................... N/A N/A (3)
Common Stock.................. N/A N/A (3)
</TABLE>
(1) Estimated solely for purpose of calculating the registration fee pursuant to
Rule 475(o) under the Securities Act of 1993.
(2) This amount was paid in connection with the initial filing of the
Registration Statement on Septembr 2, 1997.
(3) As such securities are to be provided without additional cost to the
purchasers, no registration fee is required with respect thereto.
---------------------------
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
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<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 30, 1997
PROSPECTUS
$150,000,000 GROSS PROCEEDS
[LOGO]
UNITS CONSISTING OF
% SENIOR DISCOUNT NOTES DUE 2007
AND WARRANTS TO PURCHASE SHARES OF COMMON STOCK
-------------------------
CD Radio Inc. (the 'Company') is offering (the 'Units Offering')
units (collectively, the 'Units'), each consisting of $1,000 principal amount at
maturity of % Senior Discount Notes due 2007 (the 'Notes') of the Company and
warrants (each, a 'Warrant'), each Warrant initially entitling the holder
thereof to purchase one share of common stock, par value $0.001 per share (the
'Common Stock'), of the Company, at an exercise price of $ per share
(representing a 10% premium over the closing bid price of the Common Stock as
reported on the Nasdaq National Market on the date of this Prospectus (the
'Exercise Price')). The Notes and the Warrants will not be separately
transferable until the earliest of: (i) , 1998, (ii) the
occurrence of an Exercise Event (as defined herein), (iii) the occurrence of an
Event of Default (as defined herein), (iv) immediately prior to any redemption
of Notes by the Company with the proceeds of one or more Public Equity Offerings
(as defined herein) or (v) such earlier date as determined by Merrill Lynch,
Pierce, Fenner & Smith Incorporated ('Merrill Lynch') in its sole discretion.
The Notes are being issued with original issue discount. The Common Stock is
traded on the Nasdaq National Market under the symbol 'CDRD.'
(Cover continued on next page)
SEE 'RISK FACTORS' BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE UNITS OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
NOTES AT PRICE TO UNDERWRITING PROCEEDS TO
MATURITY PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
<S> <C> <C> <C> <C>
Per Unit........................................... % % % %
Total(3)........................................... $ $ $ $
</TABLE>
(1) Plus accrued original issue discount, if any, on the Notes from
, 1997.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Underwriting.'
(3) Before deducting expenses payable by the Company estimated to be $ .
------------------------
The Units are being offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Units will be made in New York, New York on or about
, 1997.
------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
LIBRA INVESTMENTS, INC.
------------------------
The date of this Prospectus is , 1997.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
<PAGE>
Inside front cover
Photograph of freeway traffic and CD Radio logo
Caption: CD Radio
50 Channels of Programming
National Satellite Coverage
Commercial-Free Music
CD Quality Sound
Photographs of two satellites, the miniature satellite dish antenna and
the radio card.
Caption: National satellite coverage
Local contracted to build
Arianespace launch service provider
Silver-dollar sized satellite dish
Adhesive rear window mount
Wireless transmission to radio card
Plug and play radio card
Inserts into existing cassette slot
Activation 888-CD-RADIO
Programming Formats
Symphonic Classic Rock Soft Rock
Chamber Music 50's Oldies Singers & Songs
Opera 60's Oldies Beautiful Instrumentals
Today's Country Folk Rock Album Rock
Traditional Country Latin Ballads Alternative Rock
Contemporary Jazz Latin Rhythms New Age
Classic Jazz Reggae Broadway's Best
Blues Rap Gospel
Big Band/Swing Dance Children's Entertainment
Top of the Charts Urban Contemporary World Beat
<PAGE>
<PAGE>
(Cover continued from previous page)
The initial issue amount of each Note will be $ per $1,000 principal
amount at maturity ( % of the principal amount at maturity), representing a
yield to maturity of % (computed on a semi-annual bond equivalent basis)
calculated from , 1997. Cash interest will not accrue on the
Notes prior to , 2002, from which time cash interest will accrue
on the Notes at a rate of % per annum. Interest on the Notes is payable
semi-annually on each and , commencing , 2003. The
Notes will mature on , 2007. The Notes will be redeemable, at the
option of the Company, in whole or in part, at any time on or after
, 2002 at the redemption prices set forth herein, together with
accrued interest, if any, to the date of redemption. In addition, at any time or
from time to time prior to , 2000, the Company may redeem up to
33% of the aggregate principal amount at maturity of the Notes with the net
proceeds of one or more Public Equity Offerings at a redemption price equal to
% of the Accreted Value thereof; provided that immediately after giving
effect to such redemption, at least 67% of the aggregate principal amount at
maturity of the Notes remains outstanding. Upon the occurrence of a Change of
Control (as defined herein), each holder of Notes may require the Company to
purchase all or a portion of such holder's Notes at a purchase price in cash
equal to 101% of the Accreted Value thereof, together with accrued interest, if
any, to the date of purchase.
The Notes will be senior unsecured obligations of the Company ranking pari
passu in right of payment with all existing and future unsubordinated
obligations of the Company and senior in right of payment to all existing and
future obligations of the Company expressly subordinated in right of payment to
the Notes. The Notes, however, will be effectively subordinated to secured
senior obligations of the Company with respect to the assets of the Company
securing such obligations. As of September 30, 1997, on a pro forma basis after
giving effect to the Units Offering and the application of the net proceeds
therefrom, indebtedness of the Company would have been approximately $150
million, none of which would have been secured indebtedness. In the future the
Company may incur subsidiary indebtedness and may secure certain indebtedness,
including vendor financing.
Each Warrant will entitle the holder to purchase one share of Common Stock,
subject to adjustment under certain cirucmstances, at the Exercise Price. The
Warrants initially will entitle the holders thereof to purchase shares of Common
Stock which would represent, in the aggregate, approximately % of the
Company's outstanding Common Stock on a fully diluted basis immediately after
giving effect to the Offerings. The Warrants will be exercisable at any time on
or after the occurrence of any Exercise Event, which will be no later than
, 1998, and will expire on , 2007.
The Units Offering is one component of a financing transaction which
includes an offer to exchange (the 'Exchange Offer') shares of the Company's
10 1/2% Series C Convertible Preferred Stock (the 'Series C Preferred Stock')
for shares of the Company's outstanding 5% Delayed Convertible Preferred Stock
(the '5% Preferred Stock') and underwritten public offerings of the Company's
Common Stock (the 'Stock Offerings' and together with the Units Offering, the
'Offerings'). Separate registration statements have been filed for each of the
Exchange Offer and the Stock Offerings, and such offers will be made by separate
prospectuses. The consummation of the Units Offering is not conditioned upon the
consummation of the Stock Offerings but is conditioned upon the consummation of
the Exchange Offer.
CERTAIN PERSONS PARTICIPATING IN THE UNITS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
UNITS. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE UNITS
OFFERING, MAY BID FOR AND PURCHASE UNITS IN THE OPEN MARKET AND MAY IMPOSE
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES SEE 'UNDERWRITING.'
IN CONNECTION WITH THE STOCK OFFERINGS AND THE EXCHANGE OFFER, CERTAIN
UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE 'UNDERWRITING.'
ii
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ILLUSTRATIVE CHANNEL LISTINGS
The following channel list (which employs terminology common to the music
industry) has been prepared by the Company to illustrate the manner in which the
Company's music programming might be marketed. The Company intends to vary
channel formats from time to time to reflect the results of its market research
and subscriber tastes.
<TABLE>
<S> <C>
1. Symphonic
Presenting the full range of the classical repertoire, with
complete works from great composers -- Beethoven, Mozart,
Handel, Copland -- performed by world-class artists and
orchestras, including the New York Philharmonic Orchestra,
Itzhak Perlman, Wynton Marsalis and Yo-Yo Ma.
2. Chamber Music
The lighter side of classical music, featuring chamber music
from small ensembles, as well as solo performances. Composers
like Vivaldi, Telemann and Liszt performed by Ruth Laredo, the
Juilliard String Quartet, Julian Bream and Jean-Pierre Rampal.
3. Opera
Full-length operatic masterpieces from Verdi, Wagner and
Puccini, along with arias and songs, showcasing the world's
great vocal artists, including Luciano Pavarotti, Dawn Upshaw,
the Hilliard Ensemble, Placido Domingo and Cecilia Bartoli.
4. Today's Country
The honest 90's sound of today's stars, including Tim McGraw,
Leann Rimes, Vince Gill, Alan Jackson, Garth Brooks, Pam Tillis
and Bryan White.
5. Traditional Country
Classic country hits from legends like Merle Haggard, Conway
Twitty, Waylon Jennings, Loretta Lynn and George Jones.
6. Contemporary Jazz
The smooth instrumental sounds of David Sanborn, Kenny G, Larry
Carlton, Dave Koz and Bob James, mixed with the vocal stylings
of Manhattan Transfer, Al Jarreau and Michael Franks.
7. Classic Jazz
Mainstream jazz at its finest. Features the artistry of legends
like Miles Davis, Oscar Peterson, Thelonious Monk, Sarah Vaughan
and Dave Brubeck and performers following in the tradition like
Dianne Schuur and Branford Marsalis.
8. Blues
The Blues from A to Z -- from legends like Muddy Waters and
Howlin' Wolf to John Lee Hooker, Etta James, B.B. King, Robert
Cray, Buddy Guy and exciting new artists like Keb' Mo', Duke
Robillard and Jonny Lang.
9. Big Band/Swing
From the great bands of the 30s and 40s to bands today.
Featuring the sounds of Artie Shaw, Tommy Dorsey, Glenn Miller,
Benny Goodman, Harry James, Duke Ellington and Count Basie.
10. Top of the Charts
Today's hottest US hits. No Doubt, Mariah Carey, Spice Girls.
11. Classic Rock
Classic tracks and deep album cuts from the legends of rock,
including the Who, the Beatles, the Rolling Stones, Led
Zeppelin, The Doors, Eric Clapton, Neil Young, Jimi Hendrix and
Jethro Tull.
12. 50's Oldies
Sock hops and going steady. Tune in and experience it all over
again with Chuck Berry, Little Richard and Elvis Presley.
13. 60's Oldies
Put the top down and cruise to the sounds of the sixties. The
solid gold sounds of Motown, the British Invasion and Surfer
Rock.
14. Folk Rock
Singer-songwriters and bands with thoughtful lyrics and
melodies, including Joni Mitchell, Lyle Lovett, James Taylor,
Shawn Colvin, Chris Isaak, Tori Amos and Indigo Girls.
15. Latin Ballads
Emotive romantic sounds from Julio Iglesias, Rocio Durcal,
Roberto Carlos, Ana Gabriel, Gloria Estefan and Jon Secada.
16. Latin Rhythms
Move to the music of Ruben Blades, Albita, Juan Luis Guerra
and
the legendary Tito Puente.
17. Reggae
Reggae from legends like Bob Marley & the Wailers, Peter
Tosh and Third World to new sounds from Steel Pulse, UB40,
Shaggy, Ziggy Marley, Maxi Priest, Aswad and Lady Saw.
18. Rap
Pure rap from the masters of the genre, including Puff
Daddy, Fugees, DJ Kool, Freak Nasty, Warren G and M.C. Lyte.
19. Dance
Techno, club and pop remixes from around the world make this
one
of the hottest spots on the dial.
20. Urban Contemporary
The soulful sounds of Toni Braxton, Luther Vandross, Keith
Sweat
and Mary J. Blige.
21. Soft Rock
Mainstream pop hits from artists like Celine Dion, Phil
Collins, Gloria Estefan and George Michael.
22. Singers & Songs
The greats sing the standards, with legends like Frank
Sinatra, Nat King Cole, Tony Bennett and Barbra Streisand.
23. Beautiful Instrumentals
Melodic relaxing orchestrations from Richard Clayderman,
Paul Mauriat, Zamfir, James Last, Roger Williams and James
Galway.
24. Album Rock
Mainstream rock from veteran bands and new artists,
including Aerosmith, Collective Soul, Dave Matthews Band and
John Mellencamp.
25. Alternative Rock
Modern rock from such diverse bands as Beck, Live, Stone
Temple Pilots and Smashing Pumpkins.
26. New Age
Sounds that soothe and transport. Relax with Jim Brickman,
Kitaro and Yanni.
27. Broadway's Best
The Great White Way shines with all your favorites from the
past and today's hot new shows. Rodgers and Hammerstein,
Marvin Hamlisch and Andrew Lloyd Webber.
28. Gospel
Soulful gospel sounds of joy. Mahalia Jackson, Al Green and
the Winans.
29. Children's Entertainment
Entertaining songs and storytelling for younger listeners.
Fred Penner, Raffi and Tom Chapin.
30. World Beat
Spanning continents, select sounds from all over the world:
Gipsy Kings, Cheb Khaled, The Chieftains, Zap Mama,
Ladysmith Black Mambazo and Youssou N'Dour.
</TABLE>
The artists named herein do not endorse the Company or the securities being
offered hereby.
2
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[Photographs]
Schematic diagram of the CD Radio delivery system.
Caption: (1) National Broadcast Studio
(2) CD Radio Satellite
(3) Satellite Dish Antenna
(4) Radio Card
3
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[THIS PAGE INTENTIONALLY LEFT BLANK]
4
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ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the 'Commission'). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at its regional offices located at Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661-2511 and 13th Floor, 7 World Trade Center, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such reports, proxy statements and other information
concerning the Company also can be inspected and copied at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006, which supervises the Nasdaq National Market on which the
Company's Common Stock is traded. The Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's web site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
'Registration Statement') under the Securities Act of 1933, as amended (the
'Securities Act'), with respect of the securities covered by this Prospectus.
This Prospectus, which forms part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and such
securities, reference is hereby made to such Registration Statement, including
the exhibits filed therewith. The Registration Statement and the exhibits
thereto can be obtained by mail from or inspected and copied at the public
reference facilities maintained by the Commission as provided in the prior
paragraph.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K, as amended by the Annual
Report on Form 10-K/A, for the year ended December 31, 1996.
2. The Company's Quarterly Report on Form 10-Q, as amended by the
Quarterly Report on Form 10-Q/A, for the period ended March 31,
1997.
3. The Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1997.
4. The Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997.
5. The Company's Current Report on Form 8-K dated April 10, 1997.
6. The Company's Current Report on Form 8-K dated May 2, 1997.
7. The Company's Current Report on Form 8-K dated June 17, 1997.
8. The Company's Current Report on Form 8-K dated July 8, 1997.
9. The Company's Current Report on Form 8-K dated August 19, 1997.
10. The Company's Current Report on Form 8-K dated October 7, 1997.
11. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, as amended, filed
pursuant to Section 12(b) of the Exchange Act.
12. Issuer Tender Offer Statement on Form 13E-4.
13. Consent Solicitation Statement on Schedule 14A, dated October 23,
1997.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the Securities offered hereby shall be deemed to be incorporated by reference
in and to be a part of this Prospectus from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to
be incorporated by
5
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<PAGE>
reference herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in
the Registration Statement containing this Prospectus or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the request of such person, a copy of any or all
of the documents incorporated herein by reference (other than exhibits, unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to: Secretary, CD Radio Inc., Sixth
Floor, 1001 22nd Street, N.W., Washington D.C. 20037.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the 'Reform Act'), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made in
this Prospectus. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such as
'will likely result,' 'are expected to,' 'will continue,' 'is anticipated,'
'estimated,' 'intends,' 'plans,' 'projection' and 'outlook') are not historical
facts and may be forward-looking and, accordingly, such statements involve
estimates, assumptions and uncertainties which could cause actual results to
differ materially from those expressed in the forward-looking statements.
Accordingly, any such statements are qualified in their entirety by reference
to, and are accompanied by, the factors discussed throughout this Prospectus,
and particularly in the risk factors set forth herein under 'Risk Factors.'
Among the key factors that have a direct bearing on the Company's results of
operations are the potential risk of delay in implementing the Company's
business plan; increased costs of construction and launch of necessary
satellites; dependence on satellite construction and launch contractors; risk of
launch failure; unproven market and unproven applications of existing
technology; and the Company's need for additional substantial financing. These
and other factors are discussed herein under 'Risk Factors,' 'Management's
Discussion and Analysis of Financial Condition and Results of Operations,'
'Business' and elsewhere in this Prospectus.
The risk factors described herein could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements of the
Company made by or on behalf of the Company and investors, therefore, should not
place undue reliance on any such forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
6
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus.
Prospective investors should carefully consider the factors set forth herein
under the caption 'Risk Factors' and are urged to read this Prospectus in its
entirety. Unless otherwise indicated, the information in this Prospectus does
not give effect to the exercise of the Underwriters' over-allotment option
described in the prospectus relating to the Stock Offerings; and references
herein to the 'Company' refer to CD Radio Inc. and, where appropriate, its
subsidiary, Satellite CD Radio, Inc.
THE COMPANY
CD Radio Inc. was founded in 1990 to pioneer and commercialize a compact
disc quality, multi-channel radio service broadcast directly from satellites to
vehicles ('satellite radio'). In October 1997, the Company was granted one of
two licenses ('FCC Licenses') from the Federal Communication Commission (the
'FCC') to build, launch and operate a national satellite radio broadcast system.
The Company has begun construction of two satellites that it plans to launch
into geosynchronous orbit to broadcast its radio service throughout the United
States. The Company's service, which will be marketed under the brand name 'CD
Radio,' is expected to consist of 30 channels of commercial-free, compact disc
quality music programming and 20 channels of news, sports and talk programming.
CD Radio will be broadcast over a frequency band (the 'S-band') that will
augment traditional AM and FM radio bands. Under its FCC license, the Company
has the exclusive use of a 12.5 megahertz portion of the S-band for this
purpose. The Company currently expects to commence CD Radio broadcasts in late
1999 at a subscription price of $10 per month.
The Company is positioning itself as an entertainment company and
accordingly plans to design and originate programming on each of its 30 music
channels. Each channel will be operated as a separate radio station with a
distinct format. Certain music channels will offer continuous music while others
will have program hosts, depending on the type of music programming. CD Radio
will offer a wide range of music categories, such as:
Symphonic
Chamber Music
Opera
Today's Country
Traditional Country
Contemporary Jazz
Classic Jazz
Blues
Big Band/Swing
Top of the Charts
Classic Rock
50's Oldies
60's Oldies
Folk Rock
Latin Ballads
Latin Rhythms
Reggae
Rap
Dance
Urban Contemporary
Soft Rock
Singers & Songs
Beautiful Instrumentals
Album Rock
Alternative Rock
New Age
Broadway's Best
Gospel
Children's Entertainment
World Beat
THE CD RADIO OPPORTUNITY
The Company believes that there is a significant market for music and other
radio programming delivered through advanced radio technology. While television
technology has advanced steadily -- from black and white to color, from
broadcast to cable, and from ordinary to high-definition television -- the last
major advance in radio technology was the introduction of FM broadcasts. CD
Radio will provide a new generation of radio service, offering a wide variety of
music formats available on demand, nearly seamless signal coverage throughout
the United States and commercial-free, compact disc quality music programming.
The Company's planned multiplicity of formats currently is not available to
motorists in any market within the United States.
CD Radio is primarily a service for motorists. The Yankee Group, a market
research organization, estimates that there will be approximately 198 million
registered private motor vehicles in the United States by the end of 1999, when
the Company expects to commence broadcasting. At present,
7
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THE CD RADIO OPPORTUNITY
approximately 89% of all private vehicles have a radio that could easily be
utilized to receive CD Radio's broadcasts, with this number estimated to be
approximately 182 million vehicles in 1999, and approximately 199 million in
2004. CD Radio initially will target a number of demographic groups among the
drivers of these vehicles, including 110 million commuters, 34 million of whom
spend between one and two hours commuting daily, three million truck drivers and
three million owners of recreational vehicles. According to a 1996 market study,
although almost all vehicles contain either a cassette or compact disc player,
87% of automobile commuters listened to the radio an average of 50 minutes a day
while commuting.
The Company believes that the ability to offer a wide variety of musical
formats simultaneously throughout the United States will enable it to tap
significant unmet consumer demand for specialized music programming. The
economics of the existing advertiser supported local radio industry dictate that
radio stations generally program for the greatest potential audience. Even in
the largest metropolitan areas, station formats are limited. Nearly half of all
commercial radio stations in the United States offer one of only three formats:
country, adult contemporary and news/talk, and the next three most prevalent
formats account for another 30% of all stations. Although niche music categories
such as classical, jazz, rap, gospel, oldies, soundtracks, new age, children's
and others accounted for approximately 27% of sales of recorded music in 1996,
such formats generally are unavailable on existing radio stations in many
markets. Even in New York City, the nation's largest radio market, there are no
radio stations devoted solely to such programming as opera, blues, chamber
music, soundtracks, reggae, children's programming and many others. CD Radio's
wide choice of formats is expected to appeal to a large number of currently
underserved listeners.
In addition, due to the limited coverage area of conventional radio
broadcasting, listeners often travel beyond the range of any single station.
Unlike conventional FM stations, which have an average range of only
approximately 30 miles before reception fades, CD Radio's signal is designed to
cover the entire continental United States, enabling listeners almost always to
remain within its broadcast range. The Company's satellite delivery system is
designed to permit CD Radio to be received by motorists in all outdoor locations
where a vehicle has an unobstructed line-of-sight with one of the Company's
satellites or is within range of one of the Company's terrestrial repeating
transmitters.
The ability to broadcast nationwide will also allow the Company to serve
currently underserved radio markets. In the United States, there are more than
45 million people aged 12 and over living in areas with such limited radio
station coverage that the areas are not monitored by The Arbitron Company,
a broadcast industry ratings organization ('Arbitron'). Of these, the
Company believes that approximately 22 million people receive five or fewer FM
stations, 1.6 million receive only one FM station and at least one million
people receive no FM stations. This segment of the population also has a limited
choice of radio music formats and is one of CD Radio's primary target markets.
The Company also believes that CD Radio will have a competitive advantage
over conventional radio stations because its music channels will be
commercial-free. In contrast, conventional radio stations interrupt their
broadcasts with up to 18 minutes of commercials in every hour of music
programming, and most stations also frequently interrupt programming with news,
promotional announcements, public service announcements and miscellaneous
information. The Company believes that consumers dislike frequent radio
commercial interruptions and that 'station surfing' to avoid them is common.
THE CD RADIO SERVICE
CD Radio will offer motorists: (i) a wide range of finely focused music
formats; (ii) nearly seamless signal coverage throughout the continental United
States; (iii) commercial-free music programming; and (iv) plug and play
convenience.
Wide Choice of Programming. Each of CD Radio's 30 music channels will have
a distinctive format, such as opera, reggae, classic jazz and children's
entertainment, intended to cater to specific subscriber tastes. In most markets,
radio broadcasters target their programming to broad audience segments. Even
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in the largest metropolitan markets the variety of station formats generally is
limited, and many of the Company's planned formats are unavailable.
'Seamless' Signal Coverage. CD Radio will be available throughout the
continental United States, enabling listeners almost always to be within its
broadcast range. The Company expects its nearly seamless signal will appeal to
motorists who frequently travel long distances, including truck drivers and
recreational vehicle owners, as well as commuters and others who outdrive the
range of their FM signals. In addition, the Company expects its broadcasts will
appeal to the 45 million consumers who live in areas that currently receive only
a small number of FM stations.
Commercial-Free Music Programming. The Company will provide commercial-free
music programming. The Company's market research indicates that a principal
complaint of radio listeners concerning conventional broadcast radio is the
frequency of commercials. Because CD Radio, unlike most commercial AM and FM
stations, will be a subscription and not an advertiser supported service, its
music channels will not contain commercials.
Plug and Play Convenience. Consumers will be able to receive CD Radio
broadcasts by acquiring an adapter (a 'radio card') and an easily attachable,
silver dollar-sized satellite dish antenna. Listeners will not be required to
replace their existing car radios and will be able to use the radio card by
plugging it into their radio's cassette or compact disc slot. CD Radio listeners
using a radio card will be able to push a button to switch between AM, FM and CD
Radio. Radio cards will have a visual display that will indicate the channel and
format selected, as well as the title, recording artist and album title of the
song being played. Radio cards will also be portable and will be able to be
moved from car to car. Radio card activation will be accomplished directly via
satellite by calling the Company's customer service center at 888-CD-RADIO.
THE CD RADIO DELIVERY SYSTEM
The CD Radio delivery system will consist of three principal components:
(i) the satellites; (ii) the receivers; and (iii) the national broadcast studio.
The Satellites. The Company has designed the CD Radio delivery system to
transmit an identical signal from two satellites placed in geosynchronous orbit
at 80(X) W and 110(X) W longitude. The Company believes that these two
satellites will provide nearly continuous, 'seamless' signal coverage throughout
the continental United States. When the line-of-sight to one satellite is
obstructed, the line-of-sight to the other generally will be available. In
certain urban areas with significant line-of-sight obstructions, the Company
intends to install terrestrial repeating transmitters that will rebroadcast its
signals and improve the quality of reception.
There currently are no commercial satellites in orbit capable of
transmitting radio signals on S-band frequencies to the United States. In order
to provide CD Radio the Company must build and launch its own satellites. The
Company has entered into a contract with Space Systems/Loral, Inc. ('Loral'), a
subsidiary of Loral Space & Communications Ltd. ('Loral Space'), to build three
satellites, one of which the Company intends to hold as a spare, and which
grants an option to the Company to purchase an additional satellite (the 'Loral
Satellite Contract'). The Company also has contracted for two launch slots (the
'Arianespace Launch Contract') with Arianespace S.A. ('Arianespace'), a leading
supplier of satellite launch services.
The Receivers. Subscribers to CD Radio will not need to replace their
existing AM/FM car radios. Instead they will be able to receive CD Radio in
their vehicles using a radio card similar in size to a cassette tape or compact
disc that has been designed to plug easily into the cassette or compact disc
slot of existing car radios. The radio card uses proprietary technology
developed by the Company. In addition to radio cards, the Company expects that
consumers will be able to receive CD Radio using a new generation of radios
capable of receiving S-band as well as AM and FM signals ('S-band radios').
In addition to a radio card or S-band radio, a vehicle must be equipped
with an antenna in order to receive CD Radio. The Company has designed a battery
powered, miniature silver dollar-sized satellite dish antenna, the base of which
has an adhesive backing so that consumers will be able to easily attach
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the satellite dish antenna to a car's rear window. The base houses a wireless
transmitter that will relay the CD Radio signal to the vehicle's radio card or
S-band radio. The satellite dish antenna also uses proprietary technology
developed by the Company.
The Company expects that radio cards, S-band radios and miniature satellite
dish antennas will be manufactured by one or more consumer electronics
manufacturers and sold at retail outlets that sell consumer electronics, and
that the miniature satellite dish antennas will be sold together with the radio
cards or S-band radios. The Company believes that, when manufactured in
quantity, S-band radios will be incrementally more expensive than today's car
radios. The Company currently expects that the radio card together with the
miniature satellite dish antenna will be sold at a retail price of approximately
$200. Because subscribers will be able to use the radio card in almost all
existing vehicles, the Company believes that the availability of plug and play
radio cards will be of prime importance to its market penetration for a number
of years.
The Company does not intend to manufacture or distribute radio cards,
S-band radios or miniature satellite dish antennas. The Company has entered into
non-binding memoranda of understanding with two major consumer electronics
manufacturers, and has commenced discussions with several other such
manufacturers, regarding the manufacture of radio cards, S-band radios and
miniature satellite dish antennas for retail sale in the United States.
The National Broadcast Studio. The Company plans to originate its 50
channels of programming from a national broadcast studio (the 'National
Broadcast Studio') to be located in the New York metropolitan region. The
National Broadcast Studio will house the Company's music library, facilities for
programming origination, programming personnel and program hosts, as well as
facilities to uplink programming to the satellites, to activate or deactivate
service to subscribers and to perform the tracking, telemetry and control of the
orbiting satellites.
PROGRESS TO DATE
The Company was formed in May 1990 and at that time proposed that the FCC
create a satellite radio broadcast service and also filed an application with
the FCC for a license to provide such a service. Since that time, the Company
has:
<TABLE>
<S> <C>
1993 Contracted with Loral for construction of its satellites
Contracted with Arianespace for launch of two of its satellites
1994 Completed an initial public offering of its Common Stock
1995 Completed development of its proprietary miniature satellite dish antenna
1996 Designed the radio card receiver
1997 Received one of two FCC national satellite radio broadcast licenses
Completed a $135 million private placement of 5% Preferred Stock
Commenced construction of two satellites
Completed receipt of satellite broadcast patents
Arranged $105 million of vendor financing with Arianespace Finance S.A.
Recruited its key programming, marketing and financial management team
Completed a strategic sale of $25 million of Common Stock to Loral Space
</TABLE>
See 'Business -- Progress to Date and Significant Development Milestones.'
CONCURRENT OFFERINGS
The Units Offering is part of a financing transaction, which includes the
Stock Offerings and the Exchange Offer, that is intended to raise capital (i) to
partially finance the construction and launch of the Company's satellites and
(ii) for general corporate purposes. Pursuant to the terms of the Exchange
Offer, the Company will offer to exchange shares of its Series C Preferred Stock
for up to all of the outstanding shares of its 5% Preferred Stock. The Exchange
Offer is intended to be consummated prior
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to the Offerings. The Company expects that the Offerings will result in net
proceeds to the Company of approximately $218.4 million: $142.8 million from
the Units Offering and $75.6 million from the Stock Offerings (based on an
assumed offering price of $23.75 per share, the closing price of the Company's
Common Stock at October 23, 1997). The Company will receive no proceeds from
the Exchange Offer. See 'Use of Proceeds.' The consummation of the Units
Offering is not conditioned upon the consummation of the Stock Offerings but
is conditioned upon the consummation of the Exchange Offer, and there can be
no assurance that the Stock Offerings will be completed.
RISK FACTORS
The Company's ability to meet its objectives will depend on several
factors, including the timely receipt of necessary governmental approvals,
obtaining additional financing, constructing and launching two satellites into
orbit, developing and manufacturing radio bands, S-band radios and miniature
satellite dish antennas by consumer electronics manufacturers, the rapid
creation of an organization and the management of growth. The Company estimates
that it will require approximately $659.6 million to develop and commence
commercial operation of CD Radio by the end of 1999. Of this amount, the Company
has raised approximately $266.6 million to date. After giving effect to the
Offerings, the Company will have raised approximately $499.7 million of funds
(assuming the Company does not use up to $50 million of proceeds of the Stock
Offerings to redeem preferred stock of the Company), leaving anticipated
additional cash needs of approximately $159.9 million to fund its operations
through 1999. The Company anticipates additional cash requirements of
approximately $100.0 million to fund its operations through the year 2000. The
Company expects to finance the remainder of its funding requirements through the
issuance of debt or equity securities or a combination thereof. See 'Risk
Factors' for a discussion of important factors that should be considered by
prospective purchasers in the Units Offering.
The Company was incorporated in the State of Delaware as Satellite CD
Radio, Inc. on May 17, 1990. On December 7, 1992, the Company's name was changed
to CD Radio Inc., and the Company formed a wholly-owned subsidiary, Satellite CD
Radio, Inc., that is the holder of record of the Company's FCC License. The
Company's executive offices are located at Sixth Floor, 1001 22nd Street, N.W.,
Washington, D.C. 20037, its telephone number is 202-296-6192 and its Internet
address is www.cdradio.com.
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THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................... Units consisting of $ aggregate principal amount at
maturity of % Senior Discount Notes due 2007 of the Company
and warrants to purchase an aggregate of
shares of Common Stock of the Company. Each Unit consists of
$1,000 principal amount at maturity of Notes and
Warrants, each Warrant entitling the holder thereof to purchase
one share of Common Stock. The Notes will be issued with original
issue discount. See 'Certain United States Tax Considerations.'
Separability................................. The Notes and the Warrants will not be separately transferable
until the earliest of (i) , 1998, (ii) the
occurrence of an Exercise Event (as defined herein), (iii) the
occurrence of an Event of Default (as defined in 'Description of
the Notes -- Events of Default'), (iv) immediately prior to any
redemption of Notes by the Company with the proceeds of one or
more Public Equity Offerings (as defined herein) or (v) such
earlier date as determined by Merrill Lynch in its sole discretion
(the date of the occurrence of an event specified in clauses (i) -
(v) being the 'Separability Date').
Use of Proceeds.............................. To partially finance the construction and launch of the Company's
satellites, and for general corporate purposes. In addition, the
Company may use up to $50 million of the proceeds of the Stock
Offerings to redeem preferred stock of the Company.
NOTES:
Notes Offered................................ $ principal amount at maturity of Senior Discount Notes due
2007.
Maturity Date................................ , 2007.
Yield and Interest........................... % per annum (computed on a semi-annual bond equivalent basis)
calculated from , 1997. Cash interest will not accrue
on the Notes prior to , 2002, from which time cash
interest will accrue on the Notes at a rate of % per annum.
Interest on the Notes is payable semi-annually on each
and , commencing , 2003.
Optional Redemption.......................... The Notes will be redeemable, at the option of the Company, in
whole or in part, at any time on or after , 2002 at the
redemption prices set forth herein, together with accrued
interest, if any, to the date of redemption.
In addition, at any time or from time to time prior to
, 2000, the Company may redeem up to 33% of the
aggregate principal amount at maturity of the Notes with the net
proceeds of one or more Public Equity Offerings (as defined
herein) at a redemption price of % of the Accreted Value
thereof; provided that immediately after giving effect to such
redemption, at least 67% of the aggregate principal amount at
maturity of the Notes remains outstanding. See 'Description of the
Notes -- Redemption.'
Change of Control............................ Upon the occurrence of a Change of Control (as defined herein),
each holder of Notes may require the Company to purchase all or a
portion of such holder's Notes at a purchase price in cash equal
to 101% of the Accreted Value thereof, together with accrued
interest, if any, to the date of
</TABLE>
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<TABLE>
<S> <C>
purchase. See 'Description of the Notes -- Certain
Covenants -- Purchase of Notes upon a Change of Control.'
Ranking...................................... The Notes will be senior unsecured obligations of the Company
ranking pari passu in right of payment with all existing and
future unsubordinated obligations of the Company, and senior in
right of payment to all existing and future obligations of the
Company expressly subordinated in right of payment to the Notes.
The Notes, however, will be effectively subordinated to secured
senior obligations of the Company with respect to the assets of
the Company securing such obligations. The Indenture permits
certain subsidiary indebtedness and permits the Company to secure
certain indebtedness, including vendor financing from Arianespace
Finance S.A. and Loral Space. See 'Description of Notes -- Certain
Covenants' and 'Description of Certain Indebtedness.' As of
September 30, 1997, on a pro forma basis after giving effect to
the Units Offering and the application of the net proceeds
therefrom, indebtedness of the Company would have been
approximately $150 million, none of which would have been senior
secured indebtedness.
Original Issue Discount...................... Each Note is being offered at an original issue discount for
United States federal income tax purposes. Thus, although cash
interest will not begin to accrue on the Notes until
, 2002, and there will be no periodic payments of
interest on the Notes prior to , 2003, original
issue discount (i.e., the difference between the stated redemption
price at maturity of the Notes and the issue price of the Notes)
will accrue from the issue date and will be includible as interest
income periodically in a holder's gross income for federal income
tax purposes in advance of receipt of the cash payments to which
the income is attributable. See 'Certain United States Tax
Considerations.'
Restrictive Covenants........................ The Indenture governing the Notes (the 'Indenture') will include
covenants with respect to the following matters: (i) limitation on
indebtedness; (ii) limitation on restricted payments; (iii)
limitation on issuances and sale of capital stock of restricted
subsidiaries; (iv) limitation on transactions with affiliates; (v)
limitation on liens; (vi) limitation on sale-leaseback
transactions, (vii) limitation on sale of assets; (viii)
limitation on dividend and other payment restrictions affecting
restricted subsidiaries; (ix) insurance and (x) reports. See
'Description of the Notes -- Certain Covenants.'
Use of Proceeds.............................. To partially finance the construction and launch of the Company's
satellites, and for general corporate purposes. In addition, the
Company may use up to $50 million of the proceeds of the Stock
Offerings to redeem preferred stock of the Company. See 'Use of
Proceeds.'
WARRANTS:
Warrants..................................... The Warrants initially will entitle the holders thereof to acquire
an aggregate of shares of Common Stock, representing in
the aggregate approximately % of the Company's outstanding
Common Stock on a fully diluted basis immediately after giving
effect to the Offerings. See 'Description of Capital Stock.'
Expiration Date.............................. The Warrants will expire on , 2007 (the 'Expiration
Date.')
</TABLE>
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<TABLE>
<S> <C>
Exercise..................................... Each Warrant will entitle the holder to acquire, on or after the
Exercisability Date (as defined below) and prior to the Expiration
Date, one share of Common Stock at an exercise price of $
per share (representing a 10% premium over the closing bid price
of the Common Stock as reported on the Nasdaq National Market on
the date of this Prospectus), subject to adjustment from time to
time upon the occurrence of certain changes in the Common Stock
and certain issuances of Common Stock, options or convertible
securities. The Common Stock and any other securities and property
issuable or deliverable upon exercise of the Warrants are
collectively referred to as 'Warrant Shares.'
The 'Exercisability Date' means the first day on or after the
Separability Date that any of the following (an 'Exercise Event')
has occurred: (i) immediately prior to a Warrant Change of Control
(as defined herein) or (ii) , 1998.
Rights as Stockholders....................... Holders of Warrants will not, by virtue of being such holders,
have any rights of stockholders of the Company.
Registration Rights.......................... The Company has agreed to file and use its best efforts to cause
to be declared effective on or prior to the Exercisability Date, a
registration statement covering the issuance of the Warrant Shares
upon the exercise of the Warrants (the 'Warrant Shares
Registration Statement') and to keep such registration statement
effective (except in certain limited periods) until the earlier of
(i) such time as all Warrants have been exercised and (ii) the
Expiration Date. If the Warrant Shares Registration Statement has
not been declared effective on or prior to the Exercisability Date
(the 'Warrant Registration Default'), the Company shall pay
liquidated damages for each Warrant to the holder thereof (the
'Warrant Registration Damages') for each week or portion thereof
during which the Warrant Registration Default continues. The
Warrant Registration Damages will be equal to $0.03 per week per
Warrant for the first 90-day period during which the Warrant
Registration Default continues and will increase by an amount
equal to $0.02 per week per Warrant with respect to each
subsequent 90-day period during which the Warrant Registration
Default continues and until the Warrant Registration Default is
cured, up to a maximum of $0.07 per week per Warrant. All Warrant
Registration Damages accrued, but not paid, on or prior to any
Semiannual Accrual Date or interest payment date, as the case may
be, will be paid to holders of Warrants on such Semiannual Accrual
Date or interest payment date, as the case may be.
</TABLE>
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SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data for the Company set forth below
with respect to the statements of operations for the years ended December 31,
1994, 1995 and 1996 and with respect to the balance sheets at December 31, 1995
and 1996 are derived from the consolidated financial statements of the Company,
audited by Coopers & Lybrand L.L.P., independent accountants, incorporated
herein by reference. The summary consolidated financial data for the Company,
with respect to the balance sheets at December 31, 1992, 1993 and 1994 and with
respect to the statement of operations data for the years ended December 31,
1992 and 1993, are derived from the Company's audited consolidated financial
statements, which are not incorporated herein by reference. The financial
information as of and for the nine months ended September 30, 1996 and 1997 is
derived from unaudited consolidated financial statements incorporated herein by
reference. In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
that are necessary for a fair presentation of the financial position and results
of operations for these periods. The selected consolidated financial data should
be read in conjunction with the consolidated financial statements and related
notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------- ------------------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues...................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss................................ (1,551) (6,568) (4,065) (2,107) (2,831) (1,871) (1,489)
Net loss per share of Common Stock...... (.23) (.79) (.48) (.23) (.29) (.20) (4.97)(1)
Weighted average shares of Common Stock
and Common Stock equivalents
outstanding........................... 6,715 8,284 8,398 9,224 9,642 9,441 10,760
Deemed dividend on 5% Preferred Stock... -- -- -- -- -- -- $ (51,975)
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------------------------------- ------------------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............... $ 1,883 $ 777 $ 3,400 $ 1,800 $ 4,584 $ 1,371 $ 29,386
Designated cash(2)...................... -- -- -- -- -- -- 66,677
Working capital (deficit)............... 1,399 (250) 2,908 1,741 4,442 1,293 29,871
Total assets............................ 2,292 1,663 3,971 2,334 5,065 1,874 148,430
Deficit accumulated during the
development stage..................... (2,965) (9,533) (13,598) (15,705) (18,536) (16,909) (72,000)
Stockholders' equity.................... 1,791 505 3,431 1,991 4,898 1,486 32,265
Book value per share.................... .48 2.57
</TABLE>
- ------------
(1) Includes a deemed dividend on the Company's 5% Preferred Stock of $52.0
million, or $4.83 per share. The deemed dividend relates to the discount
feature associated with the 5% Preferred Stock, computed in accordance with
the Commission's position on accounting for preferred stock which is
convertible at a discount to the market price.
(2) Represents proceeds of the offering of the 5% Preferred Stock which have
been classified as designated cash reflecting the balance due to the FCC for
the Company's FCC License. The Company paid this amount to the FCC in
October 1997.
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RISK FACTORS
An investment in the Units offered hereby involves a high degree of risk.
In addition to the other information in this Prospectus, the following factors
should be considered carefully in evaluating the Company and its business before
making an investment in the Units offered hereby. This Prospectus contains
certain forward-looking statements within the meaning of the federal securities
laws. Actual results and the timing of certain events could differ materially
from those projected in the forward-looking statements due to a number of
factors, including those set forth below and elsewhere in this Prospectus. See
'Special Note Regarding Forward-Looking Statements.'
EXPECTATION OF CONTINUING LOSSES; NEGATIVE CASH FLOW
The Company is a development stage company and its proposed service, CD
Radio, is in an early stage of development. Since its inception, the Company's
activities have been concentrated on raising capital, obtaining required
licenses, developing technology, strategic planning and market research. From
its inception on May 17, 1990 through September 30, 1997, the Company has had no
revenues and has incurred aggregate net losses of approximately $20.0 million,
including net losses of approximately $2.8 million during the year ended
December 31, 1996 and $1.5 million during the nine months ended September 30,
1997. The Company does not expect to generate any revenues from operations until
late 1999 or 2000 at the earliest, and expects that positive cash flow from
operations will not be generated until late 2000 at the earliest. The ability of
the Company to generate revenues and achieve profitability will depend upon a
number of factors, including the timely receipt of all necessary FCC
authorizations, the successful and timely construction and deployment of its
satellite system, the development and manufacture of radio cards, S-band radios
and miniature satellite dish antennas by consumer electronics manufacturers, the
timely establishment of its National Broadcast Studio and the successful
marketing and consumer acceptance of CD Radio. There can be no assurance that
any of the foregoing will be accomplished, that CD Radio will ever commence
operations, that the Company will attain any particular level of revenues or
that the Company will achieve profitability.
NEED FOR SUBSTANTIAL ADDITIONAL FINANCING
The Company estimates that it will require approximately $659.6 million to
develop and commence commercial operation of CD Radio by the end of 1999. Of
this amount, the Company has raised approximately $266.6 million to date. After
giving effect to the Offerings, the Company will have raised approximately
$499.7 million of funds (assuming the Company does not use up to $50 million of
proceeds of the Stock Offerings to redeem Preferred Stock of the Company),
leaving anticipated additional cash needs of approximately $159.9 million to
fund its operations through 1999. The Company anticipates additional cash
requirements of approximately $100.0 million to fund its operations through the
year 2000. The Company expects to finance the remainder of its funding
requirements through the issuance of debt or equity securities or a combination
thereof. Additional funds, however, would be required in the event of delays,
cost overruns, launch failure or other adverse developments. Furthermore, if the
Company were to exercise its option under the Loral Satellite Contract to
purchase and deploy an additional satellite, substantial additional funds would
be required. See 'Use of Proceeds.' The Company currently does not have
sufficient financing commitments to fund all of its capital needs, and there can
be no assurance that the Company will be able to obtain additional financing on
favorable terms, if at all, or that it will be able to do so on a timely basis.
The AEF Agreements (as defined herein) contain, the indenture governing the
Notes (the 'Indenture') will contain and documents governing any other future
indebtedness are likely to contain provisions that limit the ability of the
Company to incur additional indebtedness. The Company has substantial near-term
funding requirements related to the construction and launch of its satellites.
The Company is committed to make aggregate payments of $277.1 million under the
Loral Satellite Contract and of $176.0 million under the Arianespace Launch
Contract. Under the Loral Satellite Contract, payments are to be made in 22
installments, which commenced in April 1997. Payments due under the Arianespace
Launch Contract commence November 1997 for the first launch, and February 1998
for the second launch. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Funding Requirements.' Failure to secure the
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necessary financing on a timely basis could result in delays and increases in
the cost of satellite construction or launch or other activities necessary to
put CD Radio into operation, could cause the Company to default on its
commitments to its satellite construction or satellite launch contractors, its
creditors or others, could render the Company unable to put CD Radio into
operation and could force the Company to discontinue operations or seek a
purchaser for its business.
POSSIBLE DELAYS AND ADVERSE EFFECT OF DELAY ON FINANCING REQUIREMENTS
The Company currently expects to begin offering CD Radio in late 1999. The
Company's ability to meet that objective will depend on several factors. For
both of the two satellites required for the CD Radio service to be launched and
in operation by the end of 1999, Loral will be required to deliver the second
satellite three months prior to the delivery date specified in the contract,
which cannot be assured. See 'Business -- The CD Radio Delivery System -- The
Satellites -- Satellite Construction.' Furthermore, the launch of both
satellites will have to occur within the early months of the launch periods
reserved with Arianespace, which also cannot be assured. See 'Business -- The CD
Radio Delivery System -- The Satellites -- Launch Services.' A significant delay
in the planned development, construction, launch and commencement of operation
of the Company's satellites would have a material adverse effect on the Company.
Other delays in the development or commencement of commercial operations of CD
Radio may also have a material adverse effect on the Company. Any such delays
could result from a variety of causes, including delays associated with
obtaining additional FCC authorizations, coordinating use of spectrum with
Canada and Mexico, inability to obtain necessary financing in a timely manner,
delays in or modifications to the design, development, construction or testing
of satellites, the National Broadcast Studio or other aspects of the CD Radio
system, changes of technical specifications, delay in commercial availability of
radio cards, S-band radios or miniature satellite dish antennas, failure of the
Company's vendors to perform as anticipated or a delayed or unsuccessful
satellite launch or deployment. During any period of delay, the Company would
continue to have significant cash requirements, including capital expenditures,
administrative and overhead costs, contractual obligations and debt service
requirements that could materially increase the aggregate amount of funding
required to permit the Company to commence operating CD Radio. Additional
financing may not be available on favorable terms or at all during periods of
delay. Delay also could cause the Company to be placed at a competitive
disadvantage in relation to any competitor that succeeds in beginning operations
earlier than the Company. See ' -- Unavailability of Radio Cards, S-band Radios
and Miniature Satellite Dish Antennas,' ' -- Continuing Oversight by the FCC,'
'Business -- The CD Radio Delivery System -- The Receivers' and
'Business -- Government Regulations -- Communications Laws.'
RELIANCE ON UNPROVEN APPLICATIONS OF TECHNOLOGY
CD Radio is designed to be broadcast from two satellites in geosynchronous
orbit that transmit identical signals to radio cards or S-band radios through
miniature satellite dish antennas. This design involves new applications of
existing technology which have not been deployed and there can be no assurance
that the CD Radio system will work as planned. In addition, radio cards, S-band
radios and miniature satellite dish antennas are not currently available. In
certain areas with high concentrations of tall buildings and other obstructions,
such as large urban areas, or in tunnels, signals from both satellites will be
blocked and CD Radio reception will be adversely affected. In urban areas, the
Company plans to install terrestrial repeating transmitters to rebroadcast CD
Radio; however, certain areas with impediments to satellite line-of-sight may
still experience 'dead zones.' Although management believes that the technology
developed by the Company will allow the CD Radio system to operate as planned,
there can be no assurance that it will do so. See ' -- Unavailability of Radio
Cards, S-band Radios or Miniature Satellite Dish Antennas,' 'Business -- The CD
Radio Delivery System' and 'Business -- Technology and Patents.'
DEPENDENCE UPON SATELLITE AND LAUNCH CONTRACTORS
The Company's business will depend upon the successful construction and
launch of the satellites which will be used to transmit CD Radio. The Company
will rely upon its satellite vendor, Loral, for the
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construction and timely delivery of these satellites. Failure by Loral to
deliver functioning satellites in a timely manner could materially adversely
affect the Company's business. Although the Loral Satellite Contract provides
for certain late delivery penalties, Loral will not be liable for indirect or
consequential damages or lost revenues or profits resulting from late delivery
or other defaults. Title and risk of loss for the first and second satellites
are to pass to the Company at the time of launch. The satellites are warranted
to be in accordance with the performance specifications in the Loral Satellite
Contract and free from defects in materials and workmanship at the time of
delivery, which for the first two satellites will be deemed to occur at the time
of arrival of the satellites at the launch base. After delivery, no warranty
coverage applies if the satellite is launched. See 'Business -- The CD Radio
Delivery System -- The Satellites -- Satellite Construction.'
The Company is dependent on its satellite launch vendor, Arianespace, for
the construction of launch vehicles and the successful launch of the Company's
satellites. Failure of Arianespace to launch the satellites in a timely manner
could materially adversely affect the Company's business. The Arianespace Launch
Contract entitles Arianespace to postpone either of the Company's launches for a
variety of reasons, including technical problems, lack of co-passenger(s) for
the Company's launch or the need to conduct a replacement launch for another
customer, a launch of a scientific satellite whose mission may be degraded by
delay, or a launch of another customer's satellite whose launch was postponed.
Although the Arianespace Launch Contract provides liquidated damages for delay,
depending on the length of the delay, and entitles the Company to terminate the
agreement for delay exceeding 12 months, there can be no assurance that these
remedies will adequately mitigate any damage to the Company's business caused by
launch delays. See ' -- Possible Delays and Adverse Effect of Delay on Financing
Requirements.' The liability of Arianespace in the event of a launch failure is
limited to providing a replacement launch in the case of a total launch failure
or paying an amount based on lost satellite capacity in the case of a partial
launch failure. See 'Business -- The CD Radio Delivery System -- The
Satellites -- Launch Services.'
SATELLITE LAUNCH RISKS
Satellite launches are subject to significant risks, including launch
failure, satellite destruction or damage during launch and failure to achieve
proper orbital placement. Launch failure rates may vary depending on the
particular launch vehicle and contractor. Although past experience is not
necessarily indicative of future performance, Arianespace has advised the
Company that as of October 20, 1997, 86 of 91 Arianespace launches (or
approximately 94.5%) have been completed successfully since May 1984. See
'Business -- The CD Radio Delivery System -- The Satellites -- Launch Services.'
However, the Ariane 5, the particular launch vehicle intended for the launches
of the Company's satellites, has had only one launch, which was a failure, and
is untested in flight. The next launch of an Ariane 5 currently is planned for
late October 1997. In the event of a significant delay in the Ariane 5 program,
the Company has the right to request launch on an Ariane 4 launch vehicle. There
is no assurance that Arianespace's launches of the Company's satellites will be
successful. Satellites also may fail to achieve a proper orbit or be damaged in
space. See ' -- Limited Life of Satellites; In-orbit Failure.' As part of its
risk management program, the Company plans to construct a third, backup
satellite and to obtain insurance covering a replacement launch to the extent
required to cover risks not assumed by Arianespace under the Arianespace Launch
Contract. See ' -- Insurance Risks.' The launch of a replacement satellite would
delay the commencement or continuation of the Company's commercial operations
for a period of at least several months, which could have a material adverse
effect on the demand for the Company's services and on its revenues and results
of operations. See 'Business -- The CD Radio Delivery System -- The
Satellites -- Launch Services.'
UNCERTAIN MARKET ACCEPTANCE
There is currently no satellite radio service such as CD Radio in
commercial operation in the United States. As a result, the extent of the
potential demand for such a service and the degree to which the Company's
proposed service will meet that demand cannot be estimated with certainty, and
there can be no assurance that there will be sufficient demand for CD Radio to
enable the Company to achieve significant revenues or cash flow or profitable
operations. The success of CD Radio in gaining
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market acceptance will be affected by a number of factors beyond the Company's
control, including the willingness of consumers to pay subscription fees to
obtain satellite radio broadcasts, the cost, availability and consumer
acceptance of radio cards, S-band radios and miniature satellite dish antennas,
the marketing and pricing strategies of competitors, the development of
alternative technologies or services and general economic conditions. See
'Business -- The Radio Market,' 'Business -- The CD Radio Service,'
'Business -- Marketing Strategy,' 'Business -- The CD Radio Delivery System' and
'Business -- Competition.'
LIMITED LIFE OF SATELLITES; IN-ORBIT FAILURE
A number of factors will affect the useful lives of the Company's
satellites, including the quality of construction, the expected gradual
environmental degradation of solar panels, the amount of fuel on board and the
durability of component parts. Random failure of satellite components could
result in damage to or loss of a satellite. In rare cases, satellites could also
be damaged or destroyed by electrostatic storms or collisions with other objects
in space. If the Company is required to launch the spare satellite, due to
failure of the launch or in-orbit failure of one of the operational satellites,
its operational timetable would be delayed for approximately six months or more.
The launch or in-orbit failure of two satellites would require the Company to
arrange for additional satellites to be built and could delay the commencement
or continuation of the Company's operations for three years or more. The
Company's satellites are expected to have useful lives of approximately 15
years, after which their performance in delivering CD Radio is expected to
deteriorate. There can be no assurance, however, of the specific longevity of
any particular satellite. The Company's operating results would be adversely
affected in the event the useful life of its initial satellites is significantly
shorter than 15 years.
INSURANCE RISKS
Pursuant to the Loral Satellite Contract and the Arianespace Launch
Contract, the Company is the beneficiary of certain limited warranties with
respect to the services provided under each agreement. However, these limited
warranties do not cover a substantial portion of the risks inherent in satellite
launches or in-orbit operations, and the Company will have to obtain insurance
to adequately protect against such risks.
The Arianespace Launch Contract contains a provision entitling the Company
to a replacement launch in the event of a launch failure caused by the launch
vehicle used to launch the Company's satellites. In such event, the Company
would utilize the spare satellite that it is having constructed. Thus, the
Company does not intend to purchase additional insurance for launch failure of
the launch vehicle. The Company intends to insure against other contingencies,
including a failure during launch caused by factors other than the launch
vehicle and/or a failure involving the second or third satellite in a situation
in which the spare satellite has been used to replace the first or second
satellite. Any adverse change in insurance market conditions may result in an
increase, which may be substantial, in the insurance premiums paid by the
Company. There is no assurance that launch insurance will be available or, if
available, that it can be obtained at a cost or on terms acceptable to the
Company.
If the launch of either of the Company's two satellites is a full or
partial failure or if, following launch, either of the satellites does not
perform to specifications, there may be circumstances in which insurance will
not fully reimburse the Company for its expenditures with respect to the
applicable satellite. In addition, the Company has not acquired insurance that
would reimburse the Company for business interruption, loss of business and
similar losses which might arise from such events or from delay in the launch of
either of the satellites. Any insurance obtained by the Company also will likely
contain certain exclusions and material change conditions that are customary in
the industry. See 'Business -- The CD Radio Delivery System -- The
Satellites -- Risk Management and Insurance.'
RISK ASSOCIATED WITH CHANGING TECHNOLOGY
The industry in which the Company operates is characterized by rapid
technological advances and innovations. There is no assurance that one or more
of the technologies utilized or under development by the Company will not become
obsolete, or that its services will be in demand at the time they are
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offered. The Company will be dependent upon technologies developed by third
parties to implement key aspects of its proposed system, and there can be no
assurance that more advanced technologies will be available to the Company on a
timely basis or on reasonable terms or that more advanced technologies will be
used by the Company's competitors and that such technologies will be available
to the Company. In addition, unforeseen problems in the development of the
Company's satellite radio broadcasting system may occur that could adversely
affect performance, cost or timely implementation of the system and could have a
material adverse effect on the Company.
UNAVAILABILITY OF RADIO CARDS, S-BAND RADIOS OR MINIATURE SATELLITE DISH
ANTENNAS
The Company's business strategy requires that subscribers to CD Radio
purchase radio cards or S-band radios as well as the associated miniature
satellite dish antennas in order to receive the service. See 'Business -- The CD
Radio Delivery System.' Neither the radio cards, S-band radios nor miniature
satellite dish antennas currently are available, and the Company is unaware of
any manufacturer currently developing such products. The Company does not intend
to manufacture or distribute radio cards, S-band radios or miniature satellite
dish antennas. The Company has entered into non-binding memoranda of
understanding with two major consumer electronics manufacturers, and has
commenced discussions with several other such manufacturers, regarding the
manufacture of radio cards, S-band radios and miniature satellite dish antennas
for retail sale in the United States. The Company currently intends to select
one manufacturer of these products on an exclusive basis for the first year of
CD Radio broadcasts. There can be no assurance, however, that these discussions
or memoranda of understanding will result in a binding commitment on the part of
any manufacturer to produce radio cards, S-band radios and miniature satellite
dish antennas in a timely manner and at an affordable price so as to permit the
widespread introduction of CD Radio in accordance with the Company's business
plan or that sufficient quantities of radio cards, S-band radios and miniature
satellite dish antennas will be available to meet anticipated consumer demand.
The failure to have one or more consumer electronics manufacturers develop these
products for commercial sale in a timely manner, at an affordable price and with
mass market nationwide distribution would have a material adverse effect on the
Company's business. In addition, the FCC, in its order granting the FCC License,
conditioned the Company's license on certification by the Company that its final
receiver design is interoperable with respect to the final receiver design of
the other licensee, which has proposed to use a significantly different
transmission technology from that of the Company. The Company believes that it
can design an interoperable receiver, but there can be no assurance that this
effort will be successful or result in a commercially feasible receiver. See
'Business -- The CD Radio Delivery System,' 'Business -- Marketing Strategy,'
and 'Business -- Technology and Patents.'
NEED TO OBTAIN RIGHTS TO PROGRAMMING
In connection with its music programming, the Company will be required to
negotiate and enter into royalty arrangements with performing rights societies,
such as The American Society of Composers, Authors and Publishers ('ASCAP'),
Broadcast Music, Inc. ('BMI') and SESAC, Inc. ('SESAC'). These organizations
collect royalties and distribute them to songwriters and music publishers.
Copyright users negotiate a fee with these organizations based on a percentage
of advertising and/or subscription revenues. Broadcasters currently pay a
combined total of approximately 3% of their revenues to the performing rights
societies. The Company also will be required to negotiate similar arrangements,
pursuant to the Digital Performance Right in Sound Recordings Act of 1995 (the
'Digital Recording Act'), with the owners of the sound recordings. The
determination of certain royalty arrangements with the owners of sound
recordings under the Digital Recordings Act currently are subject to arbitration
proceedings. The Company believes that it will be able to negotiate royalty
arrangements with these organizations and the owners of sound recordings, but
there can be no assurance as to the terms of any such royalty arrangements
ultimately negotiated or established by arbitration.
DEVELOPMENT OF BUSINESS AND MANAGEMENT OF GROWTH
The Company has not yet commenced CD Radio broadcasts. The Company expects
to experience significant and rapid growth in the scope and complexity of its
business as it proceeds with the
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development of its satellite radio system and the commencement of CD Radio.
Currently, the Company has only ten employees and does not have sufficient staff
to program its broadcast service, manage operations, control the operation of
its satellites, handle sales and marketing efforts or perform finance and
accounting functions. Although the Company has recently retained experienced
executives in several of these areas, the Company will be required to hire a
broad range of additional personnel before its planned service begins commercial
operations. Growth, including the creation of a management infrastructure and
staffing, is likely to place a substantial strain on the Company's management
and operational resources. The failure to develop and implement effective
systems or to hire and train sufficient personnel for the performance of all of
the functions necessary to the effective provision of its service and management
of its subscriber base and business, and the failure to manage growth
effectively, would have a material adverse effect on the Company.
CONTINUING OVERSIGHT BY THE FCC
In order to offer CD Radio, the Company was required to obtain a license
from the FCC to launch and operate its satellites. The Company was a winning
bidder in the April 1997 FCC auction for an FCC license to build, launch and
operate a national satellite radio broadcast service (the 'FCC License'), and
the FCC's International Bureau issued such a license to the Company on October
10, 1997 (the 'IB Order'). Although the FCC License is effective immediately,
for a period of 30 days following the grant of the FCC License, certain parties
can petition either the International Bureau or the full FCC to reconsider the
decision to grant the FCC License to the Company. If any such petition is filed
and denied, the complaining party may file an appeal with the U.S. Court of
Appeals, which must find that the decision of the International Bureau or the
FCC was not supported by substantial evidence, or was arbitrary, capricious or
unlawful in order to overturn the grant of the Company's FCC License. The
Company cannot predict whether any such petitions will be filed or, if a
petition is filed, the ultimate outcome of any related proceeding. See
'Business -- Government Regulation -- Communications Laws.'
In order to ensure compliance with the transfer of control rule
restrictions contained in the Communications Act of 1934, as amended (the
'Communications Act'), any future assignments or transfers of control of the
Company's license must be approved by the FCC. There can be no assurance that
the FCC would approve any such transfer or assignment.
The term of the FCC License with respect to each satellite is eight years,
commencing from the date each satellite is declared operational after having
been inserted into orbit. Upon the expiration of the term with respect to each
satellite, the Company will be required to apply for a renewal of the relevant
license. Although the Company believes that the FCC will grant such renewals
absent significant misconduct on the part of the Company, there can be no
assurance that such renewals in fact will be obtained.
The CD Radio system is designed to permit CD Radio to be received by
motorists in all outdoor locations where the vehicle has an unobstructed
line-of-sight with one of the Company's satellites. However, in certain areas
with high concentrations of tall buildings, such as urban cores, or in tunnels,
signals from both satellites will be blocked and reception will be adversely
affected. Therefore, the Company plans to install terrestrial repeating
transmitters to rebroadcast CD Radio in certain urban areas. The FCC has not yet
established rules governing the application procedure for obtaining
authorizations to construct and operate terrestrial repeating transmitters. The
Company cannot predict the outcome of this process. In addition, in connection
with the installation and operation of the terrestrial repeating transmitters,
the Company will need to obtain the rights to use the roofs of certain
structures where the repeating transmitters will be installed. There can be no
assurance that the Company can obtain such roof rights on acceptable terms or in
appropriate locations for the operation of CD Radio. Also, the FCC Licensing
Rules (as defined herein) require that the Company complete frequency
coordination with Canada and Mexico. There can be no assurance that the Company
will be able to coordinate use of this spectrum or will be able to do so in a
timely manner.
Changes in law, FCC regulations or international agreements relating to
communications policy generally or to matters relating specifically to the
services to be offered by the Company could affect the Company's ability to
retain the FCC License and obtain or retain other approvals required to provide
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CD Radio or the manner in which CD Radio would be offered or regulated. See
'Business -- Government Regulation.'
The IB Order determined that as a private carrier, the Company would not be
subject to the current provisions of the Communications Act restricting
ownership in the Company by non-U.S. private citizens or organizations. The
Executive Branch of the U.S. government has expressed interest in changing this
policy, which could lead to restrictions on foreign ownership of the Company's
shares in the future. The IB Order stated that its finding that the Company is
not subject to the foreign ownership restrictions of the Communications Act is
subject to being revisited in a future proceeding.
The FCC has indicated that it may in the future impose public service
obligations, such as channel set-asides for educational programming, on
satellite radio licensees. The Company cannot predict whether the FCC will
impose public service obligations or the impact that any such obligations, if
imposed, would have on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the services of David Margolese,
Chairman and Chief Executive Officer, who is responsible for the Company's
operations and strategic planning. The loss of the services of Mr. Margolese
could have a material adverse effect upon the business and prospects of the
Company. See 'Business -- Government Regulation' and 'Management.'
APPLICATION OF EXPORT CONTROL REGULATIONS
Shipment of the Company's satellites to territory outside the United States
is subject to U.S. export control regulation. Because Arianespace, the Company's
satellite launch vendor, intends to launch the Company's satellites from an
Arianespace launch facility in French Guiana, a department of France, export
licenses will be required under U.S. export control regulations. There can be no
assurance, however, that the required export licenses will be obtained.
RISK OF SIGNAL THEFT
The CD Radio signal, like all broadcasts, is subject to the risk of piracy.
Although the Company plans to use encryption technology to mitigate signal
theft, the Company does not believe that any such technology is infallible.
Accordingly, there can be no assurance that theft of the CD Radio signal will
not occur. Signal theft, if widespread, could have a material adverse effect on
the Company.
COMPETITION
The Company will be seeking market acceptance of its proposed service in a
new, untested market and will compete with established conventional radio
stations, which do not charge subscription fees or require the purchase of radio
cards or S-band radios and associated miniature satellite dish antennas to
receive their services. Many radio stations also offer information programming
of a local nature such as local news or traffic reports which the Company will
be unable to offer. In addition, the Company expects that, prior to the
commercial launch of CD Radio, some traditional FM radio broadcasting stations
will begin to transmit digital, compact disc quality signals. The Company also
expects to compete directly with American Mobile Radio Corporation ('AMRC'), a
subsidiary of American Mobile Satellite Corporation ('AMSC'), which is the
holder of the other FCC License. AMSC, which is owned in part by the Hughes
Electronics Corporation subsidiary of General Motors Corporation, has financial,
management and technical resources that greatly exceed those of the Company. See
'Business -- Competition.' In addition, the FCC could grant new licenses which
would enable further competition to broadcast satellite radio. Finally, there
are many portions of the electromagnetic spectrum that are currently licensed
for other uses and certain other portions for which licenses have been granted
by the FCC without restriction as to use, and there can be no assurance that
these portions of the spectrum could not be utilized for satellite radio
broadcasting in the future. Although any such licensees would face cost and
competition barriers, there can be no assurance that there will not be an
increase in the number of competitors in the satellite radio industry or any
assurance that one
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or more competitors will not design a satellite radio broadcast system that is
superior to the Company's system, either of which events could have a material
adverse effect on the Company. See 'Business -- Competition.'
UNCERTAIN PATENT PROTECTION
The Company has been granted certain U.S. patents covering various features
of satellite radio technology including, among other features, signal diversity
and memory reception. There can be no certainty that the Company's system or
products will be covered by the Company's patents. If the Company's system or
products are not covered by the Company's patents, others may duplicate the
Company's system or products without liability to the Company. In addition,
there can be no assurance that the Company's U.S. patents will not be
challenged, invalidated or circumvented by others. Litigation, which could
result in substantial cost to the Company, may be necessary to enforce the
Company's patents or may occur to determine the scope and validity of other
parties' proprietary rights, and there can be no assurance of success in any
such litigation. There can be no assurance that there are no patents, or pending
patent applications which will later mature into patents, or inventions
developed earlier which will later mature into patents, of others which may
block the Company's ability to operate its system or license its technology. The
earliest of the Company's patents is due to expire, upon payment of all
necessary fees, on April 10, 2012. See 'Business -- Technology and Patents.'
RISK OF INABILITY TO SATISFY A CHANGE IN CONTROL OFFER
Upon the occurrence of any change of control (as defined in the Indenture
and the certificate of designations for the Series C Preferred Stock,
respectively), the Company will be required to make a change of control offer
for the Notes and a similar offer to purchase shares of the Series C Preferred
Stock. If such a change of control offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the purchase price for
any or all of the Notes and the Series C Preferred Stock that might be delivered
by holders of the Notes or the Series C Preferred Stock seeking to accept the
change of control offer. The Indenture provides that the Company must purchase
all Notes delivered by holders pursuant to a change of control offer prior to
purchasing any shares of the Series C Preferred Stock. The failure of the
Company to make or consummate the change of control offer or to pay the purchase
price for the Notes when due will give the trustee under the Indenture and the
holders of the Notes the right to require the Company to prepay all of its
outstanding indebtedness and other obligations under the Notes. The failure of
the Company to make or consummate the change of control offer or pay the
purchase price for the Series C Preferred Stock when due will give the holders
of a majority of the Series C Preferred Stock the right, voting as a separate
class, to elect a number of directors of the Company equal to the lesser of two
directors and the number of directors constituting at least 25% of the Board of
Directors of the Company.
In addition, a change in control of the Company could require FCC approval.
See 'Business -- Regulation.'
INVESTMENT COMPANY ACT OF 1940
On July 22, 1997, the Company filed an application with the Securities and
Exchange Commission for an order declaring that the Company is not an
'investment company' as that term is defined in the Investment Company Act of
1940, as amended (the '1940 Act'). The 1940 Act defines an investment company to
include a company that owns or proposes to acquire 'investment securities' (as
that term is defined in the 1940 Act) exceeding 40% of the value of such
company's assets (exclusive of U.S. government securities and cash items).
Because the Company had temporarily invested the proceeds from its recent public
and private offerings in investment securities prior to their expenditure, the
Company could have fallen within the definition of an investment company.
Investment companies must be registered and are subject to extensive regulation
by the Commission under the 1940 Act.
The filing of the application gave the Company an automatic 60-day
exemption (the final day of which was September 19, 1997) from the provisions of
the 1940 Act pending a final determination of the merits of its application.
Because the Commission has not yet acted on the Company's application, the
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Company has now invested in U.S. government securities at least that proportion
of its assets as the Company believes will be sufficient to avoid any
determination that it is an 'investment company' within the meaning of the 1940
Act.
If the request relief is ultimately denied, the Company may be required to
register as an investment company or, in the alternative, to invest a
substantial portion of the proceeds from the Offerings in U.S. government
securities, pending expenditure of such proceeds by the Company for its
corporate purposes.
ABSENCE OF PUBLIC MARKET FOR UNITS, NOTES OR WARRANTS
Prior to the offering of the Units, there has been no public market for the
Units, Notes or Warrants and the Company does not intend to apply for listing of
the Units, Notes or Warrants on any securities exchange or for quotation of the
Units, Notes or Warrants on the Nasdaq National Market. The Company has been
advised by the Underwriters that they presently intend to make a market in the
Units, Notes and Warrants, as permitted by applicable laws and regulations,
after consummation of the sale of the Units. The Underwriters are not obligated,
however, to make a market in the Units, Notes or Warrants and any such market
making activity may be discontinued at any time without notice at the sole
discretion of each Underwriter. There can be no assurance as to the liquidity of
the public market for the Units, Notes or Warrants or that an active public
market for the Units, Notes or Warrants will develop. If an active public market
does not develop, the market price and liquidity of the Units, Notes or Warrants
may be adversely affected. See 'Underwriting.'
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurances that any market for the Notes
will not be subject to similar disruptions.
ORIGINAL ISSUE DISCOUNT
The Notes will be issued at a substantial discount from their principal
amount at maturity. Consequently, United States holders of the Notes generally
will be required to include amounts in gross income for United States federal
income tax purposes in advance of receipt of the cash payments to which such
income is attributable. If the Notes are treated as 'applicable high yield
discount obligations,' the Company's deductions with respect to the original
issue discount on the Notes will be either deferred until the Company makes the
related payments or possibly, in part, disallowed. See 'Certain United States
Income Tax Considerations' for a more detailed discussion of the United States
federal income tax consequences to United States holders of the purchase,
ownership and disposition of the Notes and of the possible deferral or
disallowance (in part) of original issue discount deductions to the Company.
If a bankruptcy case is commenced by or against the Company under the
United States Bankruptcy Code after the issuance of the Notes, the claim of a
holder of Notes may be limited to an amount equal to the sum of (i) the initial
public offering price for the Notes and (ii) that portion of the original issue
discount that is not deemed to constitute 'unmatured interest' for purposes of
the United States Bankruptcy Code. Any original issue discount that was not
amortized as of the date of the commencement of any such bankruptcy filing would
constitute 'unmatured interest.'
NO DIVIDENDS
The Company has not declared or paid any dividends on its Common Stock
since its inception, and does not currently anticipate paying any such
dividends. The AEF Agreements contain and the Indenture will contain provisions
that limit the Company's ability to pay dividends.
LIMITED PUBLIC MARKET FOR COMMON STOCK
The Common Stock is traded on the Nasdaq National Market. There can be no
assurance that an active public market will continue to exist for the Common
Stock or as to the liquidity of any such market, the ability of holders of the
Common Stock to sell their securities or the price at which such
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holders would be able to sell. Such price may be influenced by many factors,
including, but not limited to, investor perception of the Company and its
industry and general economic and market conditions.
VOLATILITY OF STOCK PRICE
The trading price of the Common Stock has been volatile, and it may
continue to be so. Such trading price could be subject to wide fluctuations in
response to announcements of business and technical developments by the Company
or its competitors, quarterly variations in operating results, and other events
or factors, including expectations by investors and securities analysts and the
Company's prospects. In addition, stock markets have experienced extreme price
volatility in recent years. This volatility has had a substantial effect on the
market prices of development stage companies, at times for reasons unrelated to
their operating performance. Such broad market fluctuations may adversely affect
the price of the Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue up to
50,000,000 shares of preferred stock (the 'Preferred Stock') in one or more
series and to determine the price, rights, preferences and privileges of those
shares without any further vote or action by the stockholders. Of that amount,
8,000,000 shares have been designated as 5% Preferred Stock, of which 5,222,608
shares were issued and outstanding as of September 30, 1997. A further 7,000,000
shares of Preferred Stock have been designated Series C Preferred Stock, of
which up to 1,932,073 shares will be issued and outstanding following the
completion of the Exchange Offer. In addition, the Company has adopted a
stockholders rights plan and in connection with the stockholders rights plan,
300,000 shares of Preferred Stock have been designated Series B Preferred Stock.
Any issuance of Preferred Stock, including Preferred Stock with voting and
conversion rights, as well as the Series C Preferred Stock which are convertible
into shares of Common Stock, may adversely affect the voting power of the
holders of Common Stock. The stockholders rights plan and any issuance of
Preferred Stock may be deemed to have anti-takeover effects and may delay, deter
or prevent a change in control of the Company that a stockholder might consider
to be in his or her best interest. The Company may also become subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law.
The effect of these provisions could have the effect of delaying or preventing a
change of control of the Company or adversely affect the market price of the
Company's Common Stock. Furthermore, the severance provisions of employment
agreements with certain members of the Company's management provide for payments
that could discourage an attempted change in control of the Company.
Any change in the composition of the Company's ownership after Arianespace
Finance S.A. ('AEF') has determined that the Tranche A Loans are eligible for
Conversion (as defined below), which could reasonably be expected to have a
Material Adverse Effect (as defined in the AEF Agreements), would constitute a
default under the AEF Agreements. Therefore, upon the occurrence of such change
in the Company's ownership, AEF would have the right to accelerate its loans to
the Company and the Company may be required to prepay all of its outstanding
obligations under the AEF Agreements. See 'Description of Certain
Indebtedness -- Vendor Financing.' There can be no assurance that the Company
will satisfy the conditions for Conversion. However, any other financing
obtained by the Company to repay or refinance the Tranche A Loans likely would
contain restrictions on significant changes in the Company's stock ownership.
Upon the occurrence of any Change of Control (as defined in the Indenture),
or a Change in Control (as defined in the Series C Preferred Stock certificate
of designations), the Company will be required to make an offer to purchase the
Notes, after issuance thereof, and the Series C Preferred Stock. If such an
offer is made, there can be no assurance that the Company will have available
funds sufficient to pay the purchase price for any or all of the Notes and the
Series C Preferred Stock that might be delivered by holders of the Notes or the
Series C Preferred Stock seeking to accept the offer. After the issuance of the
Notes the failure of the Company to make or consummate the Change of Control
offer or to pay the purchase price for the Notes when due will give the trustee
under the Indenture and the holders of the Notes the right to require the
Company to prepay all of its outstanding indebtedness and other obligations
under the Notes. The failure of the Company to make or
25
<PAGE>
<PAGE>
consummate the offer to purchase or pay the purchase price for the Series C
Preferred Stock when due will give the holders of a majority of the Series C
Preferred Stock the right, voting as a separate class, to elect a number of
directors of the Company equal to the lesser of two directors and the number of
directors constituting at least 25% of the Board of Directors of the Company.
In addition, a change in control of the Company could require FCC approval.
See 'Business -- Regulation.'
CONTROL BY EXISTING STOCKHOLDERS
The executive officers and directors of the Company currently beneficially
own, or have voting power with respect to, approximately 41.2% of the
outstanding Common Stock, and upon consummation of the Stock Offerings, such
executive officers and directors are expected to beneficially own, or have
voting power with respect to, approximately 32.3% of the outstanding Common
Stock (assuming none of the executive officers, directors, any grantor under a
voting trust granting voting power over shares of Common Stock purchased by such
grantor or such grantor's affiliates to any such executive or director, or such
grantor's affiliates purchases any shares of Common Stock in the Stock
Offerings). This concentration of ownership will enable such stockholders,
either acting alone or together with other existing stockholders, to exert
considerable influence over the management and policies of the Company. Such a
concentration of ownership may have the effect of delaying, deferring or
preventing a change of control.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Stock Offerings, the Company will have
16,077,884 shares of Common Stock outstanding, assuming no exercise of (i) the
Underwriters' over-allotment option, (ii) outstanding options and (iii) Warrants
issued in connection with the Units Offering. Of these shares, 9,795,896 shares
will be freely tradeable without restriction under the Securities Act unless
such shares are purchased in the Stock Offerings by 'affiliates' of the Company,
as such term is defined in Rule 144 under the Securities Act (the 'Affiliates').
Of the remaining 6,281,988 shares of Common Stock, 3,547,488 shares are
'restricted securities' as that term is defined in Rule 144 under the Securities
Act (the 'Restricted Shares'). Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act. Up to
1,642,000 of the Restricted Shares held by the directors and certain officers of
the Company will be eligible for sale, subject to the restrictions of Rule 144,
upon expiration of certain lock-up agreements entered into between each of such
directors and officers of the Company and the underwriters of the Stock Offering
(the 'Lock-up Agreements'), which shall expire, with respect to a Lock-up
Agreement concerning 1,600,000 of such shares, on a cumulative basis as to 25%
of such 1,600,000 shares at the expiration of each of the 15th, 18th, 21st and
24th month following August 26, 1997, and, with respect to Lock-up Agreements
concerning the remaining 42,000 shares, 180 days after the effective date of the
Stock Offerings. The remaining 1,905,488 Restricted Shares will not become
eligible for resale until August 1998, and then only pursuant to the
restrictions under Rule 144. In addition, the Company's largest stockholder has
entered into a lock-up agreement relating to 2,734,500 shares lasting for a
period ending, on a cumulative basis, as to 25% of the shares of Common Stock
owned by such holder, on the expiration of the 15th, 18th, 21st and 24th month
following August 26, 1997. As such shares become free of such lock-up, they will
be eligible for sale without restriction.
The Company is unable to predict the effect that sales made under Rule 144,
pursuant to future registration statements, or otherwise, may have on any then
prevailing market price for shares of the Common Stock. Nevertheless, sales of a
substantial amount of Common Stock in the public market, or the perception that
such sales could occur, could adversely affect market prices.
26
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Units Offering are estimated to be
approximately $142.8 million after deducting estimated underwriting discounts
and estimated expenses relating thereto. Concurrently with the sale of the
Units, the Company intends to complete the Stock Offerings and consummate the
Exchange Offer. The net proceeds to the Company from the Stock Offerings are
estimated to be approximately $75.6 million ($87.0 million if the related
underwriters' over-allotment option is exercised in full) (based on an assumed
price of $23.75 per share, the closing price of the Company's Common Stock at
October 23, 1997) after deducting estimated underwriting discounts and estimated
expenses of the Stock Offerings. The Company will receive no proceeds from the
Exchange Offer.
The Company expects to use the net proceeds of the Offerings to partially
finance the construction and launch of the Company's satellites. In addition,
the Company may use up to $50 million of the proceeds of the Stock Offerings to
redeem preferred stock of the Company. The remainder of the net proceeds of the
Offerings will be used for general corporate purposes, including marketing and
working capital.
The Company estimates that it will require approximately $659.6 million to
develop and commence commercial operation of CD Radio by the end of 1999. Of
this amount, the Company has raised approximately $266.6 million to date. After
giving effect to the Offerings, the Company will have raised $499.7 million of
funds, leaving anticipated additional cash needs of approximately $159.9 million
to fund its operations through 1999 (assuming the Company does not use up to $50
million of proceeds of the Stock Offerings to redeem preferred stock of the
Company). The Company anticipates additional cash requirements of approximately
$100.0 million to fund its operations through the year 2000. The Company expects
to finance the remainder of its funding requirements through the issuance of
debt or equity securities or a combination thereof. There can be no assurance,
however, that the Company's cash requirements will not increase or that such
funds will be sufficient. In addition, although the Company's business plan is
based upon the deployment of two satellites and the construction of a third
spare satellite, it has the right to exercise an option under the Loral
Satellite Contract to acquire an additional satellite. If the Company elects to
exercise this option, substantial additional funds would be required and the
Company would have to obtain additional regulatory approvals. Deployment of an
additional satellite also could result in a delay in the introduction of CD
Radio. Any decision to deploy a three satellite system would have to be made
prior to the launch of the Company's first satellite. The Company intends to
seek additional financing through the issuance of debt or equity securities in
the public or private markets. However, there can be no assurance that the
Company will be able to obtain additional financing on favorable terms, or at
all, or that such financing will be available in a timely manner. See 'Risk
Factors -- Need for Substantial Additional Financing.'
SOURCES AND USES OF FUNDS BY CD RADIO
The following table describes the estimated sources and uses of funds by
the Company from its inception through the end of 1999 when CD Radio is targeted
to commence commercial operations. The projection of total sources and total
uses of funds is forward looking and could vary, perhaps substantially, from
actual results, due to events outside the Company's control, including
unexpected costs and unforeseen delays.
27
<PAGE>
<PAGE>
PRE-OPERATIONAL PERIOD(1)
<TABLE>
<CAPTION>
SOURCES OF FUNDS
----------------
(IN MILLIONS)
-------------
<S> <C>
Funds Committed to Date:
Net proceeds from equity investments prior to the FCC auction(2)..................... $ 21.6
Net proceeds from issuance of 5% Preferred Stock(3).................................. 120.5
Net proceeds from sale of Common Stock to Loral Space(4)............................. 24.5
Vendor financing(5).................................................................. 100.0
-------------
Total to Date................................................................... 266.6
Gross proceeds of the Offerings........................................................... 233.1
-------------
Pro forma funds to date................................................................... 499.7
Net future funds(6)....................................................................... 159.9
-------------
Total pre-operational sources................................................... $ 659.6
-------------
-------------
<CAPTION>
USES OF FUNDS
-------------
<S> <C>
CD Radio system:
Satellite contract(7)................................................................ $ 246.8
Launch services and insurance(8)..................................................... 191.1
Ground segment(9).................................................................... 47.3
-------------
Subtotal........................................................................ 485.2
FCC License............................................................................... 83.3
Operating expenses and working capital(10)................................................ 60.6
Net cash interest expense(11)............................................................. 2.2
Estimated fees and expenses of the Offerings, Exchange Offer and partial redemption of
outstanding 5% Preferred Stock(12)...................................................... 28.3
-------------
Total pre-operational uses...................................................... $ 659.6
-------------
-------------
</TABLE>
- ------------
(1) Assumes that CD Radio will commence commercial operations in December 1999.
The Company anticipates that it will require total net future funds of
$159.9 million following the Offerings to finance additional expenses
through 1999. The Company anticipates additional funding requirements of
$100.0 million to fund its operations through year end 2000. Many factors,
including the Company's ability to generate significant revenues, could
affect this estimate. This table assumes the Company does not use up to $50
million of proceeds of the Stock Offerings to redeem preferred stock of the
Company. See 'Risk Factors' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
(2) Includes (i) proceeds from sales of Common Stock and units of $14.5
million, (ii) proceeds from exercise of warrants of $4.6 million, (iii)
proceeds from exercise of options of $0.2 million, (iv) issuance of Common
Stock in satisfaction of notes and interest of $1.4 million and (v)
issuance of Common Stock for services rendered of $0.9 million.
(3) In April 1997, the Company issued a total of 5,400,000 shares of 5%
Preferred Stock for aggregate consideration of $135 million in a private
placement transaction. The net proceeds to the Company after fees payable
to the placement agent and the Company's financial advisor and related
expenses were approximately $120.5 million.
(4) On August 5, 1997, the Company completed the sale of 1,905,488 shares of
Common Stock to Loral Space for aggregate consideration of $25 million,
less fees of $0.5 million.
(5) The Company has available up to $105 million under the AEF Vendor Financing
to finance a portion of the costs of launching two satellites (and can also
defer certain interest payments thereon), and $20 million of deferred
payments under the Loral Satellite Contract. Under the AEF Agreements not
more than $80 million may be converted into term loans that mature beyond
the launch date of the satellites. The Company may be unable to comply with
certain conditions of conversion or to comply with the covenants of such
term loans if converted, in which case the Company will need to refinance
the amounts outstanding under the AEF Agreements. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity' and 'Description of Certain Indebtedness -- Vendor Financing.'
(6) The Company currently expects to satisfy its future funding requirements
through the incurrence of additional debt and/or the issuance of additional
equity securities in the public or private markets. Although the Company
believes that it will be able to meet its additional funding requirements,
there can be no assurance that such financing will be available on
favorable terms, on a timely basis, or not at all. Among other things, any
financing is subject to market conditions at the time of any proposed
financing. See 'Risk Factors -- Need for Substantial Additional Financing'
and 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
(7) As of September 30, 1997, the Company had incurred $31.1 million of this
amount. See 'Risk Factors -- Dependence upon Satellite and Launch
Contractors.' The amount shown excludes $29.8 million related to the
purchase of the Company's ground spare (third) satellite which is payable
subsequent to December 31, 1999. The total contract amount of $277.1
million assumes a one-time inflation adjustment (estimated by Loral to be
2%) for the period November 1996 to September 1997.
(footnotes continued on next page)
28
<PAGE>
<PAGE>
(footnotes continued from previous page)
(8) Includes $176 million for launch services and an estimated $15.1 million
for insurance. As of September 30, 1997, the Company had incurred $3.5
million of the launch services amount. See 'Risk Factors -- Dependence on
Satellite and Launch Contractors' and 'Business -- The CD Radio Delivery
System -- The Satellites.'
(9) Includes an estimated $6.7 million for the National Broadcast Studies,
$38.2 million for terrestrial repeaters and $2.4 million for corporate
office capital expenditures.
(10) Includes cumulative historical operating expenses through September 30,
1997 of $23.1 million, and projected operating expenses from October 1,
1997 through the end of the pre-operational period of $39.8 million.
(11) Includes estimated cash interest expense of $17.1 million, less cash
interest income of $14.9 million, based on assumed interest rates, cash
balances, borrowing levels and the timing, amount and structure of future
financings.
(12) Includes estimated fees and expenses for the Offerings and the Exchange
Offer of $18.6 million and $9.7 million of existing cash for redemption of
5% of the outstanding shares of 5% Preferred Stock.
PRICE RANGE OF COMMON STOCK
The Common Stock began trading on the Nasdaq SmallCap Market on September
13, 1994 under the symbol 'CDRD' and traded there until October 24, 1997, when
it began trading on the Nasdaq National Market. The following table sets forth
the high and low prices for the Common Stock, as reported by the Nasdaq SmallCap
Market for the periods indicated below. The prices set forth below reflect
interdealer quotations, without retail markups, markdowns, fees or commissions
and do not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994
Third Quarter (commencing September 13, 1994)..................................... $4 1/2 $3 3/4
Fourth Quarter.................................................................... 3 7/8 1 5/8
1995
First Quarter..................................................................... 4 5/8 1 7/8
Second Quarter.................................................................... 3 15/16 2 5/8
Third Quarter..................................................................... 4 5/8 2 15/16
Fourth Quarter.................................................................... 4 3/8 2 15/16
1996
First Quarter..................................................................... 9 1/8 2 15/16
Second Quarter.................................................................... 13 3/4 7 1/8
Third Quarter..................................................................... 9 5/8 6 3/4
Fourth Quarter.................................................................... 8 1/2 3 7/16
1997
First Quarter..................................................................... 8 3 9/16
Second Quarter.................................................................... 20 1/4 10 3/4
Third Quarter..................................................................... 20 14
Fourth Quarter (through October 23, 1997)......................................... 25 1/4 18 13/16
</TABLE>
On October 23, 1997, the closing bid price of the Common Stock on the
Nasdaq SmallCap Market was $23 3/4 per share. On September 30, 1997, there were
approximately 105 record holders of the Common Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain earnings, if any, for use in its business and does
not anticipate paying any cash dividends in the foreseeable future. The AEF
Agreements contain, and the Indenture will contain, provisions that limit the
Company's ability to pay dividends on the Common Stock.
29
<PAGE>
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock at
September 30, 1997 was approximately $65.0 million, or $2.87 per share. Pro
forma net tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets (including amounts that represent
deposits and designated cash for the Company's FCC License), divided by the
number of shares of Common Stock outstanding as of September 30, 1997, assuming
conversion of each outstanding share of 5% Preferred Stock into approximately
1.9297 shares of Common Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the Stock Offerings and the pro forma net tangible book value per share
of Common Stock immediately after completion of the Stock Offerings. After
giving effect to the sale of the 3,500,000 shares of Common Stock being offered
by the Company in the Stock Offerings and after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company, the pro
forma net tangible book value at September 30, 1997 would have been
approximately $140.7 million, or $5.38 per share. This represents an immediate
increase in pro forma net tangible book value of $2.51 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$18.37 per share to purchasers of Common Stock in the Stock Offerings as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Initial public offering price per share......................................................... $23.75
Pro forma net tangible book value per share at September 30, 1997.......................... $2.87
Increase per share attributable to new investors........................................... 2.51
------
Pro forma net tangible book value per share after the Stock Offerings........................... 5.38
------
Pro forma net tangible book value dilution per share to new investors........................... $18.37
------
------
</TABLE>
The following table sets forth, as of September 30, 1997, the number of
shares of Common Stock purchased from the Company (assuming conversion of each
share of 5% Preferred Stock into approximately 1.9297 shares of Common Stock),
the total consideration paid and the average price per share paid by existing
stockholders and the new investors purchasing shares in the Stock Offerings
(after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------------- ------- ------------ ------- ---------
(IN (IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 22,656 86.6% $166,600 68.8% $ 7.35
New investors...................................... 3,500 13.4 75,600 31.2 $ 21.60
------------ ------- ------------ ------- ---------
Total......................................... 26,156 100.0% $242,200 100.0%
------------ ------- ------------ -------
------------ ------- ------------ -------
</TABLE>
The foregoing assumes no exercise of stock options outstanding at September
30, 1997 or the issuance of Warrants in connection with the Units Offering. At
September 30, 1997, there were outstanding stock options to purchase an
aggregate of 1,733,000 shares of Common Stock.
30
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of the Company
as of September 30, 1997 (i) on an historical basis; (ii) as adjusted for
payment by the Company of the balance due to the FCC for the FCC License in
October 1997 and the Exchange Offer (assuming 100% acceptance by holders of 5%
Preferred Stock) after deducting Dealer Manager fees and other estimated
expenses; and (iii) as adjusted for the estimated net proceeds from the sale of
3,500,000 shares of Common Stock pursuant to the Stock Offerings (at an assumed
offering price of $23.75 per share, the closing price of the Company's Common
Stock at October 23, 1997, after deducting the underwriting discounts and
commissions and estimated offering expenses) and the sale of Units for net
proceeds of $142.8 million pursuant to the Units Offering.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------------------------
AS ADJUSTED AS FURTHER
FOR THE ADJUSTED FOR
EXCHANGE THE
ACTUAL OFFER OFFERINGS
------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents......................................... $ 29,386 $ 25,221 $ 243,621
Designated cash(1)................................................ 66,667 -- --
------------ ------------ ------------
Total cash and cash equivalents................................... $ 96,053 $ 25,221 $ 243,621
------------ ------------ ------------
------------ ------------ ------------
Senior Discount Notes(2).......................................... $ -- $ -- $ 150,000
5% Delayed Convertible Preferred Stock, 5,222,608 shares issued
and outstanding, actual(3)...................................... 116,083 -- --
10 1/2% Series C Convertible Preferred Stock, no par value,
1,932,853 shares issued and outstanding, as adjusted and as
further adjusted(4)............................................. -- 193,285 193,285
Common Stock, $.001 par value; 12,577,884 shares issued and
outstanding, actual and as adjusted; and 16,077,884 shares
issued and outstanding, as further adjusted(5).................. 13 13 16
Additional paid in capital........................................ 104,252 52,252 128,295
Deficit accumulated during the development stage.................. (72,000) (101,367) (101,367)
------------ ------------ ------------
Total capitalization(6)...................................... $148,348 $144,183 $ 370,229
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------
(1) Represents proceeds of the offering of the 5% Preferred Stock which have
been classified as designated cash reflecting the balance due to the FCC for
the Company's FCC License. The Company paid this amount to the FCC in
October 1997.
(2) In accordance with generally accepted accounting principles, a portion of
issue price of the Units will be allocated to the Warrants to reflect their
fair market value at the date of issuance.
(3) All capitalization excludes warrants issuable by the Company as of September
30, 1997 to purchase 486,000 shares of 5% Preferred Stock.
(4) Assumes no redemption of Series C Preferred Stock after consummation of the
Exchange Offer.
(5) All capitalization excludes: (i) options outstanding as of September 30,
1997 to purchase 2,013,000 shares of Common Stock, of which 1,652,000 shares
are subject to currently exercisable options, and (ii) warrants issuable as
of September 30, 1997 to purchase 2,000,000 shares of Common Stock.
(6) Total capitalization does not include any amount for the AEF Agreements (as
defined herein).
31
<PAGE>
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected consolidated financial data for the Company set forth below
with respect to the statements of operations for the years ended December 31,
1994, 1995 and 1996 and with respect to the balance sheets at December 31, 1995
and 1996 are derived from the consolidated financial statements of the Company,
audited by Coopers & Lybrand L.L.P., independent accountants, incorporated
herein by reference. The selected consolidated financial data for the Company
with respect to the balance sheets at December 31, 1992, 1993 and 1994 and with
respect to the statement of operations data for the years ended December 31,
1992 and 1993, are derived from the Company's audited consolidated financial
statements, which are not incorporated herein by reference. The financial
information as of and for the six months ended June 30, 1996 and 1997 is derived
from unaudited consolidated financial statements incorporated herein by
reference. In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
that are necessary for a fair presentation of the financial position and results
of operations for these periods. The selected consolidated financial data should
be read in conjunction with the consolidated financial statements and related
notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------- ----------------------------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating
revenues.......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss............ (1,551) (6,568) (4,065) (2,107) (2,831) (1,871) (1,489)
Net loss per share
of Common Stock... (.23) (.79) (.48) (.23) (.29) (.20) $ (4.97)(1)
Weighted average
shares of Common
Stock and Common
Stock equivalents
outstanding....... 6,715 8,284 8,398 9,224 9,642 9,441 10,760
Deemed dividend on
5% Preferred
Stock............. -- -- -- -- -- -- $ (51,975)
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------------------------------- ----------------------------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT END OF
PERIOD):
Cash and cash
equivalents....... $ 1,883 $ 777 $ 3,400 $ 1,800 $ 4,584 $ 1,371 $ 29,386
Designated
cash(2)........... -- -- -- -- -- -- 66,677
Working capital
(deficit)......... 1,399 (250) 2,908 1,741 4,442 1,293 29,871
Total assets........ 2,292 1,663 3,971 2,334 5,065 1,874 148,430
Deficit accumulated
during the
development
stage............. (2,965) (9,533) (13,598) (15,705) (18,536) (16,909) (72,000)
Stockholders'
equity............ 1,791 505 3,431 1,991 4,898 1,486 32,265
Book value per
share............. .48 2.57
</TABLE>
- ------------
(1) Includes a deemed dividend on the Company's 5% Preferred Stock of $52.0
million, or $4.83 per share. The deemed dividend relates to the discount
feature associated with the 5% Preferred Stock, computed in accordance with
the Commission's position on accounting for preferred stock which is
convertible at a discount to the market price.
(2) Represents proceeds of the offering of the 5% Preferred Stock which were
classified as designated cash reflecting the balance due to the FCC for the
Company's FCC License. The Company paid this amount to the FCC in October
1997.
32
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of certain
events could differ materially from those projected in the forward-looking
statements due to a number of factors, including those set forth under 'Risk
Factors' and elsewhere in this Prospectus. See 'Special Note Regarding
Forward-Looking Statements.'
OVERVIEW
The Company was organized in May 1990 and is in its development stage. The
Company's principal activities to date have included technology development,
pursuing regulatory approval for CD Radio, market research, design, development,
contract negotiations with satellite and launch vehicle contractors, technical
efforts with respect to standards and specifications, strategic planning and
securing adequate financing for working capital and capital expenditures. The
Company does not expect to derive any revenues from operations prior to the
commercial launch of CD Radio, which is expected to occur no earlier than the
end of 1999. The Company has incurred substantial losses to date and expects to
incur substantial losses until at least a year after the commercial launch of CD
Radio. In addition, the Company will require substantial additional capital to
complete development and commence commercial operations of CD Radio. There can
be no assurance that CD Radio will ever commence operations, that the Company
will attain any particular level of revenues or that the Company will achieve
profitability.
Upon commencing commercial operations, the Company expects its primary
source of revenues to be monthly subscription fees. The Company currently
anticipates that its subscription fee will be approximately $10 per month to
receive CD Radio broadcasts, with a one time, modest activation fee per
subscriber. To receive CD Radio, subscribers will need to purchase a radio card
or S-band radio together with the associated miniature satellite dish antenna.
The Company does not intend to manufacture these products and thus will not
receive any revenues from their sale. Although the Company holds patents
covering various features of its satellite broadcasting system, which system
includes, among other features, certain technology to be used in the radio
cards, S-band radios and miniature satellite dish antennas, the Company expects
to license its technology to manufacturers at no charge. As the number of
subscribers to CD Radio increases, the Company also may derive revenues from
payments from producers of sports, news and talk programming for providing
national distribution of their programming to subscribers.
The Company expects that the operating expenses associated with commercial
operations will consist primarily of costs to acquire programming; costs to
maintain and operate its satellite broadcasting system and National Broadcasting
Studio; and sales, general and administrative costs. Costs to acquire
programming are expected to include payments to build and maintain an extensive
music library and royalty payments for broadcasting music (calculated based on a
percentage of revenues). Sales, general and administrative costs are expected to
consist primarily of advertising costs, salaries of executives, studio
personnel, program hosts, administrators, technical staff, rent and other
administrative expenses. The Company expects that the number of its employees
will increase from 11 to approximately 100 by the time it commences commercial
operations.
In addition to funding initial operating losses, the Company will require
funds for working capital, interest and financing costs on borrowings and
capital expenditures. The Company's interest expense will increase significantly
as a result of its financing plan. However, a substantial portion of its planned
indebtedness will not require cash payments of interest and principal for some
time.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
The Company recorded net losses of $1,489,000 and $1,872,000 for the nine
months ended September 30, 1997 and 1996, respectively, and $654,000 and
$667,000 for the three months ended September 30, 1997 and 1996, respectively.
The Company's total operating expenses were $4,357,000
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and $1,921,000 for the nine months ended September 30, 1997 and 1996,
respectively, and were $2,230,000 for the three months ended September 30, 1997
compared to $682,000 for the three months ended September 30, 1996.
Legal, consulting and regulatory fees increased for the nine months ended
September 30, 1997 to $2,603,000 from $979,000 for the nine months ended
September 30, 1996, and increased to $1,357,000 from $372,000 for the three
months ended September 30, 1997 and 1996, respectively. These levels of
expenditures are the result of increased activity since winning an auction for a
national satellite radio broadcast license conducted by the FCC in April 1997.
Research and development costs were $43,000 and $77,000 for the nine months
ended September 30, 1997 and 1996, respectively, and $8,000 and $24,000 for the
three months ended September 30, 1997 and 1996, respectively. The Company
completed the majority of such activities in 1994.
Other general and administrative expenses increased for the nine months
ended September 30, 1997 to $1,711,000 from $866,000 for the nine months ended
September 30, 1996 and to $865,000 from $285,000 for the three months ended
September 30, 1997 and 1996, respectively. General and administrative expenses
are expected to continue to increase as the Company continues to develop its
business. The Company also incurred a non-cash charge of $240,000 for the nine
month period ended September 30, 1996, attributable to the recognition of
compensation expense in connection with stock options issued to officers of the
Company.
The increase in interest income to $2,873,000 for the nine months ended
September 30, 1997, from $62,000 in the nine months ended September 30, 1996 and
to $1,575,000 from $17,000 for the three months ended September 30, 1997 and
1996, respectively, was the result of a higher average cash balance during 1997.
The cash and cash equivalents on hand were primarily obtained from the 5%
Preferred Stock Offering and the sale of Common Stock to Loral Space in 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
The Company recorded net losses of $2,831,000 ($.29 per share) and
$2,107,000 ($.23 per share) for the years ended December 31, 1996 and 1995,
respectively. The Company's total operating expenses were $2,930,000 in 1996
compared to $2,230,000 in 1995.
Legal, consulting and regulatory fees increased in 1996 to $1,582,000 from
$1,046,000 in 1995, as the result of increased efforts to obtain the FCC
License.
Research and development costs were $117,000 in 1996, compared with
$122,000 in 1995. Non-recurring costs associated with the design and development
of the CD Radio demonstration system were substantially completed in 1993. Costs
incurred in subsequent years relate to the operations of the demonstration
system, including leasing satellite time, taking transmission measurements, and
testing multipath fading.
Other general and administrative expenses increased in 1996 to $1,231,000
from $1,062,000 in 1995. The increase is due to the Company requiring general
administrative support for the effort to obtain the FCC License.
Interest income decreased to $113,000 in 1996 from $143,000 in 1995 as a
result of the Company having a higher average cash balance in 1995. Proceeds
relating to the exercise of stock warrants were not received until late 1996
and, therefore, did not generate a significant amount of interest income.
Interest expense decreased from $20,000 in 1995 to $13,000 in 1996 as a result
of the Company repaying a promissory note due to an officer of the Company in
1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
The Company recorded net loss of $2,107,000 ($.23 per share) and $4,065,000
($.48 per share) for the years ended December 31, 1995 and 1994, respectively.
The Company's total operating expenses were $2,230,000 in 1995 compared to
$4,076,000 in 1994.
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Legal, consulting and regulatory fees decreased from $1,245,000 in 1994 to
$1,046,000 in 1995 as the Company continued to reduce costs while awaiting
action by the FCC on the Company's application for an FCC License.
Other general and administrative expenses also decreased from $2,455,000 in
1994 to $1,062,000 in 1995 reflecting a reduction of costs such as payroll, rent
and compensation expense in connection with issuance of stock options.
The Company completed the majority of the research and development
necessary for product development prior to FCC licensing by 1994 which was
reflected in the decrease of research and development costs from $375,000 in
1994 to $122,000 in 1995.
The increase in interest income from $51,000 in 1994 to $143,000 in 1995
was the result of a higher average cash balance in 1995. The cash and cash
equivalents on hand were originally obtained from the Company's initial public
offering in September 1994, which raised $4.8 million.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of approximately
$29,870,000 compared to $4,442,000 at December 31, 1996. The increase in working
capital was primarily the result of remaining cash proceeds from the offering of
5% Preferred Stock and the sale of Common Stock to Loral Space in 1997.
FUNDING REQUIREMENTS
The Company is a development stage company and as such will require
substantial amounts of continued outside financing to acquire and develop its
assets and commence commercial operations. The Company estimates that it will
require approximately $659.6 million to develop and commence commercial
operation of CD Radio by the end of 1999. Of this amount, the Company has raised
approximately $266.6 million to date. After giving effect to the Offerings, the
Company will have raised approximately $499.7 million, leaving anticipated
additional cash needs of approximately $159.9 million to fund its operations
through 1999 (assuming the Company does not use up to $50 million of proceeds of
the Stock Offerings to redeem preferred stock of the Company). The Company
anticipates additional cash requirements of approximately $100.0 million to fund
its operations through the year 2000. The Company expects to finance the
remainder of its funding requirements through the issuance of debt or equity
securities or a combination thereof. Furthermore, if the Company were to
exercise its option under the Loral Satellite Contract to purchase and deploy an
additional satellite, substantial additional funds would be required. See 'Use
of Proceeds.'
In April 1997, the Company was the winning bidder in an FCC auction for one
of two national satellite broadcast licenses with a winning bid of $83.3
million, of which $16.7 million was paid as a deposit. The Company paid the
balance due the FCC in October 1997 and was awarded the FCC License on October
10, 1997.
To build and launch the satellites necessary for the operations of CD
Radio, the Company has entered into the Loral Satellite Contract and the
Arianespace Launch Contract. The Loral Satellite Contract provides for Loral to
construct for the Company three satellites, two of which the Company intends to
launch and the third of which will be kept in reserve as a spare, and for an
option to be granted to the Company to purchase a fourth satellite. Under the
Arianespace Launch Contract, Arianespace has agreed to launch two of the
Company's satellites into orbit. See 'Business -- The CD Radio Delivery
System -- The Satellites.' The Company is committed to make aggregate payments
of $277.1 million under the Loral Satellite Contract and of $176.0 million under
the Arianespace Launch Contract. Under the Loral Satellite Contract, with the
exception of a payment made at the time of the signing of the Loral Satellite
Contract in March 1993, payments are to be made in 22 installments commencing in
April 1997 and ending in November 2000, the expected delivery date for the third
satellite. Approximately half of these payments are contingent on Loral meeting
specified milestones in the manufacture of the three satellites. In addition,
Loral has agreed to defer a total of $20.0 million of the contract price, which
is to be paid in four equal installments of $5.0 million commencing November
2001 until March 2003. See ' -- Sources of Funding.' Amounts due under the
Arianespace Launch
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Contract, except for payments made prior to the execution of the Arianespace
Launch Contract, are payable on various dates between November 1997 and July
1999 for the first launch, and, for the second launch, are payable on various
dates between February 1998 and the earlier of October 1999, or ten days prior
to the second launch.
The Company also will require funds for construction of its National
Broadcast Studio, working capital, interest on borrowings, acquisition of
programming, financing costs and operating expenses until some time after the
commencement of commercial operations of CD Radio. The Company's interest
expense will increase significantly as a result of its financing plan; however,
a substantial portion of its planned indebtedness will not require immediate
cash payments. The Notes are not expected to require cash payments until 2003.
Interest on funds borrowed by the Company under the AEF Agreements is deferred
until repayment of such amounts.
SOURCES OF FUNDING
The Company historically has funded its operations through equity capital.
As of September 30, 1997, the Company had received a total of $166.6 million in
equity capital and had no outstanding indebtedness. A significant portion of the
Company's equity capital was received in April 1997 as a result of the Company's
issuance of 5,400,000 shares of 5% Preferred Stock for aggregate net proceeds of
$120.5 million in a private placement transaction. These proceeds were used
primarily to finance the payment of the purchase price for the FCC License and
for working capital.
On July 22, 1997, the Company entered into two loan agreements
(collectively the 'AEF Agreements') with Arianespace Finance S.A. ('AEF'), a
subsidiary of Arianespace, to finance approximately $105 million of the
estimated $176 million price of the launch services to be provided by
Arianespace (the 'AEF Vendor Financing'). Under these agreements, the Company is
able to borrow funds to meet the progress payments due to Arianespace for the
construction of each launch vehicle and other launch costs (the 'Tranche A
Loans'). The Company has the opportunity upon satisfying a variety of conditions
specified in the AEF Agreements to extend the term of the Tranche A Loans. If
the term is not extended, or if the Company is unable to comply with the terms
and covenants of such extended loans, the Company will be required to repay the
Tranche A Loans in full, together with accrued interest and all fees and other
amounts due, approximately three months before the applicable launch date, which
will be prior to the time CD Radio commences commercial operations. There can be
no assurance that the Company will have sufficient funds to make such repayment.
The AEF Agreements impose restrictions on the Company's ability to incur
additional indebtedness, make investments or permit liens on certain assets of
the Company, other than liens in favor of AEF. If AEF determines that the
Tranche A Loans are eligible for conversion into term loans, the Company will
also be subject to provisions restricting its ability to change its capital
structure or organizational documents or to merge, consolidate or combine with
another entity. If the Tranche A Loans are converted, the Company's obligations
to AEF will be secured by a lien on specified assets of the Company, including
the satellites and, to the extent permitted by applicable law, the FCC License.
See 'Description of Certain Indebtedness -- Vendor Financing.'
Pursuant to a Multiparty Agreement among the Company, AEF and Arianespace
in connection with the AEF Agreements, if the Company is unable to obtain
sufficient financing to complete the construction and launch of the satellites,
or if the Company terminates the Arianespace Launch Contract, the Company will
be required to pay Arianespace a termination fee ranging from 5% to 40% of the
launch services price, based on the proximity of the date of termination to the
scheduled launch date. The termination fee will be payable prior to the time the
Company commences commercial operations and there can be no assurance that the
Company will have sufficient funds to pay this fee.
The Loral Satellite Contract provides for payments to be made in
installments commencing in April 1997 and ending in November 2000, subject to
achievement by Loral of certain milestones in the manufacture of the satellites.
Loral has agreed to defer payment of $20.0 million from two milestone payments
due in June and September of 1998. The deferred amount will be paid in four
installments of $5.0 million, with the first payment to be made 27 months after
the delivery of the first satellite, the second payment to be made 27 months
after delivery of the second satellite, the third payment to be
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made 365 days after the first payment date and the fourth payment to be made 365
days after the second payment date.
In the event of a satellite or launch failure, the Company will be required
to pay Loral the full deferred amount for the affected satellite no later than
120 days after the date of the failure. If the Company should elect to put a
satellite into ground storage, rather than having it shipped to the launch site,
the full deferred amount for the affected satellite will become due within 60
days of such election.
As a condition to the deferred payments, the Company has agreed to provide
Loral a security interest in the properties and assets of the Company and its
subsidiaries, of substantially the same nature and quality, and of substantially
equivalent value relative to the amount of the secured obligations, and on the
same terms and covenants, as the Company has provided or may provide to any
other party under any and all of its loan, credit and other similar agreements.
There currently is no such security interest.
After giving effect to the Offerings and the AEF Agreements, the Company
expects it will require at least an additional $159.9 million in financing
through 1999. Thereafter, the Company expects it will require additional
financing. However, there can be no assurance that the Company's actual cash
requirements will not increase. Potential sources of additional financing
include the sale of debt or equity securities in the public or private markets.
There can be no assurance that the Company will be able to obtain additional
financing on favorable terms, or at all, or that it will be able to do so in a
timely fashion. The AEF Agreements contain, the indenture will contain and
documents governing any indebtedness incurred in the future are expected to
contain provisions limiting the ability of the Company to incur additional
indebtedness. If additional financing were not available on a timely basis, the
Company would be required to delay satellite and/or launch vehicle construction
in order to conserve cash to fund continued operations, which would cause delays
in the commencement of operations and increased costs. See 'Risk Factors -- Need
for Substantial Additional Funding.'
The amount and timing of the Company's actual cash requirements will depend
upon numerous factors, including costs associated with the construction and
deployment of its satellite system and the rate of growth of its business
subsequent to commencing service, costs of financing and the possibility of
unanticipated costs. Additional funds would be required in the event of delay,
cost overruns, launch failure, launch services or satellite system change
orders, or any shortfalls in estimated levels of operating cash flow, or to meet
unanticipated expenses.
As a result of the issuance of the Notes and the expected incurrence of
significant additional indebtedness required to meet its capital requirements,
the Company will have substantial indebtedness. The Company's ability to meet
all of its debt service obligations when due may require it to refinance its
then outstanding indebtedness. No assurance can be given that the Company will
be able to generate sufficient cash flow to service its indebtedness or be able
to refinance indebtedness. The Indenture will contain, and debt instruments
governing any future indebtedness of the Company are expected to contain,
restrictions on, among other things, the ability of the Company to incur
additional indebtedness.
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BUSINESS
This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of certain
events could differ materially from those projected in the forward-looking
statements due to a number of factors, including those set forth under 'Risk
Factors' and elsewhere in this Prospectus. See 'Special Note Regarding
Forward-Looking Statements.'
GENERAL
CD Radio Inc. was founded in 1990 to pioneer and commercialize a compact
disc quality, multi-channel radio service broadcast directly from satellites to
vehicles. In October 1997, the Company was granted one of two licenses from FCC
to build, launch and operate a national satellite radio broadcast system. The
Company has begun construction of two satellites that it plans to launch into
geosynchronous orbit to broadcast its radio service throughout the United
States. The Company's service, which will be marketed under the brand name 'CD
Radio,' is expected to consist of 30 channels of commercial-free, compact disc
quality music programming and 20 channels of news, sports and talk programming.
CD Radio will be broadcast over a frequency band, the 'S-band', that will
augment traditional AM and FM radio bands. Under its FCC license, the Company
has the exclusive use of a 12.5 megahertz portion of the S-band for this
purpose. The Company currently expects to commence CD Radio broadcasts in late
1999 at a subscription price of $10 per month.
The Company is positioning itself as an entertainment company and
accordingly plans to design and originate programming on each of its 30 music
channels. Each channel will be operated as a separate radio station, with a
distinct format. Certain music channels will offer continuous music while others
will have program hosts, depending on the type of music programming. CD Radio
will offer a wide range of music categories, such as:
Symphonic
Chamber Music
Opera
Today's Country
Traditional Country
Contemporary Jazz
Classic Jazz
Blues
Big Band/Swing
Top of the Charts
Classic Rock
50's Oldies
60's Oldies
Folk Rock
Latin Ballads
Latin Rhythms
Reggae
Rap
Dance
Urban Contemporary
Soft Rock
Singers & Songs
Beautiful Instrumentals
Album Rock
Alternative Rock
New Age
Broadway's Best
Gospel
Children's Entertainment
World Beat
The Company's 50 music and non-music stations will be housed at the
National Broadcast Studio. The National Broadcast Studio will contain the
Company's music library, facilities for programming origination, programming
personnel and program hosts, as well as facilities to uplink programming to the
satellites, to activate or deactivate service to subscribers and to perform the
tracking, telemetry and control of the orbiting satellites.
THE CD RADIO OPPORTUNITY
The Company believes that there is a significant market for music and other
radio programming delivered through advanced radio technology. While television
technology has advanced steadily -- from black and white to color, from
broadcast to cable, and from ordinary to high-definition television -- the last
major advance in radio technology was the introduction of FM broadcasts. CD
Radio will provide a new generation of radio service, offering a wide variety of
music formats available on demand, 'seamless' signal coverage throughout the
United States and commercial-free, compact disc quality music programming. The
Company's planned multiplicity of formats currently is not available to
motorists in any market within the United States.
CD Radio is primarily a service for motorists. The Yankee Group, a market
research organization, estimates that there will be approximately 198 million
registered private motor vehicles in the United States by the end of 1999, when
the Company expects to commence broadcasting. At present, approximately 89% of
all private vehicles have a radio that could easily be utilized to receive
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CD Radio's broadcasts, with this number estimated to be approximately 182
million vehicles in 1999, and approximately 199 million in 2004. CD Radio will
initially target a number of demographic groups among the drivers of these
vehicles, including 110 million commuters, 34 million of whom spend between one
and two hours commuting daily, three million truck drivers and three million
owners of recreational vehicles, among other groups.
According to Arbitron, in 1996, despite the fact that almost all vehicles
contain either a cassette or compact disc player, 87% of automobile commuters
listened to the radio an average of 50 minutes a day while commuting. According
to the Radio Advertising Bureau, each week radio reaches approximately 95% of
all Americans over the age of 12, with the average listener spending more than
three hours per weekday and more than five hours per weekend listening to the
radio. More than 40% of all radio listening is done in cars. In addition, in
1996, approximately 79% of total radio listening was to FM stations, which
primarily provides music programming, as compared with AM stations which devote
a greater proportion of their programming to talk and news.
The Company believes that its ability to offer a wide variety of musical
formats simultaneously throughout the United States will enable it to tap
significant unmet consumer demand for specialized musical programming. The
economics of the existing advertiser supported radio industry dictate that
conventional radio stations generally program for the greatest potential
audience. Even in the largest metropolitan areas, station formats are limited.
Nearly half of all commercial radio stations in the United States offer one of
only three formats: country, adult contemporary and news/talk, and the next
three most prevalent formats account for another 30% of all stations. Although
niche music categories such as classical, jazz, rap, gospel, oldies,
soundtracks, new age, children's programming and others accounted for
approximately 27% of sales of recorded music in 1996, such formats generally are
unavailable on existing radio stations in many markets. Even in New York City,
the nation's largest radio market, there are no radio stations devoted solely to
such programming as opera, blues, chamber music, soundtracks, reggae, children's
programming and many others. CD Radio's wide choice of formats is expected to
appeal to a large number of currently underserved listeners.
In addition, the limited coverage area of conventional radio broadcasting
means that listeners often travel beyond the range of any single station. Unlike
conventional FM stations, which have an average range of only approximately 30
miles before reception fades, CD Radio's signal is designed to cover the entire
continental United States enabling listeners almost always to remain within its
broadcast range. The Company's satellite delivery system is designed to permit
CD Radio to be received by motorists in all outdoor locations where the vehicle
has an unobstructed line-of-sight with one of the Company's satellites or is
within range of one of the Company's terrestrial repeating transmitters.
The ability to broadcast nationwide will also allow the Company to serve
currently underserved radio markets. In the United States, there are more than
45 million people aged 12 and over living in areas with such limited radio
station coverage that the areas are not monitored by Arbitron. Of these, the
Company believes approximately 22 million people receive five or fewer FM
stations, 1.6 million receive only one FM station and at least one million
people receive no FM stations. This segment of the population also has a limited
choice of radio music formats and is one of CD Radio's primary target markets.
The Company also believes that CD Radio will have a competitive advantage
over conventional radio stations due to its music channels being
commercial-free. In contrast, conventional radio stations interrupt their
broadcasts with up to 18 minutes of commercials in every hour of music
programming, and most stations also frequently interrupt programming with news,
promotional announcements, public service announcements and miscellaneous
information. The Company believes that consumers dislike frequent radio
commercial interruptions and that 'station surfing' to avoid them is common.
PROGRESS TO DATE AND SIGNIFICANT DEVELOPMENT MILESTONES
The following chart sets forth the Company's past and projected development
milestones. There can be no assurance that the Company will be able to meet any
of its projections for 1998 or 1999, including completion of construction of its
National Broadcast Studio, completion of its satellite launches, or commencement
of its commercial operations in late 1999 as planned. See 'Risk Factors --
Possible Delays and Adverse Effect of Delay on Financing Requirements.'
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<TABLE>
<S> <C>
1990: CD Radio Inc. incorporated
Proposed FCC create satellite radio service and filed license application
1991: Conducted stationary service simulation
Conducted nationwide focus groups
1992: Satellite radio spectrum allocated at WARC-92
Conducted radio manufacturer discussions
1993: Contracted with Loral for construction of its satellites
Contracted with Arianespace for launch of two of its satellites
Conducted additional nationwide focus groups
1994: Completed an initial public offering of its Common Stock
1995: Completed Loral satellite design
Filed orbital slot registrations
Completed development of its proprietary miniature satellite dish antenna
1996: Designed the radio card receiver
1997: Won auction for FCC License
Received one of two FCC national satellite radio broadcasting licenses
Completed a $135 million private placement of 5% Preferred Stock
Commenced construction of two satellites
Completed receipt of satellite broadcast patents
Arranged $105 million of vendor financing with Arianespace Finance S.A.
Recruited its key programming, marketing and financial management team
Completed a strategic sale of $25 million of Common Stock to Loral Space
Executed radio manufacturer memoranda of understanding
1998: Select radio card manufacturer
Select non-music channel content providers
Complete significant satellite construction milestones
Begin terrestrial repeating transmitter build-out
1999: Complete construction of National Broadcast Studio
Begin commercial production of radio cards
Complete satellite launches
Test markets
Begin commercial operations
</TABLE>
THE CD RADIO SERVICE
CD Radio will offer motorists (i) a wide choice of finely focused music
formats; (ii) nearly seamless signal coverage throughout the continental United
States; (iii) commercial-free music programming; and (iv) plug and play
convenience.
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Wide Choice of Programming. Each of CD Radio's 30 music channels will have
a distinctive format, such as opera, reggae, classic jazz and children's
entertainment, intended to cater to specific subscriber tastes. In most markets,
radio broadcasters target their programming to broad audience segments. Even in
the largest metropolitan markets the variety of station formats generally is
limited, and many of the Company's planned formats are unavailable.
'Seamless' Signal Coverage. CD Radio will be available throughout the
continental United States, enabling listeners almost always to be within its
broadcast range. The Company expects its nearly seamless signal will appeal to
motorists who frequently travel long distances, including truck drivers and
recreational vehicle owners, as well as commuters and others who outdrive the
range of their FM signals. In addition, the Company expects its broadcasts will
appeal to the 45 million consumers who live in areas that currently receive only
a small number of FM stations.
Commercial-Free Music Programming. The Company will provide commercial-free
music programming. The Company's market research indicates that a principal
complaint of radio listeners concerning conventional broadcast radio is the
frequency of commercials. Because CD Radio, unlike most commercial AM and FM
stations, will be a subscription and not an advertiser-supported service, its
music channels will not contain commercials.
Plug and Play Convenience. Consumers will be able to receive CD Radio
broadcasts by acquiring a radio card and an easily attachable, silver
dollar-sized satellite dish antenna. Listeners will not be required to replace
their existing car radios and will be able to use the radio card by plugging it
into their radio's cassette or compact disc slot. CD Radio listeners using a
radio card will be able to push a button to switch between AM, FM and CD Radio.
Radio cards will be portable and will be able to be moved from car to car. Radio
card activation will be accomplished directly via satellite by calling the
Company's customer service center at 888-CD-RADIO.
The Company intends to offer 30 channels of commercial-free, all-music
programming and 20 additional channels of other formats that do not require
compact disc quality audio, such as all-news, all-sports and all-talk
programming. Each music channel will have a distinctive format, intended to
cater to specific subscriber tastes. The Company expects the initial
subscription fee for CD Radio, which will entitle subscribers to receive all CD
Radio channels, will be $10 per month.
The Company intends to recruit program managers from the recording,
broadcasting and entertainment industries to manage the development of daily
programming for each CD Radio channel. In order to be accessible to these
industries, the Company plans to locate its programming operations and the
National Broadcast Studio in the New York metropolitan region. Program managers
also will coordinate the Company's continuing market research to measure
audience satisfaction, refine channel definitions and themes and select program
hosts for those channels that have hosts.
Music programming will be selected from the Company's music library. The
Company intends to create an extensive music library which will consist of a
deep range of recorded music in each genre broadcast. In addition to updating
its music library with new recordings as they are released, the Company will
seek to acquire recordings that in certain cases are no longer commercially
available.
The Company believes that CD Radio will provide an opportunity for the
recording industry to expose and promote new releases and artists to targeted
listener groups nationwide. The Company plans to solicit promotional copies of
new recordings, and contemplates showcasing these releases as part of a service
to be developed for record companies. The Company intends to work with the
recording industry and performing artists to develop innovative programming
formats.
In connection with its music programming, the Company will be required to
negotiate and enter into royalty arrangements with performing rights societies,
such as ASCAP, BMI and SESAC. These organizations collect royalties and
distribute them to songwriters and music publishers. Copyright users negotiate a
fee with these organizations based on a percentage of revenues. Broadcasters
currently pay a combined total of approximately 3% of their revenues to the
performing rights societies. The Company also will be required to negotiate
similar arrangements, pursuant to the Digital Recordings Act, with the owners
of the sound recordings. The determination of certain royalty arrangements
with the owners of sound recordings under the Digital Recordings Act currently
are subject to arbitration proceedings. The Company believes that it will be
able to negotiate satisfactory royalty arrangements
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with the above organizations and the owners of sound recordings, but there can
be no assurance as to the terms of any such royalty arrangements ultimately
negotiated or established by arbitration.
In addition to its music channels, the Company expects to offer 20 channels
of news, sports and talk programming. The Company does not intend to produce the
programming for these non-music channels. The Company believes, based on its
discussions to date, that there is sufficient interest on the part of providers
of news, sports and talk programming in CD Radio to permit the Company to offer
a variety of non-music programming. News, talk and sports programming obtained
from third party sources will include commercial advertising. To date, the
Company has not reached any understandings or entered into any agreements with
respect to the supply of such programming.
MARKETING STRATEGY
The Company plans to offer a high quality broadcast service with targeted
music formats, nearly seamless signal coverage throughout the continental United
States, commercial-free music programming and compact disc quality fidelity. The
Company's marketing strategy for CD Radio has three interrelated components: (i)
the strategy for creating consumer awareness of CD Radio, (ii) the strategy for
generating subscriptions to CD Radio and (iii) the strategy for generating
purchases of radio cards and S-band radios and their associated miniature
satellite dish antennas.
CREATING CONSUMER AWARENESS
The Company believes that the introduction of CD Radio will have high news
value, which it expects will result in significant national and local publicity
prior to and during the initial launch of the service. In addition, the Company
plans to engage in extensive marketing, advertising and promotional activities
to create consumer awareness of CD Radio. This includes an ongoing major
advertising campaign funded principally by the Company, together with expected
significant manufacturer and retailer cooperative advertising. A major national
umbrella campaign will utilize a full mix of media, including network and cable
television, radio, print and billboard.
GENERATING SUBSCRIPTIONS TO CD RADIO
The Company also intends to focus its initial efforts on a number of
demographic groups that it believes represent potential target markets for CD
Radio, including commuters, niche music listeners, truck drivers, recreational
vehicle owners, consumers in areas with sparse radio coverage and operators of
rental car fleets. In addition, the Company intends to aggressively target early
adopters of new technologies, who it believes are likely to have a high level of
interest in CD Radio.
Commuters. Of the 110 million commuters, the Company has identified 34
million as highly addressable by virtue of their commute times averaging between
one and two hours daily. To reach these commuters, the Company plans to purchase
radio advertising spots on stations with frequent traffic reports, purchase
outdoor billboard advertising on long commute roads and place inserts in
gasoline credit card bills.
Niche Music Listeners. Niche music categories, such as classical, jazz,
rap, gospel, soundtracks, oldies and children's programming, constitute
approximately 27% of the market for recorded music sales. To reach niche music
listeners, the Company intends to work with the recording industry to include
print material about CD Radio inside niche music compact disc packaging, place
print advertising in specialty music magazines targeted to niche music listeners
and members of fan clubs, conduct direct mailings to specialized music mailing
lists of record clubs and sponsor and advertise at certain music events.
Truck Drivers. According to the U.S. Department of Transportation, there
are approximately three million professional truck drivers in the United States,
of whom approximately 1.1 million are long-distance haulers. The Company intends
to place sampling displays at truck stops and to advertise in publications and
on internet sites which cater to truck drivers.
Recreational Vehicle Owners. There are approximately three million
recreational vehicles in the United States. The Company plans to advertise in
magazines targeted to recreational vehicle
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enthusiasts, conduct direct mailings targeted to these individuals and place
sampling displays at recreational vehicle dealerships.
Sparse Radio Zones. More than 45 million people aged 12 and over live in
areas with such limited radio station coverage that the areas are not monitored
by Arbitron. The Company believes that of these people, approximately 22 million
people receive five or fewer FM stations, 1.6 million receive only one FM
station and at least one million people receive no FM stations. To reach these
consumers, the Company plans to utilize local newspaper advertisements during
the Company's initial launch period and target direct mailings to music
enthusiasts in these areas.
Rental Car Fleets. The Company intends to conduct a major promotional
effort with car rental companies to provide CD Radio in the approximately 1.4
million rental cars in the United States. The Company has begun discussions with
car rental companies in this regard.
SALES OF RADIO CARDS AND S-BAND RADIOS
Consumers will receive CD Radio through radio cards or S-band radios and
associated miniature satellite dish antennas. Although the Company does not
intend to manufacture or distribute radio cards, S-band radios or miniature
satellite dish antennas, their availability will be critical to the Company
because they are the only means by which to receive CD Radio. Accordingly, the
Company has devised strategies to make radio cards and S-band radios together
with their associated miniature satellite dish antennas widely available to
consumers.
Sales of Radio Cards. The Company believes that the availability of radio
cards will be critical to the Company's market penetration for a number of years
following the introduction of CD Radio. The Company expects that radio cards
will be sold at retail outlets and mass merchandisers that sell consumer
electronics. The retail price of the radio card together with the miniature
satellite dish currently is expected to be approximately $200.
Sales of S-band Radios. Distribution of S-band radios is an important
element in the Company's marketing strategy. In 1996, U.S. consumers spent
approximately $3 billion on autosound equipment for aftermarket installation in
their vehicles, which the Company believes included approximately 4.6 million
new AM/FM radios. The Company believes that this autosound equipment market is
comprised largely of young, music oriented early adopters of new technology and
that, in the course of purchasing a new car radio, some of these consumers would
select one with built-in S-band capability. The Company expects S-band radios to
be sold at retail outlets that sell consumer electronics, as well as at
autosound specialty dealers. Like existing autosound equipment, S-band radios
will require installation by the retailer or a third party.
The Company's long term objective is to promote the adoption of S-band
radios as standard equipment or a factory-installed option in every vehicle sold
in the United States. The Company, however, expects sales of radio cards and
S-band radios through the consumer electronics retail distribution system to be
the primary distribution channel for receivers capable of receiving CD Radio for
many years.
SUBSCRIPTION AND BILLING
The Company intends to contract out customer service and billing functions
to a national teleservices company, whose functions will include the handling of
orders from subscribers, establishing and maintaining customer accounts, inbound
telemarketing, billing and collections.
Access to the Company's customer service center will be via the Company's
toll-free number, 888-CD-RADIO, with all interaction with subscribers being
conducted under the CD Radio name. Payment to the Company's selected
teleservices company is expected to be based on transaction volumes, and the
Company plans to charge subscribers a modest one-time activation fee to cover
certain transaction costs. The Company will require payment for CD Radio with a
national credit or debit card.
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THE CD RADIO DELIVERY SYSTEM
The Company has designed the CD Radio delivery system to transmit an
identical signal from two satellites placed in geosynchronous orbit. The two
satellite system will permit CD Radio to provide 'seamless' signal coverage
throughout the continental United States. This means that listeners will almost
always be within the broadcast range of CD Radio, unlike current FM radio
broadcasts, which have an average range of only approximately 30 miles. The CD
Radio system is designed to provide clear reception in most areas despite
variations in terrain, buildings and other obstructions. The system is designed
to enable motorists to receive CD Radio in all outdoor locations where the
vehicle has an unobstructed line-of-sight with one of the Company's satellites
or is within range of one of the Company's terrestrial repeating transmitters.
The portion of the S-band located between 2320 MHz and 2345 MHz has been
allocated by the FCC exclusively for national satellite radio broadcasts, and
will augment traditional AM and FM radio bands. This portion of the spectrum was
selected because there are virtually no other users of this frequency band in
the United States, thus minimizing potential signal interference. In addition,
this frequency band is relatively immune to weather related attenuation, which
is not the case with higher frequencies.
The Company expects to use 12.5 MHz of bandwidth in the 7025.0-7075.0 MHz
band (or some other suitable frequency) for uplink transmissions from the
National Broadcast Studio to the Company's satellites. Downlink transmission
from the satellites to subscribers' radio cards or S-band radios will use 12.5
MHz of bandwidth in the 2320-2332.5 MHz frequency band.
The CD Radio delivery system will consist of three principal components:
(i) the satellites; (ii) the receivers; and (iii) the National Broadcast Studio.
THE SATELLITES
Satellite Design. The Company's satellites are of the Loral FS-1300 model
series. This family of satellites has a total in-orbit operation time of 270
years, and to date more than 62 such satellites have been built or ordered,
including 24 that are currently in production. The satellites are designed to
have a useful life of approximately 15 years. To ensure the durability of its
satellites, the Company has selected components and subsystems that have a
demonstrated track record on operational FS-1300 satellites, such as N-STAR,
INTELSAT VII and TELSTAR. In addition, a full series of ground tests will be
performed on each of the Company's satellites prior to launch in order to detect
assembly defects and avoid premature satellite failure.
The satellites will utilize a three-axis stabilized design. Each satellite
will contain an active attitude and position control subsystem; a telemetry,
command and ranging subsystem; a thermal control subsystem and an electrical
power subsystem. Power will be supplied by silicon solar arrays and, during
eclipses, by nickel-hydrogen batteries. Each satellite after deployment will be
27.2 meters long, 8.65 meters wide and 3.8 meters tall.
Simple Design ('Bent Pipe'). The Company's satellites will incorporate a
repeater design which will act essentially as a 'bent pipe,' relaying received
signals directly to the ground. The Company's satellites will not contain
on-board processors or switches. All of the Company's processing operations will
be on the ground where they are accessible for maintenance and continuing
technological upgrade without the need to launch replacement satellites.
Spread Spectrum (Code Division Multiplex). The Company's radio transmission
system will utilize Code Division Multiplex ('CDM') and spread spectrum
technology which permits a large number of program channels to utilize a single
radio frequency band. The system, incorporating CDM and spread spectrum
modulation, combined with multiple satellite coverage and terrestrial repeating
transmitters, is designed to provide a high capacity, high quality service.
Signal Diversity. The Company believes that two satellites are the minimum
number required to provide nearly seamless signal coverage throughout the
continental United States. The Company plans to position its two satellites in
complementary orbital locations so as to achieve efficient signal diversity and
thereby mitigate service interruptions which can result from signal blockage and
fading. The Company currently expects that its two satellites will be placed in
a geosynchronous orbit at equatorial
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crossings of 80[d] W and 110[d] W longitude. Each of the Company's satellites
will broadcast the same signal. The Company's transmission design also
incorporates the use of a memory reception buffer contained within radio cards
and S-band radios, designed to work in conjunction with signal diversity. The
Company has been granted patents on its satellite broadcasting system, which
incorporates a multi-satellite design and memory reception features.
As with any wireless broadcast service, the Company expects to experience
occasional 'dead zones' where the service from one satellite will be interrupted
by nearby tall buildings, elevations in topography, tree clusters, highway
overpasses and similar obstructions; however, in most such places the Company
expects subscribers will continue to receive a signal from its other satellite.
In certain areas with high concentrations of tall buildings, such as urban
cores, or in tunnels, however, signals from both satellites will be blocked and
reception will be adversely affected. In such urban areas, the Company plans to
install terrestrial repeating transmitters to rebroadcast its satellite signals,
improving the quality of reception. The FCC has not yet established rules
governing such terrestrial repeaters, and the Company cannot predict the outcome
of the FCC's current rulemaking on this subject. See 'Business -- Government
Regulation.' The Company also will need to obtain the rights to use of roofs of
certain structures where the repeaters will be installed. There can be no
assurance that the Company can obtain such roof rights on acceptable terms or in
appropriate locations for the operation of CD Radio.
Satellite Construction. The Company has entered into the Loral Satellite
Contract, pursuant to which Loral is building three satellites, two of which the
Company intends to launch and one of which it intends to keep in reserve as a
spare. Loral has agreed to deliver the first satellite to the launch site in
Kourou, French Guiana by August 11, 1999, to deliver the second satellite to the
launch site five months after the delivery of the first satellite and to deliver
the third satellite to a Company designated storage site within eleven months of
delivery of the second satellite. Loral has also agreed to endeavor to
accelerate delivery of the second satellite to October 1999 and of the third
satellite to April 2000. There can be no assurance, however, that Loral will be
able to meet such an accelerated schedule. Although the Loral Satellite Contract
provides for certain late delivery payments, Loral will not be liable for
indirect or consequential damages or lost revenues or profits resulting from
late delivery or other defaults. Under the Loral Satellite Contract, the Company
has an option to order, at any time prior to March 10, 1999, a fourth satellite
identical to the first three on preset price and delivery terms.
Title and risk of loss for the first and second satellites are to pass to
the Company at the time of launch. Title for the third satellite is to pass to
the Company at the time of shipment of the satellite to the designated storage
site. The satellites are warranted to be in accordance with the performance
specifications in the Loral Satellite Contract and free from defects in
materials and workmanship at the time of delivery. After delivery, no warranty
coverage applies, unless a satellite is not launched, in which case the warranty
extends two years from the date of delivery. In the event of any delay in the
construction of the satellites that is caused by the Company, the Loral
Satellite Contract provides that the terms of the contract will be equitably
adjusted.
Following the launch of each satellite, Loral will conduct in-orbit
performance verification. In the event that such testing shows that a satellite
is not meeting the satellite performance specifications contained in the Loral
Satellite Contract, Loral and the Company have agreed to negotiate an equitable
reduction in the final payment to be made by the Company for the affected
satellite.
Launch Services. The Company entered into the Arianespace Launch Contract
for two satellite launches with Arianespace on July 22, 1997. The initial launch
period for the first launch extends from August 1, 1999 to January 31, 2000. The
initial launch period for the second launch extends from October 1, 1999 to
March 31, 2000. These initial launch periods will be reduced to three-month
periods at least twelve months prior to the start of the respective initial
launch periods. One-month launch slots will be selected for each of the launches
at least eight months prior to the start of the respective shortened launch
periods. Launch dates will be selected for each of the launches at least four
months prior to the start of the respective launch periods. The Company is
entitled to accelerate the second launch by shipping the satellite to the
launch base and preparing the satellite for launch at the next available
launch opportunity.
If the Company's satellites are not available for launch during the
prescribed periods, the Company will arrange to launch the satellites on the
first launch dates available after the satellites are completed.
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While the Company has been able to reschedule its reserved launch dates with
Arianespace in the past, there can be no assurance that it will be able to do
so in the future. If the Company postpones a launch for more than 12 months,
or postpones a launch within 12 months of a scheduled launch, postponement
fees may be charged under the terms of the Arianespace Launch Contract.
Satellite launches are subject to significant risks, including satellite
destruction or damage during launch or failure to achieve proper orbital
placement. Launch failure rates vary depending on the particular launch vehicle
and contractor. Arianespace, one of the world's leading commercial satellite
launch service companies, has advised the Company that as of October 20, 1997,
86 of 91 Arianespace launches (approximately 94.5%) have been completed
successfully since May 1984. See 'Risk Factors -- Dependence upon Satellites,'
'Risk Factors -- Dependence upon Satellite and Launch Contractors' and 'Risk
Factors -- Satellite Launch Risks.' However, the Ariane 5, the particular launch
vehicle being planned for the launch of the Company's satellites, has had only
one launch, which was a failure, and is untested in flight. The next launch of
the Ariane 5 currently is planned for late October 1997. There is no assurance
that Arianespace's launches of the Company's satellites will be successful. If
the second and third qualification flights of the Ariane 5 launch vehicle result
in a failure, or if for any reason there have not been at least two successful
Ariane 5 launches prior to each of Company's scheduled launches, or if
Arianespace postpones one of Company's launches for more than six months due to
a delay in the development of the Ariane 5 program, then, under the terms of the
Arianespace Launch Contract, the Company has the right to require Arianespace to
negotiate in good faith an amendment to the Arianespace Launch Contract to
provide for launches using the Ariane 4 launch vehicle, with launch dates on the
first available Ariane 4 launch opportunities after the scheduled launch dates,
unless the Company agrees to earlier launch dates.
Assuming use of an Ariane 5 launch vehicle, if a Company satellite is lost
or destroyed during launch, or if, due to an anomaly occurring during launch
caused by the launch vehicle or a co-passenger satellite, a Company satellite
loses more than 50% of its operational capacity, Arianespace has agreed to
perform a replacement launch at no cost. If, under the same circumstances, the
Company satellite loses more than 20% but not more than 50% of its operational
capacity, Arianespace is required to pay Company an amount based on the percent
of lost capacity. If the Company purchases launch insurance on the commercial
market, these percentages will be amended to match those contained in the
insurance policy. If, following launch, a satellite should fail for any reason,
including reasons unrelated to the launch, within 27 months after launch, the
Company is entitled to purchase at the then applicable price a replacement
launch from Arianespace with a one-month launch slot that falls within ten
months of the request for the replacement launch.
The Company will rely upon Arianespace for the timely launch of the
satellites. Failure of Arianespace to launch the satellites in a timely manner
could materially adversely affect the Company's business. The Arianespace Launch
Contract entitles Arianespace to postpone either of Company's launches for a
variety of reasons, including technical problems, lack of co-passenger(s) for
the Company's launch, the need to conduct a replacement launch for another
customer, a launch of a scientific satellite whose mission may be degraded by
delay, or a launch of another customer's satellite whose launch was postponed.
Although the Arianespace Launch Contract provides liquidated damages for delay,
depending on the length of the delay, and entitles the Company to terminate the
agreement for delay exceeding 12 months, there can be no assurance that these
remedies will adequately mitigate any damage to the Company's business caused by
launch delays.
Under the terms of the Arianespace Launch Contract, the Company and
Arianespace each agree to bear any damage to property or bodily injury that it
or its associates may sustain caused by a launch or satellite failure.
Arianespace is required to take out launch and in-orbit insurance policies to
protect itself and the Company against liability for losses that third parties
may sustain caused by a launch vehicle or any satellite on the launch vehicle,
and to indemnify the Company against any such losses that exceed the limits of
the insurance policy.
Arianespace has assisted the Company in securing financing for the launch
service prices through its subsidiary, AEF. The Company and AEF have entered
into the AEF Agreements, which govern the provisions of such financing. See
'Description of Certain Indebtedness -- Vendor Financing.'
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Risk Management and Insurance. Two custom-designed, fully dedicated
satellites are required to broadcast CD Radio. The Company has selected a launch
service supplier that has achieved the most reliable launch record in its class
in the industry. Each of the Company's two operational satellites will be
launched separately. The Arianespace Launch Contract contains a provision
entitling the Company to a replacement launch in the event of a launch failure
caused by the Arianespace launch vehicle. In such event, the Company would
utilize the spare satellite that will be constructed. Thus, the Company does not
intend to insure for this contingency. The Company intends to insure against
other contingencies, including a failure during launch caused by factors other
than the launch vehicle and/or a failure involving the second satellite in a
situation in which the spare satellite has been used to replace the first
satellite. If the Company is required to launch the spare satellite due to
failure of the launch of one of the operational satellites, its operational
timetable would be delayed for approximately six months or more. The launch or
in-orbit failure of two satellites would require the Company to arrange for
additional satellites to be built and could delay the commencement or
continuation of the Company's operations for three years or more. See 'Risk
Factors -- Dependence upon Satellites,' 'Risk Factors -- Dependence upon
Satellite and Launch Contractors' and 'Risk Factors -- Satellite Launch Risks.'
Once properly deployed and operational, the historical risk of premature
total satellite failure has been less than 1% for U.S. geosynchronous commercial
communication satellites. Insurance against in-orbit failure is currently
available and typically is purchased after the satellite is tested in orbit and
prior to the expiration of launch insurance. In recent years, annual premiums
have ranged from 1.3% to 2.5% of coverage. After the Company has launched the
satellites and begun to generate revenues, the Company will evaluate the need
for business interruption insurance.
Satellites are designed to minimize the adverse effects of transmission
component failure through the incorporation of redundant components which
activate automatically or by ground command upon failure. If multiple component
failures occur as the satellite ages, and the supply of redundant components is
exhausted, the satellite generally will continue to operate, but at reduced
capacity. In that event, signal quality may be preserved by reducing the number
of channels broadcast until a replacement satellite can be launched.
Alternatively, the number of broadcast channels may be preserved by reducing the
signal quality until a replacement satellite can be launched.
THE RECEIVERS
Subscribers to CD Radio will not need to replace their existing AM/FM car
radios. Instead, they will be able to receive CD Radio in their vehicles using a
radio card that has been designed to plug easily into the cassette or compact
disc slot of their existing radio. Customers also will be able to receive CD
Radio using an S-band radio. CD Radio reception with either a radio card or an
S-band radio will be via a miniature silver dollar-sized satellite dish antenna
mounted on a small base housing a wireless transmitter that will relay the CD
Radio signal to the vehicle's radio card or S-band radio. Neither the radio
cards, S-band radios nor the miniature satellite dish antennas currently are
available and the Company is unaware of any manufacturer currently developing
such products.
The Company anticipates that radio cards will be easy to install because
they will require no wiring or other assembly and will be installed simply by
inserting the card into the radio's cassette or compact disc slot. Upon
insertion of the card into the radio, listeners will be able to switch between
AM, FM and CD Radio. The radio card can be removed by pushing the radio's
'eject' button. Radio cards are portable and will be able to be moved from car
to car, if desired. S-band radios will be capable of receiving AM, FM and S-band
radio transmissions. The Company anticipates that S-band radios will be similar
to conventional AM/FM radios in size and appearance. Like existing conventional
radios, a number of these radios may also incorporate cassette or compact disc
players.
In addition to a radio card or S-band radio, a vehicle must be equipped
with a miniature satellite dish antenna in order to receive CD Radio. To satisfy
this requirement, the Company has designed a miniature satellite dish antenna.
The battery powered satellite dish antenna is approximately the size and shape
of a silver dollar, measuring 2 in diameter and 1/8 thick. The base of the
satellite dish antenna will have an adhesive backing, so that consumers will be
able to easily attach the satellite dish antenna to a car's rear window.
Miniature satellite dish antennas will also be sold separately, so that
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consumers will be able to receive CD Radio in a vehicle that has a satellite
dish antenna attached to it simply by moving a radio card. The radio card, the
S-band radio and the satellite dish antenna all use proprietary technology
developed by the Company.
The Company's miniature satellite dish antenna design is substantially
'non-directional,' meaning it does not need to be pointed directly at a
satellite in order to receive CD Radio broadcasts. All that is required is that
the satellite dish antenna be positioned upward on an unobstructed line-of-sight
with one of the Company's satellites or be within range of a terrestrial
repeating transmitter. The satellite dish antenna will be mounted on a small
base housing a solar recharging battery and wireless transmitter that will relay
the CD Radio signal to a vehicle's radio card or S-band radio. The CD Radio
system is designed to permit CD Radio to be received by motorists in all outdoor
locations where the vehicle has an unobstructed line-of-sight with one of the
Company's satellites. In certain areas with high concentrations of tall
buildings, such as urban cores, or in tunnels, signals from both satellites will
be blocked and reception will be adversely affected. In such cases, the Company
plans to install terrestrial repeating transmitters to broadcast CD Radio.
A radio card or S-band radio tuned to CD Radio will have a visual display
that will indicate the channel and format selected, as well as the title,
recording artist and album title of the song being played. In order to reduce
fraud, each radio card and S-band radio will contain a security circuit with an
electronically encoded identification number. Upon verification of subscriber
billing information, the Company will transmit a digital signal to activate the
radio's S-band operation. This feature will help the Company to protect against
piracy of the CD Radio signal. Through this feature, the Company can directly
via satellite discontinue CD Radio and deactivate radio cards or S-band radios
of subscribers who are delinquent in paying the monthly subscription fee.
The Company expects radio cards, S-band radios and miniature satellite dish
antennas to be sold through a variety of retail outlets, including consumer
electronics, car audio, department and music stores. The Company currently
expects that the radio card together with the satellite dish antenna can be sold
at a retail price of approximately $200. Radio card or S-band activation will be
accomplished directly via satellite by calling the Company's customer service
center at 888-CD-RADIO. The Company currently expects to begin offering CD Radio
in late 1999 at an initial subscription price of $10 per month.
The Company believes that, when manufactured in quantity, S-band radios
will be incrementally more expensive than today's car radios, while radio cards,
which will have no installation costs if the customer has a radio with a
cassette or compact disc slot, will be substantially less expensive. The Company
expects that the satellite dish antenna will be substantially less expensive
than the radio card for consumers wishing to purchase additional dish antennas
separately. The Company believes that the availability and pricing of plug and
play radio cards will be of prime importance to the Company's market penetration
for a number of years.
Neither the radio cards, S-band radios nor miniature satellite dish
antennas currently are available, and the Company is unaware of any manufacturer
currently developing such products. The Company has entered into non-binding
memoranda of understanding with two major consumer electronics manufacturers,
and has commenced discussions with several other such manufacturers, regarding
the manufacture of radio cards, S-band radios and miniature satellite dish
antennas for retail sale in the United States. The Company currently intends to
select one manufacturer to manufacture radio cards, S-band radios and miniature
satellite dish antennas for retail sale in the United States on an exclusive
basis for the first year of CD Radio broadcasts. There can be no assurance that
these discussions will result in a binding commitment on the part of any
manufacturer to produce radio cards, S-band radios and miniature satellite dish
antennas in a timely manner so as to permit the widespread introduction of CD
Radio in accordance with the Company's business plan or that sufficient
quantities of these will be available to meet anticipated consumer demand.
Failure to have at least one manufacturer develop and widely market radio cards
and the associated miniature satellite dish antennas, and to a lesser extent
S-band radios, at affordable prices, or to develop and widely market such
products upon the launch of CD Radio, would have a material adverse effect on
the Company's business. In addition, the IB Order conditions the Company's
license on certification by the Company that its final receiver design is
interoperable with respect to the final receiver design of the other licensee,
which has proposed to use a
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significantly different transmission technology from that of the Company. The
Company believes that it can design an interoperable receiver, but there can be
no assurance that this effort will be successful or result in a commercially
feasible receiver.
THE NATIONAL BROADCAST STUDIO
The Company plans to originate its 50 channels of programming from its
National Broadcast Studio, to be located in the New York metropolitan region.
The National Broadcast Studio will house the Company's music library, facilities
for programming origination, programming personnel and program hosts, as well as
facilities to uplink programming to the satellites, to activate or deactivate
service to subscribers and to perform the tracking, telemetry and control of the
orbiting satellites.
The Company's music library will be located at the National Broadcast
Studio. The Company intends to create an extensive music library which will
consist of a deep range of recorded music. In addition to updating its music
library with new recordings as they are released, the Company will seek to
acquire recordings that in certain cases are no longer commercially available.
Programming will be originated at the National Broadcast Studio and
transmitted to the Company's two satellites for broadcast to CD Radio
subscribers. The Company expects that its broadcast transmissions will be
uplinked to its satellites at frequencies in the 7025.0-7075.0 MHz band. The
satellites will receive and convert the signal to the 2320.0-2332.5 MHz band.
The satellites then will broadcast the signal to the United States, at a power
sufficient to enable its receipt directly by the miniature satellite dish
antennas to be used by subscribers.
Service-related commands also will be relayed from the National Broadcast
Studio to the Company's satellites for retransmission to subscribers' radio
cards and S-band radios. These service-related commands include those required
to (i) initiate and suspend subscriber service, (ii) change the encryption
parameters in radio cards and S-band radios to reduce piracy of CD Radio and
(iii) activate radio card and S-band radio displays to show program-related
information.
Tracking, telemetry and control operations for the Company's orbiting
satellites also will be performed from the National Broadcast Studio. These
activities include controlling the routine station keeping, which involves
twice-monthly satellite orbital adjustments and the continuous monitoring of the
satellites.
The Company expects that the National Broadcast Studio, which will include
its executive offices, will be approximately 30,000 square feet in size. The
Company currently is searching for appropriate space to lease and has commenced
development of plans for its facility with a broadcast studio design firm.
DEMONSTRATIONS OF THE CD RADIO SYSTEM
In support of the Company's application for the FCC License, the Company
conducted a demonstration of its proposed radio service from November 1993
through November 1994. The demonstration involved the transmission of S-band
signals to a prototype S-band radio and miniature satellite dish antenna
installed in a car to simulate certain transmission techniques the Company
intends to employ. Because there currently are no commercial satellites in orbit
capable of transmitting S-band frequencies to the United States, the Company
constructed a terrestrial simulation of its planned system. For this purpose,
the Company selected a test range covering several kilometers near Washington,
D.C. which included areas shadowed by buildings, trees and overpasses. The
Company placed S-band transmitters on the rooftops of a number of tall buildings
in such a way as to simulate the signal power and angle of arrival of satellite
transmissions to be used for its proposed service. The Company also modified the
standard factory installed sound system of an automobile to create a radio
receiving AM, FM and S-band, and integrated the Company's satellite dish antenna
into the car roof. The demonstrations included the reception of 30 channels of
compact disc quality stereo music by the prototype radio while the car was
driven throughout the range. Prior to testing with orbiting satellites,
miniature satellite dish antennas and radio cards or S-band radios suitable for
commercial production, there can be no assurance that the CD Radio system will
function as intended. See 'Risk Factors -- Reliance on Unproven Technology.'
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COMPETITION
The Company expects to face competition from two principal sources: (i)
conventional AM/FM radio broadcasting, including, when available, terrestrial
digital radio broadcasting; and (ii) AMRC, the other holder of an FCC License.
The AM/FM radio broadcasting industry is very competitive. Radio stations
compete for listeners and advertising revenues directly with other radio
stations within their markets on the basis of a variety of factors, including
program content, on-air talent, transmitter power, assigned frequency, audience
characteristics, local program acceptance and the number and characteristics of
other radio stations in the market. Many of the Company's radio broadcasting
competitors have substantially greater financial, management and technical
resources than the Company.
Unlike the Company, the radio industry has a well established market for
its services and generally offers 'free' broadcast reception paid for by
commercial advertising rather than by a subscription fee. In addition, certain
AM and FM stations, such as National Public Radio, offer programming without
commercial interruption. Many radio stations also offer information programming
of a local nature, such as local news or traffic reports, which the Company will
be unable to offer. CD Radio will compete with conventional radio stations on
the basis of its targeted programming formats, nearly seamless signal coverage,
freedom from advertising and compact disc quality sound, features which are
largely unavailable on conventional broadcast radio.
The Company believes that cassettes and compact discs generally are used in
automobiles as supplements to radio rather than as substitutes, and that these
media are used primarily as backup when radio reception is unavailable or
unsatisfactory, or when desired programming is unavailable or unsatisfactory.
Cassettes and compact discs lack the convenience of radio, as well as the
spontaneity and freshness that characterize radio programming. According to a
1996 market study, although almost all vehicles contain either a cassette or
compact disc player, 87% of automobile commuters listened to the radio an
average of 50 minutes a day while commuting. Accordingly, the Company does not
view its service as directly competitive with these media.
Currently, radio stations broadcast by means of analog signals, as opposed
to digital transmission. The Company believes, however, that prior to the
commencement of CD Radio, terrestrial broadcasters may be able to place digital
audio broadcasts into the bandwidth occupied by current AM and FM stations and
simultaneously transmit both analog and digital signals on the AM and FM bands.
The limited bandwidth assigned to AM stations will result in lower quality
digital signals than can be broadcast by FM stations. As a result, the Company
expects that the use of this technology will permit digital AM sound quality to
approach monaural FM sound quality and permit digital FM broadcasts to approach
compact disc sound quality. In order to receive these digital AM/FM broadcasts,
listeners will need to purchase new digital radios which currently are not
commercially available. While the development of digital broadcasting would
eliminate one of the advantages of CD Radio over FM radio, the Company does not
believe it would affect broadcasters' ability to address the other advantages of
CD Radio. In addition, the Company views the growth of terrestrial digital
broadcasting as a positive force that would be likely to encourage radio
replacement and thereby facilitate the introduction of S-band radios.
Although certain existing satellite operators currently provide music
programming to customers at fixed locations, these operators are incapable of
providing CD Radio type service to vehicles as a result of some or all of the
following reasons: (i) these operators do not broadcast on radio frequencies
suitable for reception in a mobile environment; (ii) CD Radio type service
requires fully dedicated satellites; (iii) CD Radio type service requires a
custom satellite system design and (iv) CD Radio type service requires
regulatory approvals, which existing satellite operators do not have.
AMRC, a subsidiary of AMSC, is the other holder of an FCC License. AMRC, in
which WorldSpace, Inc. (a company that plans to provide satellite radio service
outside of the United States) has a 20 percent interest, and AMSC, which is
owned in part by the Hughes Electronics Corporation subsidiary of General
Motors Corporation, have financial, management and technical resources
that greatly exceed those of the Company. In addition, the FCC could
grant new licenses which would enable further competition to broadcast
satellite radio. Finally, there are many portions of the electromagnetic
spectrum that are currently licensed for other uses and certain other portions
for which licenses have been granted by the FCC without restriction as to use,
and there can be no assurance that these portions of the spectrum could not be
utilized for satellite radio broadcasting in the future.
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Although any such licensees would face cost and competition barriers,
there can be no assurance that there will not be an increase in the number of
competitors in the satellite radio industry. See 'Risk Factors -- Competition.'
TECHNOLOGY AND PATENTS
The Company has been granted certain U.S. patents (U.S. Patent Nos.
5,278,863; 5,319,673; 5,485,485; 5,592,471) on various features of satellite
radio technology. There can be no assurance, however, that any U.S. patent
issued to the Company will cover the actual commercialized technology of the
Company or will not be circumvented or infringed by others, or that if
challenged would be held to be valid. The Company has filed patent applications
covering CD Radio system technology in Argentina, Australia, Brazil, Canada,
China, France, Germany, India, Italy, Japan, South Korea, Mexico, the
Netherlands, Spain, Switzerland and the United Kingdom, and has been granted
patents in a number of these countries. There can be no assurance that
additional foreign patents will be awarded to the Company or, if any such
patents are granted, that the laws of foreign countries where the Company
receives patents will protect the Company's proprietary rights to its technology
to the same extent as the laws of the United States. Although the Company
believes that obtaining patent protection may provide benefits to the Company,
the Company does not believe that its business is dependent on obtaining patent
protection or successfully defending any such patents that may be obtained
against infringement by others.
Certain of the Company's know-how and technology are not the subject of
U.S. patents. To protect its rights, the Company requires certain employees,
consultants, advisors and collaborators to enter into confidentiality
agreements. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure. In
addition, the Company's business may be adversely affected by competitors who
independently develop competing technologies.
The Company's proprietary technology was developed by Robert D. Briskman,
the Company's co-founder, and was assigned to the Company. The Company believes
that Mr. Briskman independently developed the technology covered by the
Company's issued patents and that it does not violate the proprietary rights of
any person. There can be no assurance, however, that third parties will not
bring suit against the Company for patent infringement or for declaratory
judgment to have any patents which may be issued to the Company declared
invalid.
If a dispute arises concerning the Company's technology, litigation might
be necessary to enforce the Company's patents, to protect the Company's trade
secrets or know-how or litigation may occur to determine the scope of the
proprietary rights of others. Any such litigation could result in substantial
cost to, and diversion of effort by, the Company, and adverse findings in any
proceeding could subject the Company to significant liabilities to third
parties, require the Company to seek licenses from third parties or otherwise
adversely affect the Company's ability to successfully develop and market CD
Radio.
GOVERNMENT REGULATION
COMMUNICATIONS LAWS
As an operator of a privately owned satellite system, the Company is
subject to the regulatory authority of the FCC under the Communications Act. The
FCC is the government agency with primary authority in the United States over
satellite radio communications. The Company is currently subject to regulation
by the FCC principally with respect to (i) the licensing of its satellite
system; (ii) preventing interference with or to other users of radio
frequencies; and (iii) compliance with rules that the FCC has established
specifically for United States satellites and rules that the FCC has established
for providing satellite radio service.
On May 18, 1990, the Company proposed that the FCC establish a satellite
radio service and applied for an FCC License.
On March 3, 1997, the FCC adopted rules for the national satellite radio
broadcast service (the 'FCC Licensing Rules'). Pursuant to the FCC Licensing
Rules, an auction was held among the applicants on April 1 and 2, 1997. The
Company was a winning bidder for one of the two FCC Licenses with a bid of $83
million. AMRC was the other winning bidder for an FCC License with a bid of $89
million. After payment of the full amount by the Company, the FCC's
International Bureau issued the FCC License to the Company on October 10, 1997.
The FCC License is effective immediately; however,
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for a period of 30 days following the grant of the FCC License, those parties
that had filed comments or petitions to deny in connection with the Company's
application for an FCC License may petition the International Bureau to
reconsider its decision to grant the FCC License to the Company or request
review of the decision by the full FCC. During the same 30 day period,
entities that did not file comments or petitions to deny in connection
with the Company's application for an FCC License also may petition the
International Bureau to reconsider its decision. In addition to presenting
a factual case, these entities must demonstrate why they did not file comments
or petitions to deny in connection with the Company's application for an FCC
License. If the International Bureau denies reconsideration, such entities may
thereafter request review by the full FCC. The Company cannot predict whether
any such petitions will be filed or, if a petition is filed, the ultimate
outcome of any related proceeding. If any of the foregoing parties seek review
by the full FCC and such petitions are denied, the complaining party may file
an appeal with the U.S. Court of Appeals which must find that the decision of
the the FCC was not supported by substantial evidence, or was arbitrary,
capricious or unlawful in order to overturn the grant of the Company's FCC
License.
Pursuant to the FCC Licensing Rules, the Company is required to meet
certain progress milestones. Licensees are required to begin satellite
construction within one year of the grant of the FCC License; to launch and
begin operating their first satellites within four years; and to begin operating
their entire system within six years. The IB Order states that failure to meet
those milestones will render the FCC License null and void. On May 6, 1997, the
Company notified the FCC that it had begun construction on the first of its
satellites. On March 27, 1997, a third party requested reconsideration of the
FCC Licensing Rules, seeking, among other things, that the time period allotted
for these milestones be shortened. The Company cannot predict the outcome of
this petition.
The term of the FCC License for each satellite is eight years, commencing
from the time each satellite is declared operational after having been inserted
into orbit. Upon the expiration of the term with respect to each satellite, the
Company will be required to apply for a renewal of the relevant FCC License.
Although the Company anticipates that, absent significant misconduct on the part
of the Company, the FCC Licenses will be renewed in due course to permit
operation of the satellites for their useful lives, and that a license would be
granted for any replacement satellites, there can be no assurance of such
renewal or grant.
Satellite orbit locations are registered internationally for each country.
To the Company's knowledge, no other nations in the Western Hemisphere are
seeking to use the S-band for satellite radio, and the Company does not
anticipate difficulty in obtaining international registration, or renewing or
extending such registrations. There can be no assurance, however, that such
registrations will be obtained.
The spectrum allocated for satellite radio is used in Canada and Mexico for
terrestrial microwave links, mobile telemetry, and other purposes. The United
States government must coordinate the United States' use of this spectrum with
the Canadian and Mexican governments before any United States satellite may
become operational. The Company has performed analyses which show that its
proposed use will not cause undue interference to most Canadian stations and can
be coordinated with others by various techniques. The FCC Licensing Rules
require that the licensees successfully complete detailed frequency coordination
with existing operations in Canada and Mexico, and the IB Order conditions The
FCC License on such coordination. There can be no assurance that the licensees
will be able to coordinate the use of this spectrum with Canadian or Mexican
operators or will be able to do so in a timely manner.
In order to operate its satellites, the Company also will have to obtain a
license from the FCC to operate its uplink facility. Normally, such approval is
sought after issuance of the FCC License. Although there can be no assurances
that such licenses will be granted, the Company does not expect difficulties in
obtaining a feeder link frequency and ground station approval in the ordinary
course.
In the future any assignments or transfers of control of the FCC License
must be approved by the FCC. There can be no assurance that the FCC would
approve any such transfer or assignment.
The CD Radio system is designed to permit CD Radio to be received by
motorists in all outdoor locations where the vehicle has an unobstructed
line-of-sight with one of the Company's satellites. In certain areas with high
concentrations of tall buildings, such as urban cores, or in tunnels, signals
from both satellites will be blocked and reception will be adversely affected.
In such cases, the Company plans to install terrestrial repeating transmitters
to broadcast CD Radio. The FCC has not yet established rules governing the
application procedure for obtaining authorizations to construct and
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operate terrestrial repeating transmitters. A rulemaking on the subject was
initiated by the FCC on March 3, 1997. The deadline for the public to file
comments was June 13, 1997 and the deadline for filing reply comments was
June 27, 1997. Several comments were received by the FCC that sought to
cause the FCC to consider placing restrictions on the Company's ability to
deploy its terrestrial repeating transmitters. However, the Company believes
that the FCC will neither prohibit it from deploying such transmitters, nor
place unreasonable requirements upon such deployment.
The Communications Act prohibits the issuance of a license to a foreign
government or a representative thereof, and contains limitations on the
ownership of common carrier, broadcast and certain other radio licenses by
non-U.S. citizens. Pursuant to the FCC Licensing Rules, the Company is regulated
as a private carrier. The IB Order determined that, as a private carrier, the
Company is not subject to the current provisions of the Communications Act
restricting ownership in the Company by non-U.S. private citizens or
organizations. The Executive Branch of the U.S. government has expressed
interest in changing this policy, which could lead to restrictions of foreign
ownership of the Company's shares in the future. The IB Order stated that its
finding that the Company is not subject to the foreign ownership restrictions of
the Communications Act is subject to being revisited in a future proceeding. As
a private carrier, the Company is free to set its own prices and serve customers
according to its own business judgment, without economic regulation.
The other holder of an FCC License has proposed to use a significantly
different transmission technology from that of the Company. The IB Order
conditions the Company's license on certification by the Company that its final
receiver design is interoperable with respect to the final receiver design of
the other licensee. The Company believes that it can design an interoperable
receiver, but there can be no assurance that this effort will be successful or
result in a commercially feasible receiver.
The foregoing discussion reflects the application of current communications
law, FCC regulations and international agreements to the Company's proposed
service in the United States. Changes in law, regulations or international
agreements relating to communications policy generally or to matters affecting
specifically the services proposed by the Company could adversely affect the
Company's ability to retain the FCC License and obtain or retain other approvals
required to provide CD Radio or the manner in which the Company's proposed
service would be regulated. Further, actions of the FCC are subject to judicial
review and there can be no assurance that if challenged, such actions would be
upheld.
OTHER REGULATORY MATTERS
The Company's business operations as currently contemplated may require a
variety of permits, licenses and authorizations from governmental authorities
other than the FCC, but the Company has not identified any such permit, license
or authorization that it believes could not be obtained in the ordinary course
of business.
PERSONNEL
As of October 1, 1997, the Company had eleven employees, of whom three were
involved in technology development, three in business development and five in
administration. In addition, the Company relies upon a number of consultants and
other advisors. By commencement of operations, the Company expects to have
approximately 100 employees. The extent and timing of the increase in staffing
will depend on the availability of qualified personnel and other developments in
the Company's business. None of the Company's employees is represented by a
labor union, and the Company believes that its relationship with its employees
is good.
PROPERTY
The Company's executive offices are located at Sixth Floor, 1001 22nd
Street, N.W., Washington, D.C. 20037, and are leased pursuant to a lease
agreement that will expire on October 31, 1998.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the directors,
executive officers and certain key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
David Margolese...................... 40 Chairman, Chief Executive Officer and Director
Robert D. Briskman................... 65 Executive Vice President, Engineering and Operations and Director
Andrew J. Greenebaum................. 35 Executive Vice President and Chief Financial Officer
Keno V. Thomas....................... 39 Executive Vice President, Marketing
Joseph S. Capobianco................. 48 Executive Vice President, Content
Paul Sharma.......................... 49 Executive Director, Space Segment
Brian Stockwell...................... 61 Executive Director, Launch Services
Lawrence F. Gilberti(1)(2)........... 46 Director and Secretary
Peter K. Pitsch(1)................... 45 Director
Jack Z. Rubinstein(1)................ 48 Director
Ralph V. Whitworth(1)(2)............. 41 Director
</TABLE>
- ------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
------------------------
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers are elected by and
serve at the discretion of the Board of Directors.
David Margolese. Mr. Margolese was elected Chief Executive Officer of the
Company in November 1992 and Chairman in August 1993 and has served as a
director since August 1991. In 1991, Mr. Margolese founded a consortium with
AT&T Corp. and Hutchison Telecommunications Ltd., a subsidiary of Hutchison
Whampoa Limited, a diversified conglomerate based in Hong Kong, to bid for
Israel's national cellular telephone license and served as Chairman of this
consortium until June 1993. From 1987 until August 1991, Mr. Margolese was a
private investor. In 1982, Mr. Margolese co-founded Cantel Inc., Canada's
national cellular telephone company, and served as Vice President, RCC
Operations, until 1984. In 1980, Mr. Margolese co-founded Canadian Telecom Inc.,
a radio paging company, and served as that company's President until its sale in
1987.
Robert D. Briskman. Mr. Briskman has served as Executive Vice President,
Engineering and Operations and as a director of the Company since October 1991
and as President of Satellite CD Radio, Inc., a subsidiary of the Company, since
September 1994. In addition, Mr. Briskman served as Chief Executive Officer of
the Company from April to November 1992. From March 1991 to June 1992, Mr.
Briskman was President of Telecommunications Engineering Consultants, which
provided engineering and consulting services to the Company. From March 1986 to
March 1991, Mr. Briskman was Senior Vice President, Engineering and Operations
at Geostar Corporation, a satellite company, responsible for the development,
design, implementation and operation of a nationwide satellite message
communication service. Prior to 1986, Mr. Briskman held senior management
positions at Communications Satellite Corporation ('COMSAT'), a satellite
operator, where he was employed for over 20 years. Prior to joining COMSAT, Mr.
Briskman was a communications specialist with IBM and the National Aeronautics
and Space Administration. Mr. Briskman holds a bachelor's degree in engineering
from Princeton and a master's degree in electrical engineering from the
University of Maryland. He has published over 50 technical papers, holds a
number of U.S. patents, and is a Fellow of the Institute of Electrical and
Electronics Engineers and the American Institute of Aeronautics and
Astronautics.
Andrew J. Greenebaum. Mr. Greenebaum has served as Executive Vice President
and Chief Financial Officer of the Company since August 1997. From August 1989
to August 1997, he held a
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variety of senior management positions with The Walt Disney Company. From March
1996 to August 1997, Mr. Greenebaum was Vice President, Corporate Finance in
charge of corporate and project finance. From May 1995 to March 1996, he was
Corporate Strategic Planning Director, Corporate Development. From October 1992
to May 1995, he was Director, Corporate Finance and from April 1991 to October
1992, he was Manager, Corporate Finance. From August 1989 to April 1991, he was
a Senior Treasury Analyst, Foreign Exchange. From October 1984 to June 1987, Mr.
Greenebaum was a financial analyst with L.F. Rothschild & Co., Inc., an
investment bank.
Keno V. Thomas. Mr. Thomas has served as Executive Vice President,
Marketing of the Company since April 1997. From July 1995 to April 1997, he was
an independent management consultant to the media and entertainment industry.
From January 1994 to July 1995, Mr. Thomas was Executive Vice President,
Marketing at DMX Inc., a cable radio company. From February 1992 to January
1994, he served as Vice President of Programming at DIRECTV, a satellite
television company. From December 1986 to February 1992, he held senior
management positions, including Vice President, International at ESPN
Enterprises, Inc., a cable television sports network. From May 1982 to December
1986, he held senior management positions, including Vice President, Marketing
at Times Mirror Cable, an operator of cable television systems and a subsidiary
of the Times Mirror Company.
Joseph S. Capobianco. Mr. Capobianco has served as Executive Vice
President, Content of the Company since April 1997. From 1981 to April 1997, he
was an independent consultant providing programming, production, marketing and
strategic planning consulting services to media and entertainment companies,
including Home Box Office, a cable television service and a subsidiary of Time
Warner Entertainment Company, L.P., and the ABC Radio Networks. From May 1990 to
February 1995, he served as Vice President of Programming at Music Choice, which
operates a 40-channel music service available to subscribers to DIRECTV, and is
partially owned by Warner Music Group Inc., Sony Music Entertainment Inc. and
EMI.
Paul Sharma. Mr. Sharma has served as Executive Director, Space Segment of
the Company since April 1997. From November 1988 to April 1997, he was an
independent consultant providing project management services for numerous major
satellite programs worldwide. From 1982 to 1988, he served as Deputy Projects
Director for the Direct Broadcast Satellite program at COMSAT, a satellite
operator.
Brian Stockwell. Mr. Stockwell has served as Executive Director, Launch
Services of the Company since April 1997. He has provided management consulting
services to the space industry since 1992. From June 1981 to January 1992, he
served as President of Willis Corroon Inspace, an aerospace insurance company.
From January 1979 to May 1981, he was Deputy Head of the Ariane Launch Vehicle
Program for the European Space Agency. Prior to that, he was Communications
Satellite Systems Manager with the European Space Agency from September 1969.
Lawrence F. Gilberti. Mr. Gilberti was elected Secretary of the Company in
November 1992 and has served as a director since September 1993. Since December
1992, he has been the Secretary and sole director of, and from December 1992 to
September 1994 was the President of, Satellite CD Radio, Inc. Mr. Gilberti has
been a partner in the law firm of Fischbein Badillo Wagner Harding since August
1994, and has provided legal services to the Company since 1992. From 1987 to
August 1994, Mr. Gilberti was an attorney with the law firm of Goodman Phillips
& Vineberg.
Peter K. Pitsch. Mr. Pitsch became a director of the Company in January
1995. Since September 1989, Mr. Pitsch has been the principal of Pitsch
Communications, a telecommunications law and economic consulting firm that has
rendered legal services to the Company since 1991. From April 1987 to August
1989, he served as Chief of Staff at the Federal Communications Commission. From
November 1981 to April 1987, he served as Chief of the Office of Plans and
Policy at the Federal Communications Commission. He is an adjunct fellow at the
Hudson Institute, Inc.
Jack Z. Rubinstein. Mr. Rubinstein became a director of the Company in
January 1995. Since May 1991, Mr. Rubinstein has been the General Partner of
Dica Partners, L.P., a hedge fund based in Hartsdale, New York. From September
1988 to October 1990, Mr. Rubinstein was a consultant to institutional clients
at Morgan Stanley & Co. Incorporated, an investment bank. From February 1978 to
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September 1988, he was an Associate Director at Bear Stearns & Co. Inc., an
investment bank, responsible for corporate insider portfolio management.
Ralph V. Whitworth. Mr. Whitworth became a director of the Company in March
1994. Since April 1996, he has been a managing member at Relational Investors,
LLC, a financial management firm. In January 1997, Mr. Whitworth became a
partner of Batchelder & Partners, Inc., a financial advisory firm. From August
1988 to December 1996, he was President of Whitworth and Associates, a
Washington, D.C.-based consulting firm. Mr. Whitworth was President of United
Shareholders Association, a shareholders' association, from its founding in 1986
to 1993. From 1989 to 1992, he served as President of Development of United
Thermal Corporation, the owner of the district heating systems for the cities of
Baltimore, Philadelphia, Boston and St. Louis.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS
The following table sets forth the compensation for services rendered
during the three-year period ending December 31, 1996 for the executive officers
of the Company whose 1996 salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- -------------------------------------------------- ------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
David Margolese .................................. 1996 $ 95,833 $ -- $ -- 400,000
Chairman of the Board and Chief Executive 1995 100,000 -- -- --
Officer 1994 122,000(1) -- 26,052(2) 300,000
Robert D. Briskman ............................... 1996 106,249 20,000 190,938 60,000
Executive Vice President, Engineering and 1995 100,000 -- 1,340 --
Operations 1994 122,000 -- -- 192,500
</TABLE>
- ------------
(1) In October 1994, Mr. Margolese waived his base salary payable for the
three-month period ended December 31, 1994.
(2) The Company reimbursed Mr. Margolese for the following expenses incurred in
establishing residency in the United States: $18,521 for tax advice, $2,311
for moving expenses and $5,220 for real estate commissions.
DIRECTORS
Commencing in 1994, directors of the Company who are not full-time
employees of the Company were entitled to receive a director's fee of $20,000
per year for serving on the Company's Board of Directors. In June 1994, all
directors entitled to receive directors' fees agreed to forgo any payments for
their services as directors of the Company. Pursuant to the Company's 1994
Directors' Nonqualified Stock Option Plan (the 'Directors' Plan'), each director
who is not a full-time employee of the Company is entitled to an option to
purchase 15,000 shares of Common Stock upon becoming a director (or upon the
effective date of the plan in the case of non-employee directors who become
directors prior to the effective date) and to an automatic annual grant of an
option to purchase 10,000 shares of Common Stock. The exercise price for annual
grants is fair market value of the Company's Common Stock on the date of grant.
Prior to the implementation of the Directors' Plan, the Company from time to
time granted options to certain non-employee directors. See ' -- Employee and
Director Stock Options.' The Company reimburses each director for reasonable
expenses incurred in attending meetings of the Board of Directors.
The Company has retained Pitsch Communications to provide legal services to
the Company for a monthly retainer of $5,000. The retainer may be terminated by
either party at any time. The principal of
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Pitsch Communications, Peter K. Pitsch, is a director of the Company. The
monthly retainer was terminated in May 1997.
The Company has retained Jack Z. Rubinstein to provide consulting services
to the Company for a monthly retainer of $5,000. The retainer may be terminated
by either party at any time. Jack Z. Rubinstein is a director of the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with its executive
officers.
Effective January 1, 1994, the Company entered into an employment agreement
to employ David Margolese as Chairman and Chief Executive Officer of the Company
for a term of five years. The agreement provided for an annual base salary of
$300,000, subject to increase from time to time by the Board of Directors. An
amendment to this agreement, dated as of June 8, 1994, provided for an annual
base salary of $100,000, effective June 8, 1994. Subsequently, Mr. Margolese
waived his base salary payable for the three-month period ended December 31,
1994. In January 1997, the Board of Directors increased Mr. Margolese's annual
base salary to $150,000. In July 1997, the Board of Directors increased Mr.
Margolese's annual base salary to $400,000. Under his original employment
agreement and pursuant to the Company's 1994 Stock Option Plan, the Company
granted to Mr. Margolese an option to purchase 300,000 shares of Common Stock at
$5.00 per share, which option is fully vested and exercisable. If Mr. Margolese
is terminated without Cause, as defined in the agreement, or if Mr. Margolese
resigns for 'Good Reason,' as defined in the agreement, the Company is obligated
to pay to Mr. Margolese the sum of $800,000. In January 1994, Mr. Margolese was
paid $162,000 for deferred salary earned in 1993 and $216,000 in recognition of
his service without pay in 1992. The employment agreement restricts Mr.
Margolese from engaging in any business involving the transmission of radio
entertainment programming in North America for a period of two years after the
termination of his employment.
Effective January 1, 1994, the Company entered into an agreement to employ
Robert D. Briskman as the Vice President and Chief Technical Officer of the
Company. The agreement provided for an annual base salary of $150,000. An
amendment to this agreement, dated as of June 8, 1994, provided for an annual
base salary of $100,000, effective June 8, 1994. In October 1996, the Board of
Directors increased Mr. Briskman's annual base salary to $150,000 and in January
1997, extended the term of the agreement until January 1, 1998. In addition,
under his original employment agreement and pursuant to the Company's 1994 Stock
Option Plan, the Company granted to Mr. Briskman an option to purchase 80,000
shares of Common Stock at $1.00 per share, which option is fully vested and
exercisable. In May 1997, the Board of Directors named Mr. Briskman the
Company's Executive Vice President, Engineering and Operations and extended the
term of the agreement until December 31, 2000. The Board of Directors also
increased Mr. Briskman's annual base salary to $235,000, effective May 1, 1997,
with an additional increase to $260,000, effective January 1, 1998. The original
employment agreement also provides for the grant to Mr. Briskman of options to
purchase 112,500 shares of Common Stock at $1.00 per share upon completion of
certain milestones prior to December 31, 1994. Such options were granted to Mr.
Briskman on December 23, 1994 and are fully vested and exercisable. In January
1996, Mr. Briskman exercised options to purchase 80,000 shares of the Company's
Common Stock. On July 9, 1997, the Board of Directors granted Mr. Briskman
further options to purchase up to 57,500 shares of Common Stock at a price per
share of $14.50. The options will vest and become exercisable in two stages
contingent upon Mr. Briskman's continued employment with the Company and the
replenishment of the 1994 Stock Option Plan by the Company. If Mr. Briskman's
employment is terminated for any reason other than cause, as defined in the
agreement, the Company is obligated to pay to Mr. Briskman a sum equal to 50% of
his then annual salary and, at Mr. Briskman's option, to repurchase all of the
shares of Common Stock then owned by him at a price of $1.25 per share. The
Company also has entered into a proprietary information and non-competition
agreement with Mr. Briskman. Under this agreement, Mr. Briskman may not (i)
disclose any proprietary information of the Company during or after his
employment with the Company or (ii) engage in any business directly competitive
with any business of the Company in North America for a period of one year after
termination of his employment.
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<PAGE>
Effective August 25, 1997, the Company entered into an employment agreement
with Andrew J. Greenebaum which provides for his employment as Executive Vice
President and Chief Financial Officer of the Company. The agreement has a term
of three years. Pursuant to the agreement with Mr. Greenebaum, the Company will
pay Mr. Greenebaum an annualized base salary of $250,000 per year for the period
of his employment with the Company through December 31, 1997 and thereafter an
annualized base salary of $275,000, subject to any increases approved by the
Board of Directors. Upon the commencement of his employment with the Company,
the Company paid Mr. Greenebaum an additional sum of $90,000. The Company has
also granted Mr. Greenebaum options to purchase up to 175,000 shares of Common
Stock at a price per share of $15.125; however, the options relating to 10,500
of such shares are subject to replenishment of the Plan by the Company. The
options will vest and be exercisable in three stages contingent upon the
continued employment of Mr. Greenebaum with the Company at predetermined dates.
The dismissal of Mr. Greenebaum other than for 'cause' (as defined in the
agreement) subsequent to the passing of certain milestones, however, will cause
the options otherwise exercisable only at the end of that stage to vest
immediately notwithstanding the dismissal. If Mr. Greenebaum's employment is
terminated for any reason other than by the Company for 'Cause,' (as defined in
the agreement) or by Mr. Greenebaum voluntarily, Mr. Greenebaum will be entitled
to receive, in addition to any other sums then due to him, an amount equal to
his annualized base salary then in effect. The Company and Mr. Greenebaum also
have entered into a proprietary information and non-competition agreement. Under
this agreement, Mr. Greenebaum may not (i) during his employment with the
Company and for three years thereafter disclose any proprietary information of
the Company or (ii) during his employment with the Company and for one year
thereafter engage in any business involving any satellite radio broadcast
service or any subscription-based digital audio radio service delivered to cars
or other mobile vehicles in North America.
The Company has entered into employment and non-competition agreements to
employ Joseph S. Capobianco as Executive Vice President, Content, and Keno V.
Thomas as Executive Vice President, Marketing, both for terms of three years.
The agreement with Mr. Capobianco, effective April 16, 1997, provided for an
annual base salary of $200,000, subject to increase from time to time by the
Board of Directors. The agreement with Mr. Thomas, effective April 28, 1997,
provided for an annualized base salary of $225,000 through December 31, 1997,
increasing to an annualized base salary of $250,000 thereafter through the term
of the agreement, subject to increase from time to time by the Board of
Directors. The Company has granted each of Mr. Capobianco and Mr. Thomas an
option to purchase 50,000 shares of Common Stock at $13 and $12.875 per share,
respectively, each such option to vest pursuant to the schedule set forth in the
applicable option agreement. On July 9, 1997, the Company granted each of
Messrs. Capobianco and Thomas further options to purchase up to 25,000 shares of
Common Stock at a price per share of $14.50. These options will vest and become
exercisable in two stages contingent upon Messrs. Capobianco's and Thomas'
respective continued employment with the Company and the replenishment of the
number of shares of Common Stock in the 1994 Stock Option Plan by the Company.
If either Mr. Capobianco or Mr. Thomas is terminated except by the Company for
'Cause,' as defined in the agreement, or by the applicable executive
voluntarily, the Company will be obligated to pay to Mr. Capobianco an amount
equal to one-third of his then annual salary if the termination is on or prior
to October 16, 1997 and one-half of his then annual salary thereafter, and to
pay to Mr. Thomas an amount equal to one-half of his then annual salary. The
Company also has entered into a proprietary information and non-competition
agreement with each of Mr. Capobianco and Mr. Thomas. Under these agreements
each of Mr. Capobianco and Mr. Thomas may not (i) disclose any proprietary
information of the Company during his employment with the Company and for three
years thereafter or (ii) during their respective employment and for one year
thereafter, engage in any business involving any satellite radio broadcast
service or any subscription-based digital audio radio service delivered to cars
or other mobile vehicles in North America.
EMPLOYEE AND DIRECTOR STOCK OPTIONS AND STOCK GRANTS
In February 1994, the Company adopted its 1994 Stock Option Plan (the '1994
Plan') and its Director's Plan. The Director's Plan was amended by the Board of
Directors in December 1994 and January 1995 and approved at the annual meeting
of stockholders on June 27, 1995 to extend the
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exercise period of the option after termination for reason other than death or
disability and to increase the initial option grants and annual option grants to
non-employee directors.
The 1994 Plan, as amended, provides for options to purchase Common Stock
and is administered by the Plan Administrator, which may be either the Company's
Board of Directors or a committee designated by the Board of Directors. In
accordance with the 1994 Plan, the Plan Administrator determines the employees
to whom options are granted, the number of shares subject to each option, the
exercise price and the vesting schedule of each option. Options generally vest
over a four-year period, but may vest over a different period at the discretion
of the Plan Administrator. Under the 1994 Plan, outstanding options vest, unless
they are assumed by an acquiring entity, upon the occurrence of certain
transactions, including certain mergers and other business combinations
involving the Company. Options granted under the 1994 Plan are exercisable for a
period of ten years from the date of grant, except that incentive stock options
granted to persons who own more than 10% of the Common Stock terminate after
five years. Unless otherwise provided at the time of grant, vested options
terminate 90 days after the optionee's termination of employment with the
Company for any reason other than death or disability, and one year after
termination upon death or disability. Unless otherwise determined by the Plan
Administrator, the exercise price of options granted under the 1994 Plan must be
equal to or greater than the fair market value of the Common Stock on the date
of grant. Upon exercise, the aggregate exercise price may be paid to the Company
(i) in cash, (ii) upon approval of the Plan Administrator, by delivering to the
Company shares of Common Stock previously held by such Optionee, or (iii) by
complying with any other payment mechanism approved by the Plan Administrator
from time to time.
The Directors' Plan provides that current non-employee directors of the
Company and persons who become non-employee directors of the Company shall be
granted options to purchase 15,000 shares of Common Stock upon becoming
directors (or upon the effective date of the Director's Plan in the case of
non-employee directors who became directors prior to the effective date), and
thereafter shall annually be granted options to purchase 10,000 shares of Common
Stock on the first business day following the Company's annual meeting. The
exercise price for annual grants is the fair market value of the Company's
Common Stock on the date of grant. Options granted under the Directors' Plan
vest immediately upon grant and are exercisable for a period of ten years from
the date of grant. Options terminate 18 months after a director's termination as
a director of the Company for any reason other than death or disability, and one
year after termination upon death or disability. Upon exercise, the exercise
price may be paid (i) in cash, (ii) in shares of Common Stock, or (iii) by the
Company withholding that number of shares of Common Stock with a fair market
value on the date of exercise equal to the aggregate exercise price of the
option.
In June 1995, the Company adopted its 1995 Stock Compensation Plan (the
'Stock Compensation Plan'). Pursuant to the terms of the Stock Compensation
Plan, all employees of the Company or a Related Company (as defined in the Stock
Compensation Plan) are eligible to receive awards under the Stock Compensation
Plan. Bonuses granted pursuant to the Stock Compensation Plan are made by a plan
administrator. The plan administrator, in its absolute discretion, determines
the employees to whom, and the time or times at which, Common Stock awards are
granted, the number of shares within each award and all other terms and
conditions of the awards. The terms, conditions and restrictions applicable to
the awards made under the Stock Compensation Plan need not be the same for all
recipients, nor for all awards. The plan administrator may grant to any officer
of the Company the authority to make awards or otherwise administer the Stock
Compensation Plan solely with respect to persons who are not subject to the
reporting and liability provisions of Section 16 of the Exchange Act.
In September 1996, the Stock Compensation Plan was amended to allow the
plan to be administered by the entire Board of Directors, and if so authorized
by the Board of Directors, a committee of at least two non-employee directors.
Prior to this amendment, the plan permitted the administration only by a
committee of the Board of Directors. The purpose of the amendment was to comply
more readily with the new rules under Section 16 of the Securities Act, which
changed the eligibility requirements for these committees. The new rules under
Section 16 allow either the entire Board of Directors or a committee composed of
two or more 'non-employee' directors to act as Plan
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Administrator. Amending the Stock Compensation Plan provided more flexibility
for the Company in the administration of the Stock Compensation Plan.
Awards under the Stock Compensation Plan may not exceed 175,000 shares of
Common Stock in the aggregate, subject to certain adjustments. Shares awarded
may be from authorized but unissued shares or from Company treasury shares of
Common Stock. All shares of Common Stock received by employees pursuant to
bonuses under the Stock Compensation Plan (except for shares received by
executive officers or other persons who are subject to the reporting and
liability provisions of Section 16 of the Exchange Act) are freely transferable.
Nevertheless, the shares of Common Stock granted to recipients may be subject to
such terms and conditions as the Committee, in its sole discretion, deems
appropriate. During 1996, 67,500 shares of the Company's Common Stock were
issued pursuant to this Compensation Plan.
As of December 31, 1996, 162,500 shares of Common Stock have been issued
under the Stock Compensation Plan, and 12,500 shares of Common Stock remain
available for issuance thereunder.
An aggregate of 1,600,000 shares of Common Stock were available for
issuance pursuant to the 1994 Plan and the Directors' Plan. As of July 31, 1997,
options to purchase all of the 1,600,000 shares of Common Stock had been granted
pursuant to the 1994 Plan and the Directors' Plan and a further 133,000 options
have been issued subject to the replenishment of these Plans by the Company
prior to any of such options vesting.
STOCK OPTION INFORMATION
In April 1996, the Company granted to David Margolese pursuant to the 1994
Plan a stock option to purchase 400,000 shares of Common Stock which are now
exercisable following the grant of the FCC License. In April 1996, the Company
also granted to Robert Briskman pursuant to the 1994 Plan a stock option to
purchase 60,000 shares of Common Stock, 30,000 shares of which are exercisable
upon the FCC's grant of a license to the Company and the remaining 30,000 shares
of which are exercisable on September 18, 1997 if, as of such date, the FCC had
granted the FCC License and Mr. Briskman was still employed by the Company. In
recognition of Mr. Briskman's services to the Company and in view of the
unexpected delay by the FCC in awarding the Company's FCC License, on October
15, 1997, the Compensation Committee of the Board of Directors granted Mr.
Briskman options to purchase 30,000 shares of Common Stock at a price of $8.5625
per share under the 1994 Plan. Such options are exercisable immediately.
The following table sets forth certain information for the fiscal year
ended December 31, 1996, with respect to options granted to the individuals
named in the Summary Compensation table above.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------- VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
TOTAL EXERCISE APPRECIATION
NUMBER OF OPTIONS GRANTED OR BASE FOR STOCK TERM
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- -------------------------------------- ---------- --------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David Margolese....................... 400,000 87% $8.5625 4/24/06 $2,398,624 $5,848,148
Robert Briskman....................... 60,000 13% $8.5625 4/24/06 $ 359,794 $ 877,222
</TABLE>
The following table sets forth certain information with respect to the
number of shares covered by both exercisable and unexercisable stock options
held by the individuals named in the Summary Compensation table above as of the
fiscal year ended December 31, 1996. Also reported are values for 'in-the-money'
stock options that represent the positive spread between the respective exercise
prices of outstanding stock options and the fair market value of the Common
Stock as of December 31, 1996 ($4.125 per share).
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AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT FISCAL
SHARES FISCAL YEAR END YEAR END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ----------- -------- ---------------- -----------------
<S> <C> <C> <C> <C>
David Margolese........................................ 0 $ 0 300,000/400,000 $0/$0
Robert Briskman........................................ 80,000 $202,500 132,500/60,000 $414,063/$0
</TABLE>
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY
As permitted by the Delaware General Corporation Law, the Company's Amended
and Restated Certificate of Incorporation provides that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which the
director derives an improper personal benefit. In addition, the Company's
Amended and Restated By-Laws provide that the Company shall indemnify all
directors and officers and may indemnify employees and certain other persons to
the full extent and in the manner permitted by Section 145 of the Delaware
General Corporation Law, as amended from time to time. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and, therefore, is unenforceable. The Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws provide
that the Company may, to the full extent permitted by law, purchase and maintain
insurance on behalf of any director, officer, employee or agent of the Company
against any liability which may be asserted against him or her and the Company
currently maintains such insurance.
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PRINCIPAL STOCKHOLDERS
The following tables set forth certain information regarding beneficial
ownership of the Company's Common Stock and 5% Preferred Stock, as of September
30, 1997, by (i) each stockholder known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock or 5% Preferred Stock,
(ii) in relation to the Common Stock, each director of the Company, (iii) in
relation to the Common Stock, each executive officer of the Company and (iv) in
relation to each of the Common Stock and the 5% Preferred Stock, all directors
and executive officers as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock and 5% Preferred Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable. The table of beneficial ownership of Common
Stock also sets forth information concerning the number of shares of Common
Stock issuable upon conversion of shares of the Company's 5% Preferred Stock to
holders of the 5% Preferred Stock.
BENEFICIAL OWNERS OF COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAME AND ADDRESS OF OF COMMON STOCK OF COMMON STOCK
BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
- ----------------------------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
Directors, Executive Officers and 5% Stockholders
Darlene Friedland (3) ................................................. 2,734,500 21.7%
110 Wolseley Road
Point Piper 2027
Sydney, Australia
Loral Space & Communications Ltd. (4) ................................. 1,905,488 15.2
600 Third Avenue
New York, New York 10017
David Margolese(5) .................................................... 1,900,000 15.1
c/o CD Radio Inc.
Sixth Floor
1001 22nd Street, N.W.
Washington, D.C. 20037
Robertson, Stephens & Co., et al.(6) .................................. 1,467,500 11.7
555 California Street, Suite 2600
San Francisco, CA 94104
Robert D. Briskman(7).................................................. 132,500 1.1
Jack Z. Rubinstein(8).................................................. 227,000 1.8
Peter K. Pitsch(9)..................................................... 70,000 *
Lawrence F. Gilberti(10)............................................... 35,000 *
Ralph V. Whitworth(11)................................................. 35,000 *
Joseph Capobianco(12).................................................. 0 *
Keno V. Thomas(13)..................................................... 0 *
Andrew J. Greenebaum(14)............................................... 59,000 *
All Executive Officers and Directors
as a Group (9 persons)(l5)........................................... 2,458,500 19.5
Holders of 5% Delayed Convertible Preferred Stock(16)
Everest Capital International, Ltd.(17) ............................... 2,194,368 14.9
c/o Morgan Stanley & Co. Incorporated
One Pierpont Plaza, 10th Floor
Brooklyn, NY 11201
Continental Casualty Company(18) ...................................... 2,150,881 14.6
c/o Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2477
Mackay-Shields Financial Corporation(19) .............................. 1,309,012 9.5
9 West 57th Street
New York, NY 10019
</TABLE>
(table continued on next page)
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<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAME AND ADDRESS OF OF COMMON STOCK OF COMMON STOCK
BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
- ----------------------------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
Jess M. Ravich (20) ................................................... 913,244 6.8
c/o Libra Investments, Inc.
11766 Wilshire Boulevard
Suite 870
Los Angeles, CA 90025
Grace Brothers, Ltd.(21) .............................................. 869,399 6.5
Bradford Whitmore
1560 Sherman Avenue, Suite 900
Evanston, IL 60201
Everest Capital Fund, L.P.(22) ........................................ 824,020 6.2
c/o Morgan Stanley & Co. Incorporated
One Pierpont Plaza, 10th Floor
Brooklyn, NY 11201
</TABLE>
- ------------
* Less than 1%
(1) This table is based upon information supplied by directors, officers and
principal stockholders. Percentage of ownership is based on 12,577,884
shares of Common Stock outstanding on September 30, 1997. Unless otherwise
indicated, the address of the beneficial owner is the Company.
(2) Determined in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934, as amended. Under this rule, a person is deemed to be the
beneficial owner of securities that can be acquired by such person within 60
days from September 30, 1997 upon the exercise of options, and each
beneficial owner's percentage ownership is determined by assuming that
options that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from September 30, 1997 have
been exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(3) Darlene Friedland is the spouse of Robert Friedland. Robert Friedland was a
director of the Company from June 1993 until October 1993. From May 1992,
Mr. Friedland and Ivanhoe Capital Corporation, a venture capital firm he
controls, collectively were the Company's largest shareholder until their
shares were transferred to Darlene Friedland in October 1993.
(4) Subject to demand registration rights after the Company's two satellites are
launched and operational.
(5) Includes 300,000 shares issuable pursuant to stock options that are
exercisable within 60 days. Does not include 400,000 shares issuable
pursuant to stock options that are not exercisable within 60 days. Pursuant
to a voting trust agreement entered into by Darlene Friedland, as grantor,
David Margolese, as trustee, and the Company, Mr. Margolese will have the
power to vote in his discretion all shares of Common Stock owned or
hereafter acquired by Darlene Friedland and certain of her affiliates
(currently 2,734,500 shares) for a period of five years commencing on the
first to occur of the closing dates of the Stock Offerings or Units Offering
(both as defined below) or the consummation of the Exchange Offer.
(6) Shares are owned by a group including the following: The Robertson Stephens
Orphan Fund (which has shared voting and shared dispositive power over
1,069,200 shares), The Robertson Stephens Orphan Offshore Fund (with shared
voting and shared dispositive power over 226,800 shares), The Robertson
Stephens Global Low-Priced Stock Fund (with shared voting and shared
dispositive power over 70,000 shares), The Robertson Stephens & Company
Investment Management L.P. (with shared voting and shared dispositive power
over 1,366,000 shares), Bayview Investors, LTD (with shared voting and
shared dispositive power over 1,069,200 shares), Robertson, Stephens &
Company, Incorporated ('RS&Co.') (with shared voting and shared dispositive
power over 1,366,000 shares), and RS&Co.'s five shareholders, namely Paul H.
Stephens (with sole voting and sole dispositive power over 96,880 shares,
and shared voting and shared dispositive power over 1,366,000 shares),
Sanford R. Robertson (with sole voting and sole dispositive power over
11,620 shares, and shared voting and shared dispositive power over 1,366,000
shares), Michael G. McCaffery, G. Randy Hecht and Kenneth R. Fitzsimmons
(the three of whom have shared voting and shared dispositive power over
1,366,000 shares). Messrs. Stephens, Robertson, McCaffery, Hecht and
Fitzsimmons disclaim any beneficial ownership with respect to shares of the
Company that RS&Co. may be deemed to beneficially own. The source of the
information in this footnote is the Schedule 13D dated August 13, 1997 filed
by Robertson, Stephens & Company LLC, et al.
(7) Includes 132,500 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days. Does not include 117,500 shares issuable
pursuant to stock options that are not exercisable within 60 days of such
date.
(8) Includes 195,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days and 7,700 shares of Common Stock held in trust
for his daughters. Excludes 20,000 shares held by DICA Partners, L.P. of
which Mr. Rubinstein is the General Partner.
(9) Includes 60,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(10) Represents 35,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(11) Represents 35,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(12) Does not include 75,000 shares issuable pursuant to stock options that are
not exercisable within 60 days.
(footnotes continued on next page)
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(footnotes continued from previous page)
(13) Does not include 75,000 shares issuable pursuant to stock options that are
not exercisable within 60 days.
(14) Represents 59,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days. Does not include 116,000 shares of Common Stock
issuable pursuant to stock options not exercisable within 60 days.
(15) Includes 732,500 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days. Does not include 857,500 shares issuable
pursuant to options that are not exercisable within 60 days.
(16) Estimated solely for the purposes of this table. Such beneficial ownership
represents an estimate of the number of shares of Common Stock issuable
upon the conversion of shares of 5% Preferred Stock beneficially owned by
such person, assuming a conversion date of September 30, 1997 and that all
dividends on shares of the 5% Preferred Stock are paid, in lieu of cash, in
additional shares of 5% Preferred Stock. The number of shares of Common
Stock issuable upon conversion of the shares of the 5% Preferred Stock
would equal the liquidation preference of the shares being converted plus
any cash payments divided by the then-effective conversion price applicable
to the Common Stock (the 'Conversion Price'). The Conversion Price, as of
any date up to and including November 15, 1997, is determined in accordance
with a formula based on market prices of the Common Stock or actual prices
at which the converting holder sold the Common Stock, in either case
multiplied by an amount equal to 1 minus an applicable percentage. The
actual number of shares of Common Stock upon conversion is subject to
adjustment and could be materially less or more than the estimated amount
indicated depending upon factors which cannot be predicted by the Company
at this time, including, among others, application of the conversion
provisions based on market prices prevailing at the actual date of
conversion and whether dividends on shares of 5% Preferred Stock are paid
in cash or added to the liquidation preference. This presentation is not
intended to constitute a prediction as to the future market price of the
Common Stock or as to when holders will elect to convert shares of the 5%
Preferred Stock into shares of Common Stock. See 'Description of Capital
Stock -- 5% Delayed Convertible Preferred Stock.'
(17) Includes 1,137,155 shares of 5% Preferred Stock. The following limitations
(the 'Standstill Agreement') apply to Everest Capital International, Ltd.
and Everest Capital Fund, L.P. (the 'Everest Funds') and their affiliates,
and to certain transferees. Until the date one year after the execution of
a certain Commitment Term Sheet between such Everest Funds and the Company,
the Everest Funds and their affiliates (i) shall not acquire Common Stock,
including by means of conversion of their 5% Preferred Stock or exercise
any other right, if, upon such acquisition or exercise, the Everest Funds
and their affiliates will have or share, directly or indirectly, voting or
investment power over ten percent or more of the Common Stock (for purposes
of this clause (i), a right to acquire upon exercise or conversion will not
be deemed to confer voting or investment power over the underlying security
in the absence of an exercise or conversion), and (ii) shall not sell or
otherwise dispose of warrants or 5% Preferred Stock to any purchaser, if,
following such sale or disposition, the purchaser and its affiliates would
be beneficial owners of ten percent or more of the Common Stock, except for
a sale or disposition of warrants or 5% Preferred Stock to a purchaser who,
for itself and its affiliates, agrees to be bound by the limitations set
forth in the Standstill Agreement.
(18) Includes 1,114,630 shares of 5% Preferred Stock held on its own behalf and
on behalf of its Designated A/C High Yield Fund.
(19) Includes 678,350 shares of 5% Preferred Stock held by the Mainstay Funds,
on behalf of its High Yield Corporate Bond Fund Series, for which
Mackay-Shields Financial Corporation acts as financial advisor. Such Funds
and such advisor share investment and voting power with respect to such
shares. The Fund has agreed that it will not, following any conversion of
its shares, be the beneficial owner of more than 9.99% of the outstanding
Common Stock unless it chooses to waive this restriction upon 61 days prior
notice to the Company.
(20) Represents 64,757 shares of 5% Preferred Stock beneficially owned by Mr.
Ravich, 146,800 shares of 5% Preferred Stock that are issuable pursuant to
warrants to be issued to Libra Investments, Inc. ('Libra') and 261,700
shares of 5% Preferred Stock that are issuable pursuant to warrants to be
issued to The Ravich Revocable Trust of 1989 (the 'Ravich Trust'). Jess M.
Ravich is the Chairman, Chief Executive Officer and the controlling
shareholder of Libra and a trustee of the Ravich Trust. Mr. Ravich
disclaims beneficial ownership in the shares issuable to Libra except to
the extent of his ownership interest in Libra. Libra and the Ravich Trust
have agreed that they will not, following any conversion of their shares of
5% Preferred Stock, be the beneficial owner of more than 4.99% of the
outstanding Common Stock unless they choose to waive this restriction upon
61 days prior notice to the Company. Amount does not include warrants to
purchase 60,000 shares of Common Stock to be issued to the Ravich Trust at
a purchase price of $50.00 per share. The warrants are exercisable from
June 15, 1998 through and including June 15, 2005.
(21) Includes 450,536 shares of 5% Preferred Stock. Grace Brothers, Ltd. has
agreed that it will not, following any conversion of its shares, be the
beneficial owner of more than 9.99% of the outstanding Common Stock unless
it chooses to waive this restriction upon 61 days prior notice to the
Company.
(22) Includes 427,020 shares of 5% Preferred. Does not include shares of Common
Stock issuable pursuant to warrants to be issued to Everest Capital Fund,
L.P. or an affiliate thereof to purchase 1,740,000 shares of Common Stock
at a purchase price of $50.00 per share. The warrants are exercisable from
June 15, 1998 through and including June 15, 2005. See footnote (17) above
for further commentary.
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BENEFICIAL OWNERS OF 5% PREFERRED STOCK
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAME AND ADDRESS OF OF 5% PREFERRED STOCK OF 5% PREFERRED STOCK
BENEFICIAL OWNER OF 5% PREFERRED STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
- ----------------------------------------------------------- ------------------------ ---------------------------
<S> <C> <C>
Directors, Executive Officers and 5% Stockholders
Everest Capital International, Ltd. ....................... 1,137,155 21.8%
c/o Morgan Stanley & Co. Incorporated
One Pierpont Plaza, 10th Floor
Brooklyn, NY 11201
Continental Casualty Company .............................. 1,114,630 21.3
c/o Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2477
Mackay-Shields Financial Corporation ...................... 678,350 13.0
9 West 57th Street
New York, NY 10019
Jess M. Ravich ............................................ 473,257 9.1
c/o Libra Investments, Inc.
11766 Wilshire Boulevard
Suite 870
Los Angeles, CA 90025
Grace Brothers, Ltd ....................................... 450,536 8.6
Bradford Whitmore
1560 Sherman Avenue, Suite 900
Evanston, IL 60201
Everest Capital Fund, L.P. ................................ 427,020 8.2
c/o Morgan Stanley & Co. Incorporated
One Pierpont Plaza, 10th Floor
Brooklyn, NY 11201
All Executive Officers and Directors as a Group (9 -- *
persons)(3) .............................................
</TABLE>
- ------------
* Less than 1%
(1) This table is based upon information supplied by principal stockholders.
Percentage of ownership is based on 5,222,608 shares of 5% Preferred Stock
outstanding on September 30, 1997. Unless otherwise indicated, the address
of the Beneficial Owner is the Company.
(2) Determined in accordance with Rule 13D-3 under the Securities Exchange Act
of 1934, as amended. Under this rule, a person is deemed to be the
beneficial owner of securities that can be acquired by such person within 60
days from September 30, 1997 upon the exercise of options, and each
beneficial owner's percentage ownership is determined by assuming that
options that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from September 30, 1997 have
been exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of 5% Preferred Stock beneficially owned by them.
(3) No executive officer or director of the Company beneficially owns any shares
of 5% Preferred Stock.
VOTING TRUST AGREEMENT
The Company is a party to a voting trust agreement dated August 26, 1997
(the 'Voting Trust Agreement') by and among Darlene Friedland, as grantor, David
Margolese, as the voting trustee thereunder, and the Company. The following
summary description of the Voting Trust Agreement does not purport to be
complete and is qualified in its entirety by reference to the complete text
thereof, a copy of which has been filed with the SEC as an exhibit to the Issuer
Tender Offer Statement on Schedule 13E-4 and incorporated herein by reference.
The Voting Trust Agreement provides for the establishment of a trust (the
'Trust') into which shall be deposited (i) all of the shares of Common Stock
owned by Mrs. Friedland on August 26, 1997 and (ii) any shares of Common Stock
acquired by Mrs. Friedland, her spouse Mr. Robert Friedland, any member of
either of their immediate families or any entity directly or indirectly
controlled by Mrs. Friedland, her spouse or any member of either of their
immediate families (the 'Friedland Affiliates') between the date shares are
initially deposited and the termination of the Trust. The voting trust will
terminate on the fifth anniversary of the initial deposit of shares into the
Trust.
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The Voting Trust Agreement does not restrict the ability of Mrs. Friedland
or any of the Friedland Affiliates to sell, assign, transfer or pledge any of
the shares deposited into the Trust, nor does it prohibit Mrs. Friedland or the
Friedland Affiliates from purchasing additional shares of Common Stock, provided
those shares become subject to the Trust, as described above.
Under the Voting Trust Agreement, the trustee will have the power to vote
shares held in the Trust in relation to any matter upon which the holders of
such stock would have a right to vote, including without limitation the election
of directors. For so long as David Margolese remains trustee of the Trust, he
may exercise such voting rights in his discretion. Any successor trustee or
trustees of the Trust must vote as follows: (i) on the election of directors,
the trustee(s) must vote the entire number of shares held by the Trust, with the
number of shares voted for each director (or nominee for director) determined by
multiplying the total number of votes held by the Trust by a fraction, the
numerator of which is the number of votes cast for such person by other
stockholders of the Company and the denominator of which is the sum of the total
number of votes represented by all shares casting any votes in the election of
directors; (ii) if the matter under Delaware law or the Certificate of
Incorporation or the Bylaws of the Company requires at least an absolute
majority of all outstanding shares of Common Stock of the Company in order to be
approved, the trustee(s) must vote all of the shares in the Trust in the same
manner as the majority of all votes that are cast for or against the matter by
all other stockholders of the Company; and (iii) on all other matters, including
without limitation any amendment of the Voting Trust Agreement for which a
stockholder vote is required, the trustee(s) must vote all of the shares in the
Trust for or against the matter in the same manner as all votes that are cast
for or against the matter by all other stockholders of the Company.
The Voting Trust Agreement may not be amended without the prior written
consent of the Company, acting by unanimous vote of the Board of Directors, and
approval of the Company's stockholders, acting by the affirmative vote of
two-thirds of the total voting power of the Company, except in certain limited
circumstances where amendments to the Voting Trust Agreement are required to
comply with applicable law.
DESCRIPTION OF CERTAIN INDEBTEDNESS
VENDOR FINANCING
On July 22, 1997, the Company entered into the AEF Agreements with AEF to
finance approximately $105 million of the estimated $176 million price of the
launch services to be provided by Arianespace for the Company's two satellites.
Under the AEF Agreements, the Company is able to borrow funds to meet the
progress payments due to Arianespace for the construction of each launch vehicle
and other launch costs (the 'Tranche A Loans'). Interest on the Tranche A Loans
will be capitalized and will accrue at a rate of 3% per annum above the rate at
which dollar deposits are offered in the London interbank market for three
months or, during a certain time period following the Conversion Commitment Date
(defined below), one month (the 'Interest Basis'). Unless the Company satisfies
the conditions for conversion of the Tranche A Loans to long-term loans, the
Company will be required to repay the Tranche A Loans in full, together with
accrued interest and all fees and other amounts due, approximately three months
before the applicable launch date, which will be prior to the time CD Radio
commences commercial operations. There can be no assurance that the Company will
have sufficient funds to make such repayment.
If the Company satisfies certain conditions set forth in the AEF Agreements
and otherwise meets the requirements of AEF by a specified date prior to the
applicable launch (the 'Conversion Commitment Date'), Tranche A Loans
representing up to 60% of the launch costs may be converted ('Conversion') on
the launch date into term loans (the 'Tranche B Loans') which will amortize over
a period not to exceed seven years. However, not more than $80 million of the
Tranche A Loans may be converted in the aggregate under the AEF Agreements.
Prior to Conversion, based on documents and materials to be submitted by
the Company, including its business plan, AEF will place the Company into one of
three pre-established borrower categories for the purpose of determining the
conditions to Conversion that the Company must satisfy. It is anticipated that
the Company will be placed in the category for which the conditions to
Conversion are the most
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restrictive ('Category 3'). If the Company is placed in Category 3, AEF, at its
discretion, may impose conditions to Conversion and require covenants in
addition to those initially set forth in AEF Agreements. There can be no
assurance that the Company will be able to satisfy the conditions to Conversion.
Interest on the Tranche B Loans will accrue at a rate of 3.5% per annum
above the Interest Basis and will be payable quarterly (or, in certain time
periods, monthly) in arrears. Any amounts due and payable by the Company which
are not paid on their due date will accrue interest at a default rate of 2%
above the interest rate otherwise applicable at such time.
The Company may, at any time, prepay the Tranche A Loans or the Tranche B
Loans by providing prior irrevocable written notice to AEF. The Company will be
required to prepay the loans in full, together with accrued interest and all
fees and other amounts due, if certain events occur, including the following:
(i) any of the applicable AEF Agreements, the Launch Services Agreement or the
related Multiparty Agreement among the Company, AEF and Arianespace is
terminated; (ii) following a launch failure, the Company does not request a
replacement launch within 180 days after the original launch date or a
replacement launch is not accomplished within 2 years following the original
launch date; (iii) an initial launch has not occurred by April 12, 2002; (iv) a
replacement launch results in a launch failure; or (v) the satellite fails to
enter commercial service within 8 months following launch. The Company also will
be required to make a prepayment of the loans in proportion to any prepayment
(whether voluntary or mandatory) made by the Company under any other financing
agreement relating to the construction, launch and operation of the satellites.
Following Conversion, the Company will be required to apply a percentage of its
excess cash flow (cash flow not needed to service debt, pay taxes or fund
capital expenditures) to prepay the Tranche B Loans on certain specified dates,
with the percentage so applied decreasing as the outstanding principal amount of
the Tranche B loan decreases.
If Conversion occurs, the Company will not be permitted to pay any
dividends on any shares of its stock or purchase any capital stock or other
equity interest in, or make any loan to or investment in, any of its affiliates
unless the aggregate amount of all such payments for the applicable time period
is less than or equal to the amount of the Company's excess cash flow for such
period minus the amounts needed to make required prepayments of the Tranche B
loans and not used during such period to make loans, investments, capital
expenditures, scheduled payments on subordinated indebtedness or other purposes.
If Conversion occurs, it is anticipated that the Tranche B Loans will be
amortized as set forth in the following schedule, with the final payment of
principal to be made no later than April 14, 2009 (the 'maturity date'):
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL AMOUNT
OF TRANCHE B LOANS
QUARTERLY PERIOD TO BE REPAID
FOLLOWING LAUNCH DATE PER QUARTER
- ------------------------------------------------------------------------- ------------------
<S> <C>
1 and 2.................................................................. No Repayment
3 and 4.................................................................. 1.0%
5 through 8.............................................................. 2.0%
9 through 12............................................................. 2.5%
13 through maturity date................................................. 5.0%
</TABLE>
However, based on the business plan and other documents to be submitted by
the Company during the review process required for Conversion, AEF may impose a
shorter amortization schedule for the Tranche B Loans.
If AEF determines that the Tranche A Loans are eligible for Conversion, the
Company also will be prohibited from changing its capital structure (including
the terms of its outstanding stock or other equity interests), permitting any
change in the composition of its ownership, or changing its organizational
documents, if such change could reasonably be expected to have a material
adverse effect on the Company, its business, assets or financial condition or
its ability to perform its obligations under any agreements relating to the
financing or the value of the Collateral (as defined below) or the
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<PAGE>
license granted under the Collateral Documents (as defined below). The Company
will also be prohibited from merging, consolidating or combining with any other
entity.
As a condition to Conversion, the Company will be required to create, in
favor of a security agent (and on behalf of AEF, a bank group providing funding
to AEF to on-lend to the Company and any other lender to the project), liens on
specified assets of the Company, including the satellites, the Company's
interests in gateway, ground reception and similar facilities and the FCC
License (the 'Collateral'). In connection with such liens, the Company must
execute certain agreements (the 'Collateral Documents'), including an assignment
and security agreement granting the liens to the security agent, a mortgage on
any tracking, telemetry, control and monitoring equipment owned by the Company
and an intercreditor agreement. All obligations of the Company under the AEF
Agreements will be secured by such liens from and following the date of
execution of the Collateral Documents, subject to the condition that neither AEF
nor any member of the bank group providing funds to AEF may direct the security
agent to exercise rights with respect to the Collateral prior to Conversion.
From and following the date of execution of any Collateral Document, the Company
will be prohibited from creating or incurring any lien on the Collateral other
than liens in favor of AEF (or the other parties to the intercreditor agreement)
and certain specified permitted liens. From such date, the Company will be
prohibited from selling or transferring any Collateral having an aggregate fair
market value in excess of $1.0 million.
Following the Conversion Commitment Date, neither the Company nor its
subsidiaries may sell or transfer any assets (other than permitted dispositions
of the Collateral), except for (i) sales of inventory in the ordinary course of
business, (ii) the trade-in of machinery or equipment in connection with the
acquisition of similar machinery or equipment, (iii) the sale of obsolete or
worn-out property having a value not exceeding $1.5 million in the aggregate in
any fiscal year and (iv) sales or transfers of assets that (x) do not exceed in
the aggregate 2% of the Company's total assets in any fiscal year, (y) together
with all prior permitted sales or transfers do not exceed in the aggregate 5% of
the Company's total assets at the time of such action or (z) do not have a fair
market value in excess of $1.0 million per item.
Commencing on the Conversion Commitment Date, prior to incurring additional
indebtedness in an aggregate principal amount of $10.0 million or more, the
Company will be required to deliver to AEF a certificate stating that no default
will occur as a result of the incurrence of such indebtedness. From and after
Conversion, the Company also will be required to maintain certain financial
ratios relating to its ability to service debt. If the Company is placed in
Category 3 (as anticipated), it will be in breach of the AEF Agreements if its
ratio of earnings before interest, tax, depreciation and amortization ('EBITDA')
to total interest accrued or payable for any period of four fiscal quarters
ending on the relevant date of calculation is less than: (i) at any time after
the first anniversary and on or prior to the second anniversary of Conversion,
1.0 to 1, (ii) thereafter, through and including the third anniversary of
Conversion, 1.5 to 1, (iii) thereafter, through and including the fourth
anniversary of Conversion, 2.0 to 1, (iv) thereafter, through and including the
fifth anniversary of Conversion, 2.5 to 1, and (v) any time thereafter, 3.0 to
1.
The Company will also be prohibited from permitting its ratio of EBITDA to
the sum of (a) total interest accrued or payable and (b) scheduled principal
payments for any period of four fiscal quarters ending on the relevant date of
calculation to be less than: (i) at any time after the first anniversary and on
or prior to the third anniversary of Conversion, 1.0 to 1, (ii) thereafter,
through and including the fourth anniversary of Conversion, 1.5 to 1, (iii)
thereafter, through and including the fifth anniversary of Conversion, 2.0 to 1,
and (iv) at any time thereafter, 2.5 to 1.
In addition, the Company may not permit its ratio of indebtedness to EBITDA
for the four fiscal quarters ending on the relevant calculation date to exceed:
(i) at any time after the first anniversary and on or prior to the second
anniversary of Conversion, 6.0 to 1, (ii) thereafter, through and including the
third anniversary of Conversion, 5.5 to 1, (iii) thereafter, through and
including the fourth anniversary of Conversion, 5.0 to 1, (iv) thereafter,
through and including the fifth anniversary of Conversion, 4.0 to 1, and (v) at
any time thereafter, 3.0 to 1.
From and following the Conversion Commitment Date, the Company may not make
any advances or loans other than (i) extensions of credit for a period not
exceeding ninety days in the nature of accounts receivable or notes receivable
arising from the sale or lease of goods or services in the
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ordinary course of business, and (ii) if no default exists or would result
therefrom, (x) loans or extensions of credit in the ordinary course of business
to affiliates, not exceeding $2.5 million in an aggregate principal amount
outstanding at any one time and (y) loans or extension of credit to the
Company's key management employees, not exceeding $1.25 million in an aggregate
principal amount outstanding at any one time.
Neither the Company nor any of its subsidiaries may make any payments in
respect of any indebtedness subordinated to the prior payment of all amounts
payable by the Company under any of the AEF Agreements, except for regularly
scheduled payments of principal and interest required by the instruments
evidencing such subordinated indebtedness.
A default under either of the AEF Agreements, which includes the
non-payment of principal and interest and breaches of covenants, will constitute
a default under the other AEF Agreement. In addition, the AEF Agreements will be
cross-defaulted to a default by the Company under any other financing agreement
relating to the project or any other agreement or instrument relating to
indebtedness in an aggregate principal amount exceeding five million dollars. If
the Company is subject to more restrictive cross-default provisions under any
other agreement providing for long-term, asset-based financing, those more
restrictive cross-default provisions will be deemed to be set forth in the AEF
Agreements. Upon the occurrence of an event of default, AEF may terminate all
commitments to make advances to the Company or convert loans, declare all unpaid
principal and interest immediately due and payable, and exercise its rights with
respect to any security.
Pursuant to a Multiparty Agreement to be executed among the Company, AEF
and Arianespace in connection with the AEF Agreements, if the Company is unable
to obtain sufficient financing to complete the construction and launch of the
satellites, and if the Company terminates the Arianespace Launch Contract, the
Company will be required to pay Arianespace a termination fee ranging from 5% to
40% of the launch services price, based on the proximity of the date of
termination to the scheduled launch date. The termination fee will be payable
prior to the time the Company commences commercial operations and there can be
no assurance that the Company will have sufficient funds to pay this fee.
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<PAGE>
DESCRIPTION OF THE UNITS
Each Unit offered hereby consists of $1,000 principal amount at maturity of
Notes and Warrants, each Warrant initially entitling the holder
thereof to purchase one share of Common Stock. The Notes and Warrants will not
be separately transferable until the Separability Date, which shall be the
earliest of: (i) , 1998, (ii) the occurrence of an Exercise Event,
(iii) the occurrence of an Event of Default, (iv) immediately prior to any
redemption of Notes by the Company with the proceeds of one or more Public
Equity Offerings (as defined herein) or (v) such earlier date as determined by
Merrill Lynch in its sole discretion.
DESCRIPTION OF THE NOTES
The Notes offered hereby will be issued under an indenture to be dated as
of , 1997 (the 'Indenture') between the Company, as issuer, and
IBJ Schroder Bank & Trust Company, as trustee (the 'Trustee'), the form of which
will be filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Indenture is subject to and governed by the Trust
Indenture Act. The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the Notes and the Indenture, including the
definitions of certain terms contained therein and those terms made part of the
Indenture by reference to the Trust Indenture Act. For definitions of certain
capitalized terms used in the following summary, see ' -- Certain Definitions.'
GENERAL
The Notes will be senior, unsecured obligations of the Company, limited to
$ aggregate principal amount at maturity and will mature on
, 2007. Although for federal income tax purposes a significant
amount of original issue discount, taxable as ordinary income, will be
recognized by a holder as such discount accrues from the date of the Indenture,
no cash interest will be payable on the Notes prior to , 2002.
Each Note will bear interest at the rate set forth on the cover page hereof from
or from the most recent interest payment date to which interest
has been paid or duly provided for, payable on and semi-annually
thereafter on and in each year until the principal
thereof is paid or duly provided for to the Person in whose name the Note (or
any predecessor Note) is registered at the close of business on the
or next preceding such interest
payment date. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
Principal of, premium, if any, on, and interest on the Notes will be
payable, and the Notes will be exchangeable and transferable, at the office or
agency of the Company in The City of New York maintained for such purposes
(which initially will be the office of the Trustee); provided, however, that, at
the option of the Company, payment of interest may be made by check mailed to
the address of the Person entitled thereto as shown on the security register.
The Notes will be issued only in fully registered form without coupons and only
in denominations of $1,000 principal amount at maturity and any integral
multiple thereof. No service charge will be made for any registration of
transfer or exchange or redemption of Notes, but the Company may require payment
in certain circumstances of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
RANKING
The indebtedness of the Company evidenced by the Notes will rank pari passu
in right of payment with all other existing and future unsubordinated
obligations of the Company and rank senior in right of payment to all existing
and future obligations of the Company expressly subordinated in right of payment
to the Notes. The Indenture permits certain subsidiary indebtedness and permits
the Company to secure certain indebtedness, including vendor financing from AEF
and Loral Space. See 'Description of Certain Indebtedness.' The Company
currently has no subordinated obligations outstanding. The Notes, however, will
be effectively subordinated to secured senior obligations of the Company with
respect to the assets of the Company securing such obligations.
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Notwithstanding anything to the contrary contained in the Indenture, for so
long as any shares of 5% Preferred Stock remain outstanding, the Notes shall
rank pari passu to such shares of 5% Preferred Stock in seniority and right of
payment, structure and maturity. Accordingly, because the 5% Preferred Stock has
no maturity or mandatory redemption date, no payments of principal upon maturity
of the Notes may be paid until the date on which no shares of 5% Preferred Stock
remain outstanding. It is a condition to the consummation of the Notes Offering
that all outstanding shares of 5% Preferred Stock be exchanged for shares of
Series C Preferred Stock in the Exchange Offer or redeemed by the Company.
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
REDEMPTION
The Notes will be redeemable, at the option of the Company, in whole or in
part, at any time on or after , 2002, on not less than 30 nor
more than 60 days' prior notice at the redemption prices (expressed as
percentages of principal amount at maturity) set forth below, together with
accrued interest, if any, to the redemption date, if redeemed during the
12-month period beginning on of the years indicated below
(subject to the right of holders of record on relevant record dates to receive
interest due on a relevant interest payment date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- ----------
<S> <C>
2002............................................................................. %
2003............................................................................. %
2004............................................................................. %
2005 and thereafter.............................................................. 100%
</TABLE>
In addition, at any time or from time to time prior to ,
2000, the Company may redeem up to a maximum of 33% of the aggregate principal
amount at maturity of the Notes with the net proceeds of one or more Public
Equity Offerings at a redemption price of % of the Accreted Value thereof;
provided that immediately after giving effect to such redemption, at least 67%
of the aggregate principal amount at maturity of the Notes remains outstanding.
In addition, (i) upon the occurrence of a Change of Control, the Company is
obligated to make an offer to purchase all outstanding Notes at a price of 101%
of the Accreted Value thereof on the applicable date of purchase, together with
accrued interest, if any, to the date of purchase (subject to the right of
holders of record on relevant record dates to receive interest due on relevant
interest payment dates), and (ii) upon the occurrence of an Asset Sale, the
Company may be obligated to make an offer to purchase all or a portion of the
outstanding Notes at a price of 100% of the Accreted Value thereof on the
applicable date of purchase, together with accrued interest, if any, to the date
of purchase (subject to the right of holders of record on relevant record dates
to receive interest due on relevant interest payment dates). See ' -- Certain
Covenants -- Purchase of Notes upon a Change of Control' and ' -- Limitation on
Sale of Assets,' respectively.
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date by
the Trustee by such method as the Trustee shall deem fair and appropriate;
provided, however, that no such partial redemption will reduce the principal
amount at maturity of a Note not redeemed to less than $1,000. Notice of
redemption will be mailed, first-class postage prepaid, at least 30 but not more
than 60 days before the redemption date to each holder of Notes to be redeemed
at its registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note will state the portion of the
principal amount at maturity thereof to be redeemed. A new Note in a principal
amount at maturity equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On and after
the redemption date, interest and original issue discount will cease to accrue
on Notes or portions thereof called for redemption and accepted for payment.
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CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Indebtedness. The Company will not, and will not permit any
Restricted Subsidiary to, create, assume, issue, guarantee or in any manner
become directly or indirectly liable for or with respect to the payment of, or
otherwise incur (collectively, to 'incur'), any Indebtedness, except for
Permitted Indebtedness; provided that (i) the Company will be permitted to incur
Indebtedness and (ii) a Restricted Subsidiary will be permitted to incur
Acquired Indebtedness, if, in either case, after giving pro forma effect to such
incurrence (including the application of the net proceeds therefrom), the ratio
of (x) Total Consolidated Indebtedness to (y) Adjusted Consolidated Operating
Cash Flow for the latest four fiscal quarters for which consolidated financial
statements of the Company are available preceding the date of such incurrence,
taken as a whole, would be greater than zero and less than or equal to 4.0 to
1.0.
Limitation on Restricted Payments. The Company will not make, and will not
permit any Restricted Subsidiary to make, directly or indirectly, any of the
following: (i) the declaration or payment of any dividend or any other
distribution on Capital Stock of the Company or any payment made to the direct
or indirect holders (in their capacities as such) of Capital Stock of the
Company (other than dividends or distributions payable solely in Qualified
Capital Stock of the Company or in options, warrants or other rights to purchase
Qualified Capital Stock of the Company); (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company (other
than any such Capital Stock owned by the Company or a Restricted Subsidiary) or
any affiliate of the Company (other than any Restricted Subsidiary); (iii) the
making of any principal payment on, or the repurchase, redemption, defeasance or
other acquisition or retirement for value of, prior to any scheduled principal
payment, sinking fund payment or maturity, any Pari Passu Indebtedness or
Subordinated Indebtedness (other than any Subordinated Indebtedness held by a
Restricted Subsidiary); or (iv) the making of any Investment (other than a
Permitted Investment) in any Person (such payments or other actions described in
(but not excluded from) clauses (i) through (iv) are collectively referred to as
'Restricted Payments'), unless, in each case:
(A) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted
Payment;
(B) immediately after giving effect to such Restricted Payment, the
Company would be able to incur at least $1.00 of Indebtedness (other than
Permitted Indebtedness) under the proviso of the covenant 'Limitation on
Indebtedness'; and
(C) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the date of the Indenture would not exceed an amount equal to the sum of
(a) the difference between (x) the Cumulative Available Cash Flow
determined at the time of such Restricted Payment and (y) 150% of the
cumulative Consolidated Interest Expense of the Company determined for the
period commencing on the date of the Indenture and ending on the last day
of the latest fiscal quarter for which consolidated financial statements of
the Company are available preceding the date of such Restricted Payment
plus (b) the aggregate Net Cash Proceeds received by the Company from the
issue or sale (other than to any Restricted Subsidiary) of Qualified
Capital Stock of the Company after January 1, 1998, plus (c) the aggregate
Net Cash Proceeds received after the date of the Indenture by the Company
from the issuance or sale (other than to any Restricted Subsidiary) of debt
securities or Redeemable Capital Stock that have been converted into or
exchanged for Qualified Capital Stock of the Company, together with the
aggregate Net Cash Proceeds received by the Company at the time of such
conversion or exchange, plus (d) to the extent not otherwise included in
the Consolidated Operating Cash Flow of the Company, an amount equal to the
sum of (1) the net reduction in Investments in any Person (other than the
Permitted Investments) resulting from the payment in cash of dividends,
repayments of loans or advances or other transfers of assets, in each case
to the Company or any Restricted Subsidiary after the date of the Indenture
from such Person and (2) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of
any Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that in the case of
(1) or (2) above the
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foregoing sum shall not exceed the aggregate amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary, minus (e)
50% of the outstanding principal amount of all Indebtedness incurred
pursuant to clause (i) of the definition of Permitted Indebtedness.
For purposes of determining the amount expended for Restricted Payments,
property other than cash shall be valued at its Fair Market Value.
The provisions of this covenant shall not prohibit, so long as, with
respect to clauses (ii) through (ix) below, no Default or Event of Default shall
have occurred and be continuing, (i) the payment of any dividend or other
distribution within 60 days after the date of declaration thereof if at such
date of declaration such payment complied with the provisions of the Indenture,
and such payment will be deemed to have been paid on the date of declaration for
purposes of the calculation in the foregoing paragraph; (ii) the purchase,
redemption, retirement or other acquisition of any shares of Capital Stock of
the Company in exchange for, or out of the Net Cash Proceeds of a substantially
concurrent issue and sale (other than to a Restricted Subsidiary) of, shares of
Qualified Capital Stock of the Company; (iii) the purchase, redemption,
retirement, defeasance or other acquisition or retirement for value of
Subordinated Indebtedness made by exchange for, or out of the Net Cash Proceeds
of a substantially concurrent issue or sale (other than to a Restricted
Subsidiary) of, Qualified Capital Stock of the Company; (iv) (A) the purchase of
any Subordinated Indebtedness at a purchase price not greater than 101% of the
principal amount or accreted value thereof, as the case may be, together with
accrued interest, if any, in the event of a Change of Control in accordance with
provisions similar to the 'Purchase of Notes upon a Change of Control' covenant
or (B) the purchase of any Preferred Stock at a purchase price not greater than
101% of the liquidation preference thereof, together with accrued dividends, if
any, in the event of a Change of Control in accordance with provisions similar
to the 'Purchase of Notes upon a Change of Control' covenant; provided that, in
each case, prior to such purchase the Company has made the Change of Control
Offer as provided in such covenant with respect to the Notes and has purchased
all Notes validly tendered for payment in connection with such Change of Control
Offer; (v) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or out of the
Net Cash Proceeds of a substantially concurrent incurrence (other than to a
Restricted Subsidiary) of, new Subordinated Indebtedness so long as (A) the
principal amount of such new Indebtedness does not exceed the principal amount
(or, if such Subordinated Indebtedness being refinanced provides for an amount
less than the principal amount thereof to be due and payable upon a declaration
of acceleration thereof, such lesser amount as of the date of determination) of
the Subordinated Indebtedness being so purchased, redeemed, defeased, acquired
or retired, plus the lesser of the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Subordinated
Indebtedness being refinanced or the amount of any premium reasonably determined
by the Company as necessary to accomplish such refinancing, plus, in either
case, the amount of expenses of the Company incurred in connection with such
refinancing, (B) such new Subordinated Indebtedness is subordinated to the Notes
to the same extent as such Subordinated Indebtedness so purchased, redeemed,
defeased, acquired or retired and (C) such new Subordinated Indebtedness has an
Average Life longer than the Average Life of the Notes and a final Stated
Maturity of principal later than the Stated Maturity of principal of the Notes;
(vi) the purchase of any Subordinated Indebtedness at a purchase price not
greater than 100% of the principal amount or accreted value thereof, as the case
may be, together with accrued interest, if any, following an Asset Sale in
accordance with provisions similar to the 'Limitation on Sale of Assets'
covenant, provided that prior to making any such purchase the Company has made
the Excess Proceeds Offer as provided in such covenant with respect to the Notes
and has purchased all Notes validly tendered for payment in connection with such
Excess Proceeds Offer; (vii) the optional redemption or retirement of any Pari
Passu Indebtedness if a pro rata principal amount at maturity of Notes is
redeemed or retired by the Company at the same time; (viii) the payment of cash
dividends on outstanding shares of Series C Preferred Stock of the Company out
of the Net Cash Proceeds of a substantially concurrent issue and sale (other
than to a Restricted Subsidiary) of Common Stock of the Company; and (ix) any
other Restricted Payments in an aggregate amount not to exceed $15.0 million.
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In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (ii), (iii), (iv), (vi),
(vii), (viii) and (ix) above shall be included as Restricted Payments.
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Company (a) will not permit any Restricted Subsidiary to issue
any Capital Stock (other than to the Company or a Restricted Subsidiary) and (b)
will not permit any Person (other than the Company or a Restricted Subsidiary)
to own any Capital Stock of any Restricted Subsidiary; provided, however, that
this covenant shall not prohibit (i) the issuance and sale of all, but not less
than all, of the issued and outstanding Capital Stock of any Restricted
Subsidiary owned by the Company or any Restricted Subsidiary in compliance with
the other provisions of the Indenture or (ii) the ownership by directors of
directors' qualifying shares or the ownership by foreign nationals of Capital
Stock of any Restricted Subsidiary, to the extent mandated by applicable law.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property or
services) with, or for the benefit of, any Affiliate of the Company (other than
the Company or a Restricted Subsidiary) unless (i) such transaction or series of
related transactions is on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, as determined in good faith by
the Board of Directors, whose determination shall be conclusive and evidenced by
a Board Resolution, than those that could have been obtained in an arm's-length
transaction with unrelated third parties who are not Affiliates, (ii) with
respect to any transaction or series of related transactions involving aggregate
consideration equal to or greater than $2,500,000, the Company shall have
delivered an officers' certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (i) above and
such transaction or series of related transactions has been approved by a
majority of the Disinterested Directors of the Board of Directors of the
Company, or the Company has obtained a written opinion from a nationally
recognized investment banking firm to the effect that such transaction or series
of related transactions is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view and (iii) with respect to any
transaction or series of related transactions including aggregate consideration
in excess of $10,000,000, or in the event no members of the Board of Directors
of the Company are Disinterested Directors with respect to any transaction or
series of transactions included in clause (ii), the Company shall obtain an
opinion from a nationally recognized investment banking firm as described above;
provided, however, that this provision will not restrict (1) any transaction by
the Company or any Restricted Subsidiary with an Affiliate directly related to
the purchase, sale or distribution of products in the ordinary course of
business consistent with industry practice, (2) the Company from paying
reasonable and customary regular compensation and fees to directors of the
Company or any Restricted Subsidiary who are not employees of the Company or any
Restricted Subsidiary, (3) the payment of compensation (including stock options
and other incentive compensation) to officers and other employees the terms of
which are approved by the Board of Directors, (4) the Company or any Restricted
Subsidiary from making any Restricted Payment in compliance with the 'Limitation
on Restricted Payments' covenant (including pursuant to the second paragraph
thereof), (5) transactions between the Company and Batchelder & Partners Inc.
pursuant to agreements in effect on the date of the Indenture and listed on a
schedule to the Indenture; provided that the Company will not, and will not
permit any Restricted Subsidiary to amend, modify or in any way alter, other
than an extension of the termination thereof, the terms of any such agreement in
a manner materially adverse to the holders of the Notes, (6) transactions among
the Company and its Restricted Subsidiaries, (7) the payment of fees to
Robertson, Stephens & Company, Incorporated for investment banking services
rendered to the Company or (8) amendments to the Loral Satellite Purchase
Contract; provided that the Company will not amend, modify or in any way alter
the terms of such agreement in a manner materially adverse to the holders of the
Notes.
Under Delaware law, the Disinterested Directors' fiduciary obligations
require that they act in good faith in a manner which they reasonably believe to
be in the best interests of the Company and its stockholders, which may not
necessarily be the same as those of holders of the Notes.
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Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind, other than Permitted Liens, on or with
respect to any of its property or assets, including any shares of stock or
indebtedness of any Restricted Subsidiary, whether owned at the date of the
Indenture or thereafter acquired, or any income, profits or proceeds therefrom,
or assign or otherwise convey any right to receive income thereon, unless (x) in
the case of any Lien securing Subordinated Indebtedness, the Notes are secured
by a Lien on such property, assets or proceeds that is senior in priority to
such Lien and (y) in the case of any other Lien, the Notes are equally and
ratably secured.
Purchase of Notes upon a Change of Control. If a Change of Control shall
occur at any time, then each holder of Notes shall have the right to require
that the Company purchase such holder's Notes, in whole or in part in integral
multiples of $1,000 principal amount at maturity, at a purchase price (the
'Change of Control Purchase Price') in cash in an amount equal to 101% of the
Accreted Value of such Notes as of the date of purchase, plus accrued and unpaid
interest, if any, to the date of purchase (the 'Change of Control Purchase
Date'), pursuant to the offer described below (the 'Change of Control Offer')
and the other procedures set forth in the Indenture.
Within 15 days following any Change of Control, the Company shall notify
the Trustee thereof and give written notice of such Change of Control to each
holder of Notes by first-class mail, postage prepaid, at the address of such
holder appearing in the security register, stating, among other things, (i) the
purchase price and the purchase date, which shall be a Business Day no earlier
than 30 days nor later than 60 days from the date such notice is mailed, or such
later date as is necessary to comply with requirements under the Exchange Act or
any applicable securities laws or regulations; (ii) that any Note not tendered
will continue to accrue interest or original issue discount; (iii) that, unless
the Company defaults in the payment of the purchase price, any Notes accepted
for payment pursuant to the Change of Control Offer shall cease to accrue
interest and original issue discount after the Change of Control Purchase Date;
and (iv) certain other procedures that a holder of Notes must follow to accept a
Change of Control Offer or to withdraw such acceptance. The Company shall have
no obligation to purchase any Notes in a Change of Control Offer if no Notes are
tendered by the holders thereof.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. The failure of the Company
to make or consummate the Change of Control Offer or pay the Change of Control
Purchase Price when due would result in an Event of Default and would give the
Trustee and the holders of the Notes the rights described under 'Events of
Default.'
One of the events which constitutes a Change of Control under the Indenture
is the disposition of 'all or substantially all' of the Company's assets. This
term has not been interpreted under New York law (which is the governing law of
the Indenture) to represent a specific quantitative test. As a consequence, in
the event holders of the Notes elect to require the Company to purchase the
Notes and the Company elects to contest such election, there can be no assurance
as to how a court interpreting New York law would interpret the phrase.
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The definition of 'Change of Control' in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes the right to
require the Company to purchase such Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect holders of the Notes, if such transaction is not a transaction defined as
a Change of Control. See ' -- Certain Definitions' for the definition of 'Change
of Control.' A transaction involving the Company's management or its affiliates,
or a transaction involving a recapitalization of the Company, would result in a
Change of Control if it is the type of transaction specified by such definition.
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The Company will comply to the extent applicable with the requirements of
the tender offer rules, including Rule 14e-1 under the Exchange Act, and any
other applicable securities laws and regulations in connection with a Change of
Control Offer.
Limitation on Sale-Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into any
sale-leaseback transaction involving any of its assets or properties whether now
owned or hereafter acquired, whereby the Company or a Restricted Subsidiary
sells or transfers such assets or properties and then or thereafter leases such
assets or properties or any part thereof or any other assets or properties which
the Company or such Restricted Subsidiary, as the case may be, intends to use
for substantially the same purpose or purposes as the assets or properties sold
or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the transaction is solely between the Company and any
Restricted Subsidiary or solely between Restricted Subsidiaries; or (iii) the
Company or such Restricted Subsidiary, within 12 months after the sale or
transfer of any assets or properties is completed, applies an amount not less
than the net proceeds received from such sale in accordance with paragraph (b)
of the 'Limitation on Sale of Assets' covenant described below.
Limitation on Sale of Assets. (a) The Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, engage in any Asset Sale
unless (i) the consideration received by the Company or such Restricted
Subsidiary for such Asset Sale is not less than the Fair Market Value of the
shares or assets sold (as determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) and (ii)
the consideration received by the Company or the relevant Restricted Subsidiary
in respect of such Asset Sale consists of at least 80% cash or Cash Equivalents.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may use the Net Cash Proceeds thereof within 12 months after the
later of such Asset Sale or the receipt of such Net Cash Proceeds (i) to
permanently repay or prepay any then outstanding Pari Passu Indebtedness, (ii)
to invest in any one or more businesses, capital expenditures or other tangible
assets of the Company or any Restricted Subsidiary, in each case, engaged, used
or useful in the CD Radio Business (or enter into a legally binding agreement to
do so within 6 months); or (iii) to invest in properties or assets that replace
the properties and assets that are the subject to such Asset Sale (or enter into
a legally binding agreement to do so within 6 months). If any such legally
binding agreement to invest such Net Cash Proceeds is terminated, then the
Company may, within 90 days of such termination or within 12 months of such
Asset Sale, whichever is later, apply or invest such Net Cash Proceeds as
provided in clause (i), (ii) or (iii) (without regard to the parenthetical
contained in clause (i) or (ii)) above. The amount of such Net Cash Proceeds not
so used as set forth above in this paragraph (b) constitutes 'Excess Proceeds.'
(c) When the aggregate amount of Excess Proceeds exceeds $10,000,000 the
Company shall, within 30 business days, make an offer to purchase (an 'Excess
Proceeds Offer') from all holders of Notes, on a pro rata basis, in accordance
with the procedures set forth below, the maximum Accreted Value as of the date
of purchase (expressed as a multiple of $1,000) of Notes that may be purchased
with the Excess Proceeds. The offer price as to each Note shall be payable in
cash in an amount equal to 100% of the Accreted Value of such Note as of the
date of purchase plus accrued interest, if any (the 'Offered Price'), to the
date such Excess Proceeds Offer is consummated (the 'Offer Date'). To the extent
that the aggregate Accreted Value of Notes tendered pursuant to an Excess
Proceeds Offer is less than the Excess Proceeds relating thereto, the Company
may use such additional Excess Proceeds for general corporate purposes or to
fund an offer to redeem any outstanding Subordinated Indebtedness or Pari Passu
Indebtedness in accordance with provisions similar to this 'Limitation on Sale
of Assets' covenant. If the aggregate Accreted Value of Notes validly tendered
and not withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be
purchased will be selected on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset to zero.
(d) If the Company becomes obligated to make an Offer pursuant to clause
(c) above, the Notes shall be purchased by the Company, at the option of the
holder thereof, in whole or in part in integral multiples of $1,000, on a date
that is not earlier than 30 days and not later than 60 days from the date
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the notice is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act or any other
applicable securities laws or regulations, subject to proration in the event the
amount of Excess Proceeds is less than the aggregate Offered Price of all Notes
tendered.
(e) The Company will comply to the extent applicable with the requirements
of the tender offer rules, including Rule 14e-1 under the Exchange Act, and any
other applicable securities laws and regulations in connection with an Excess
Proceeds Offer.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions on or in respect of its Capital Stock, (b) pay
any Indebtedness owed to the Company or any other Restricted Subsidiary, (c)
make Investments in the Company or any other Restricted Subsidiary, (d) transfer
any of its properties or assets to the Company or any other Restricted
Subsidiary or (e) guarantee any Indebtedness of the Company or any other
Restricted Subsidiary, except for such encumbrances or restrictions existing
under or by reason of (i) any agreement in effect on the date of the Indenture
and listed on Schedule A attached to the Indenture, (ii) applicable law or
judicial or regulatory action, (iii) customary non-assignment provisions of any
lease governing a leasehold interest of the Company or any Restricted
Subsidiary, (iv) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired and the Subsidiaries of such Person, (v) any mortgage or other Lien on
real property acquired or improved by the Company or any Restricted Subsidiary
after the date of the Indenture that prohibit transfers of the type described in
(d) above with respect to such real property, (vi) any encumbrance or
restriction contained in contracts for sales of assets permitted by the
'Limitation on Sale of Assets' covenant with respect to the assets to be sold
pursuant to such contract; (vii) any such customary encumbrance or restriction
contained in a security document creating a Permitted Lien (other than a Lien
securing Indebtedness under a Bank Credit Agreement or a Vendor Credit Facility)
to the extent relating to the property or asset subject to such Permitted Lien;
(viii) any agreement or other instrument governing any Indebtedness under any
Bank Credit Agreement or Vendor Credit Facility if such encumbrance or
restriction applies only (x) to amounts which at any point in time (other than
during such periods as are described in clause (y)) (1) exceed amounts due and
payable (or which are to become due and payable within 30 days) in respect of
the Notes or the Indenture for interest, premium and principal (after giving
effect to any realization by the Company under any applicable Currency
Agreement), or (2) if paid, would result in an event described in the following
clause (y) of this sentence, or (y) during the pendency of any event that
causes, permits or, after notice or lapse of time, would cause or permit the
holder(s) of the Indebtedness governed by such agreement or instrument to
declare any such Indebtedness to be immediately due and payable or require cash
collateralization or cash cover for such Indebtedness for so long as such cash
collateralization or cash cover has not been provided; or (ix) the refinancing
of Indebtedness incurred under the agreements listed on Schedule A attached to
the Indenture or described in clause (v) above, so long as such encumbrances or
restrictions are no less favorable in any material respect to the Company or any
Restricted Subsidiary than those contained in the respective agreement as in
effect on the date of the Indenture.
Insurance. (a) The Company will maintain launch insurance covering the
period from the launch to 180 days following the launch of such satellite in an
amount equal to or greater than the sum of (i) the cost to replace such
satellite with a satellite of comparable or superior technological capability
(as determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution) and having at least as much
transmission capacity as the satellite to be replaced, (ii) the cost to launch a
replacement satellite pursuant to the contract whereby a replacement satellite
will be launched and (iii) the cost of launch insurance for such replacement or,
in the event that the Company has reason to believe that the cost of obtaining
comparable insurance for a replacement would be materially higher, the Company's
best estimate of the cost of such comparable insurance.
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Notwithstanding the foregoing, the Company shall not be obligated to maintain
insurance pursuant to this paragraph (a) with respect to (i) the launch of its
first satellite and (ii) any subsequent launch not preceded by a launch failure
or failure of any satellite within 180 days from the date of its launch;
provided that the Company's spare satellite shall be under construction in
accordance with the terms of the Loral Satellite Contract or the Company shall
have otherwise obtained a spare satellite.
(b) The Company will maintain full in-orbit insurance with respect to each
satellite it owns and launches in an amount at least equal to (i) the cost to
replace such satellite with a satellite of comparable or superior technological
capability (as determined by the Board of Directors, whose determination shall
be conclusive and evidenced by a Board Resolution) and having at least as much
transmission capacity as such owned satellites, (ii) the cost to launch each
such satellite pursuant to the contract pursuant to which a replacement
satellite will be launched and (iii) the cost of launch insurance for such
replacement or, in the event that the Company has reason to believe that the
cost of obtaining comparable insurance for a replacement would be materially
higher, the Company's best estimate of the cost of such comparable insurance.
The in-orbit insurance required by this paragraph will provide that if 50% or
more of a satellite's capacity is lost, the full amount of insurance will become
due and payable, and that if a satellite is able to maintain more than 50% but
less than 100% of its capacity, a portion of such insurance will become due and
payable.
(c) In the event that the Company receives proceeds from insurance relating
to any satellite, the Company may use all or a portion of such proceeds to repay
any vendor or third-party purchase money financing pertaining to such satellite
that is required to be repaid by reason of the loss giving rise to such
insurance proceeds. The Company shall use the remainder of such proceeds to
develop and construct a replacement satellite; provided that (i) such
replacement satellite is of comparable or superior technological capability as
compared with the satellite being replaced and has at least as much transmission
capacity as the satellite being replaced (as determined by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution); (ii) the Company will have sufficient funds (together with the
proceeds of any business interruption insurance) to service the Company's
projected debt service requirements until the scheduled launch of the Company's
spare satellite and for one year thereafter and to develop and construct such
replacement satellite and (iii) that the Company's spare satellite is scheduled
to be launched within 12 months of the receipt of such proceeds. Any such
proceeds not used as permitted by this paragraph shall constitute 'Excess
Proceeds' for purposes of the 'Limitation on Sale of Assets' covenant.
Provision of Financial Statements and Reports. The Company will file on a
timely basis with the Commission, to the extent such filings are accepted by the
Commission and whether or not the Company has a class of securities registered
under the Exchange Act, the annual reports, quarterly reports and other
documents that the Company would be required to file if it were subject to
Section 13 or 15 of the Exchange Act. The Company will also be required (a) to
file with the Trustee, and provide to each holder of Notes, without cost to such
holder, copies of such reports and documents within 15 days after the date on
which the Company files such reports and documents with the Commission or the
date on which the Company would be required to file such reports and documents
if the Company were so required, and (b) if filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at the Company's cost copies of such reports and
documents to any prospective holder of Notes promptly upon written request.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not in a single transaction or a series of related
transactions consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets as an entirety to any Person or Persons, and the
Company will not permit any Restricted Subsidiary to enter into any such
transaction, or series of transactions, if such transaction or series of
transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any Person or Persons, unless: (i) either (a) the Company
shall be the surviving corporation or (b) the Person (if other than the Company)
formed by such consolidation or into which the Company or the Company and its
Restricted
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Subsidiaries is merged or the Person which acquires by sale, conveyance,
transfer, lease or other disposition, all or substantially all of the properties
and assets of the Company or the Company and its Restricted Subsidiaries, as the
case may be, (the 'Surviving Entity') (1) shall be a corporation organized and
validly existing under the laws of the United States of America, any state
thereof or the District of Columbia and (2) shall expressly assume, by an
indenture supplemental to the Indenture executed and delivered to the Trustee,
in form satisfactory to the Trustee, the Company's obligations for the due and
punctual payment of the principal of (or premium, if any, on) and interest on
all the Notes and the performance and observance of every covenant of the
Indenture on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis (and treating any obligation of the Company or any Restricted
Subsidiary in connection with or as a result of such transaction as having been
incurred of the time of such transaction), no Default or Event of Default shall
have occurred and be continuing; (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (on the assumption
that the transaction or series of transactions occurred on the first day of the
latest four fiscal quarters for which consolidated financial statements of the
Company are available prior to the consummation of such transaction or series of
transactions with the appropriate adjustments with respect to the transaction or
series of transactions, including the incurrence and repayment of any
Indebtedness incident to such transaction, being included in such pro forma
calculation), the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the proviso to the
'Limitation on Indebtedness' covenant; (iv) if any of the property or assets of
the Company or any of its Restricted Subsidiaries would thereupon become subject
to any Lien, the provisions of the 'Limitation on Liens' covenant are complied
with; and (v) the Company or the Surviving Entity shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger, sale, assignment, conveyance, transfer, lease or
other disposition and such supplemental indenture comply with the terms of the
Indenture.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or other disposition of all of substantially all of the
properties and assets of the Company in accordance with the immediately
preceding paragraph in which the Company is not the continuing obligor under the
Indenture, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture, with the
same effect as if such successor had been named as the Company therein. When a
successor assumes all the obligations of its predecessor under the Indenture and
the Notes, the predecessor shall be released from those obligations; provided
that in the case of a transfer by lease, the predecessor shall not be released
from the payment of principal and interest on the Notes.
EVENTS OF DEFAULT
The following will be 'Events of Default' under the Indenture:
(i) default in the payment of any interest on any Note when it becomes
due and payable and continuance of such default for a period of 30 days;
(ii) default in the payment of the principal of or premium, if any, on
any Note at its Maturity;
(iii) default in the performance, or breach, of the provisions
described in 'Consolidation, Merger and Sale of Assets', the failure to
make or consummate a Change of Control Offer in accordance with the
provisions of the 'Purchase of Notes upon a Change of Control' covenant or
the failure to make or consummate an Excess Proceeds Offer in accordance
with the provisions of the 'Limitation on Sale of Assets' covenant;
(iv) default in the performance, or breach, of any covenant or
agreement of the Company contained in the Indenture (other than a default
in the performance, or breach, of a covenant or warranty which is
specifically dealt with elsewhere in the Indenture) and continuance of such
default or breach for a period of 30 days after written notice shall have
been given to the Company by the Trustee or to the Company and the Trustee
by the holders of at least 25% in aggregate principal amount at maturity of
the Notes then outstanding;
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(v) (A) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of the Company or any Subsidiary
aggregating $5.0 million or more, when the same becomes due and payable at
the Stated Maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have been cured
or waived or (B) Indebtedness of the Company or any Subsidiary aggregating
$5.0 million or more shall have been accelerated or otherwise declared due
and payable, or required to be prepaid or repurchased (other than by
regularly scheduled required prepayment) prior to the Stated Maturity
thereof;
(vi) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Company or any Subsidiary
or their respective properties for the payment of money, either
individually or in an aggregate amount, in excess of $5.0 million and
either (A) an enforcement proceeding shall have been commenced by any
creditor upon such judgment or order or (B) there shall have been a period
of 30 consecutive days during which a stay of enforcement of such judgment
or order, by reason of a pending appeal or otherwise, was not in effect; or
(vii) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Subsidiary.
If an Event of Default (other than an Event of Default specified in clause
(vii) above) shall occur and be continuing, the Trustee or the holders of not
less than 25% in aggregate principal amount at maturity of the Notes then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the holders), may, and the Trustee upon the written request of such
holders, shall declare the Accreted Value of, premium, if any, and accrued
interest on all of the outstanding Notes immediately due and payable, and upon
any such declaration all such amounts payable in respect of the Notes shall
become immediately due and payable. If an Event of Default specified in clause
(viii) above occurs and is continuing, then the Accreted Value of, premium, if
any, and accrued interest on all of the outstanding Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holder of Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount at maturity
of the outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration and its consequences if (a) the Company has paid or
deposited with the Trustee a sum sufficient to pay (i) all overdue interest on
all outstanding Notes, (ii) all unpaid Accreted Value of and premium, if any, on
any outstanding Notes that have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, (iii) to the
extent that payment of such interest is lawful, interest upon overdue interest
and overdue principal at the rate borne by the Notes, (iv) all sums paid or
advanced by the Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel; and
(b) all Events of Default, other than the non-payment of amounts of principal
of, premium, if any, or interest on the Notes that has become due solely by such
declaration of acceleration, have been cured or waived. No such rescission shall
affect any subsequent default or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal amount at
maturity of the outstanding Notes may, on behalf of the holders of all the
Notes, waive any past defaults under the Indenture, except a default in the
payment of the principal of, premium, if any, or interest on any Note, or in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee will mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of,
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the holders of such Notes if a committee of its trust officers in good faith
determines that withholding the notice is in the interests of the holders of the
Notes.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such
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performance. The Company is also required to notify the Trustee within five
business days of the occurrence of any Default.
DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company upon the Notes discharged with respect to the
outstanding Notes ('defeasance'). Such defeasance means that the Company will be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes and to have satisfied all its other obligations under such
Notes and the Indenture insofar as such Notes are concerned, except for (i) the
rights of holders of outstanding Notes to receive payments in respect of the
principal of (and premium, if any, on) and interest on such Notes when such
payments are due, (ii) the Company's obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes, maintain an office or agency for payments in respect of
the Notes and segregate and hold such payments in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect to
certain covenants set forth in the Indenture, and any omission to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the Notes ('covenant defeasance').
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the holders of the Notes, cash in United States dollars, or
U.S. Government Obligations (as defined in the Indenture), or a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, or a nationally recognized
investment banking firm, to pay and discharge the Accreted Value of (and
premium, if any, on) and interest on the outstanding Notes at Stated Maturity
(or upon redemption, if applicable) of such principal, premium, if any, or
installment of interest; (ii) no Default or Event of Default with respect to the
Notes will have occurred and be continuing on the date of such deposit or,
insofar as an event of bankruptcy under clause (viii) of ' -- Events of Default'
above is concerned, at any time during the period ending on the 91st day after
the date of such deposit; (iii) such defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than the Indenture) to which the Company is a
party or by which it is bound; (iv) in the case of defeasance, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States stating
that the Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or since the effective date of the Registration
Statement of which this Prospectus forms a part, there has been a change in
applicable federal income tax law, in either case to the effect, and based
thereon such opinion shall confirm that, the holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance had not occurred; (v) in the case of covenant defeasance, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States to the effect that the holders of the Notes outstanding will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; (vi) in the case of defeasance or
covenant defeasance, the Company shall have delivered to the Trustee an Opinion
of Counsel in the United States to the effect that after the 91st day following
the deposit or after the date such opinion is delivered, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by the Company with the intent of preferring the
holders of the Notes over the other creditors of the Company with the intent of
hindering, delaying or defrauding creditors of the Company; and (viii) the
Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided for
relating to either the defeasance or the covenant defeasance, as the case may
be, have been complied with.
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SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) and the Trustee, at the expense of the Company,
will execute proper instruments acknowledging satisfaction and discharge of the
Indenture when (i) either (a) all the Notes theretofore authenticated and
delivered (other than destroyed, lost or stolen Notes which have been replaced
or paid and Notes for whose payment money has been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust as provided for
in the Indenture) have been delivered to the Trustee for cancellation or (b) all
Notes not theretofore delivered to the Trustee for cancellation (x) have become
due and payable, (y) will become due and payable at their Stated Maturity within
one year or (z) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company, and the Company
has irrevocably deposited or caused to be deposited with the Trustee as trust
funds in trust for such purpose an amount sufficient to pay and discharge the
entire Indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation, for Accreted Value of, premium, if any, and interest on the Notes
to the date of such deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity or redemption date, as the case may be; (ii)
the Company has paid or caused to be paid all sums payable under the Indenture
by the Company; and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided in the Indenture relating to the satisfaction and discharge
of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
With certain exceptions, modifications and amendments of the Indenture may
be made by a supplemental indenture entered into by the Company and the Trustee
with the consent of the holders of a majority in aggregate outstanding principal
amount at maturity of the Notes; provided, however, that no such modification or
amendment may, without the consent of the holder of each outstanding Note
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the Accreted Value thereof or
the rate of interest thereon or any premium payable upon the redemption thereof,
or change the coin or currency in which any Note or any premium or the interest
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the redemption date); (ii) reduce the percentage in
principal amount at maturity of outstanding Notes, the consent of whose holders
is required for any such supplemental indenture or the consent of whose holders
is required for any waiver of compliance with certain provisions of, or certain
defaults and their consequences provided for under, the Indenture; (iii) modify
any provisions described under ' -- Amendments and Waivers' or ' -- Events of
Default,' except to increase the percentage of outstanding Notes required for
such actions or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the holder of each outstanding
Note; or (iv) amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control or an
Excess Proceeds Offer in connection with any Asset Sale or modify any of the
provisions or definitions with respect thereto.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may modify or amend the Indenture: (a) to evidence
the succession of another Person to the Company or any other obligor on the
Notes, and the assumption by any such successor of the covenants of the Company
or such obligor in the Indenture and in the Notes in accordance with
' -- Consolidation, Merger and Sale of Assets'; (b) to add to the covenants of
the Company or any other obligor upon the Notes for the benefit of the holders
of the Notes or to surrender any right or power conferred upon the Company or
any other obligor upon the Notes, as applicable, in the Indenture or in the
Notes; (c) to cure any ambiguity, or to correct or supplement any provision in
the Indenture or the Notes which may be defective or inconsistent with any other
provision in the Indenture or the Notes or make any other provisions with
respect to matters or questions arising under the Indenture or the Notes;
provided that, in each case, such provisions shall not adversely affect the
interest of the holders of such Notes; (d) to comply with the requirements of
the Commission in order to effect or maintain the qualification of the
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Indenture under the Trust Indenture Act; (e) to add a guarantor of the Notes
under the Indenture; (f) to evidence and provide the acceptance of the
appointment of a successor Trustee under the Indenture; or (g) to mortgage,
pledge, hypothecate or grant a security interest in favor of the Trustee for the
benefit of the holders of the Notes as additional security for the payment and
performance of the Company's obligations under the Indenture, in any property,
or assets, including any of which are required to be mortgaged, pledged or
hypothecated, or in which a security interest is required to be granted to the
Trustee pursuant to the Indenture or otherwise.
The holders of a majority in aggregate principal amount at maturity of the
Notes outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent Person
would exercise under the circumstances in the conduct of such Person's own
affairs.
The Indenture and provisions of the Trust Indenture Act, incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that if it acquires any conflicting
interest (as defined) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York.
CERTAIN DEFINITIONS
'Accreted Value' is defined to mean, for any Specified Date, the amount
calculated pursuant to clause (i), (ii), (iii) or (iv) below for each $1,000
principal amount at maturity of Notes:
(i) if the Specified Date occurs on one or more of the following dates
(each a 'Semi-Annual Accrual Date'), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
- ------------------ --------
<S> <C>
, 1998.................................................................. $
, 1998.................................................................. $
, 1999.................................................................. $
, 1999.................................................................. $
, 2000.................................................................. $
, 2000.................................................................. $
, 2001.................................................................. $
, 2001.................................................................. $
, 2002.................................................................. $
, 2002.................................................................. $1,000
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the original issue price
and (b) an amount equal to the product of (1) the Accreted Value for the
first Semi-Annual Accrual Date less the original issue price multiplied by
(2) a fraction, the numerator of which is the number of days from the date
of the Indenture to the Specified Date, using a 360-day year of twelve
30-day months, and the denominator of which is the number of days elapsed
from the date of the Indenture to the first Semi-Annual Accrual Date, using
a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semi-Annual Accrual Date immediately
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preceding such Specified Date and (b) an amount equal to the product of (1)
the Accreted Value for the immediately following Semi-Annual Accrual Date
less the Accreted Value for the immediately preceding Semi-Annual Accrual
Date multiplied by (2) a fraction the numerator of which is the number of
days from the immediately preceding Semi-Annual Accrual Date to the
Specified Date, using a 360-day year of twelve 30-day months, and the
denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
'Acquired Indebtedness' means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition; provided that, for
purposes of the 'Limitation on Indebtedness' covenant, such Indebtedness shall
be deemed to be incurred on the date of the related acquisition of assets from
any Person or the date the acquired Person becomes a Restricted Subsidiary.
'Adjusted Consolidated Operating Cash Flow' means Consolidated Operating
Cash Flow for the latest four fiscal quarters for which consolidated financial
statements of Company are available, taken as a whole. For purposes of
calculating 'Consolidated Operating Cash Flow' for any four fiscal quarter
period for purposes of this definition, (i) all Restricted Subsidiaries of the
Company on the date of the transaction giving rise to the need to calculate
'Adjusted Consolidated Operating Cash Flow' (the 'Transaction Date') shall be
deemed to have been Restricted Subsidiaries at all times during such four fiscal
quarter period and (ii) any Unrestricted Subsidiary on the Transaction Date
shall be deemed to have been an Unrestricted Subsidiary at all times during such
four fiscal quarter period. In addition to and without limitation of the
foregoing, for purposes of this definition, 'Consolidated Operating Cash Flow'
shall be calculated after giving effect on a pro forma basis for the applicable
four fiscal quarter period to, without duplication, (i) any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of the Company or a Restricted
Subsidiary (including any Person who becomes a Restricted Subsidiary as a result
of the Asset Acquisition) incurring, assuming or otherwise being liable for
Acquired Indebtedness) occurring during the period commencing on the first day
of such four fiscal quarter period to and including the Transaction Date (the
'Reference Period'), as if such Asset Sale or Asset Acquisition occurred on the
first day of the Reference Period and (ii) any incurrence or repayment,
retirement or permanent reduction of any Indebtedness of the Company or any
Restricted Subsidiary during the Reference Period, as if such incurrence,
repayment, retirement or reduction occurred on the first day of the Reference
Period.
'Affiliate' means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Voting
Stock or any executive officer or director of any such specified Person or other
Person or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, 'control,' when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms 'controlling' and
'controlled' have meanings correlative to the foregoing.
'Arianespace Agreement' means, collectively, the two Customer Loan
Agreements, each dated July 22, 1997, between the Company and Arianespace S.A.,
as either such agreement is from time to time amended or supplemented in
accordance with its terms.
'Asset Acquisition' means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary in any other Person, or any acquisition or purchase of
Capital Stock of any other Person by the Company or any Restricted Subsidiary,
in either case pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged with or into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the
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assets of any Person which constitute substantially all of an operating unit or
line of business of such person or which is otherwise outside of the ordinary
course of business.
'Asset Sale' means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any Person other than
the Company or a Restricted Subsidiary in one transaction or a series of related
transactions, of (i) any Capital Stock of any Restricted Subsidiary, (ii) any
material license or other authorization of the Company or any Restricted
Subsidiary, (iii) any assets of the Company or any Restricted Subsidiary which
constitute substantially all of an operating unit or line of business of the
Company and the Restricted Subsidiaries or (iv) any other property or asset of
the Company or any Restricted Subsidiary outside of the ordinary course of
business. For the purposes of this definition, the term 'Asset Sale' shall not
include (i) any disposition of properties and assets of the Company that is
governed by the provisions of the Indenture described under ' -- Consolidation,
Merger and Sale of Assets' above, (ii) sales of property or equipment that have
become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary, as the
case may be, (iii) sales of accounts receivable by the Company for cash in an
amount at least equal to the fair market value of such accounts receivable, (iv)
for purposes of the covenant 'Limitation on Sale of Assets,' any sale,
conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions, involving assets
with a Fair Market Value not in excess of $250,000 in any twelve-month period
and (v) sales of rights to the Company's transmissions outside the continental
United States and outside the ordinary course of the Company's business if (a)
after giving effect to such sale and for a six month period thereafter, the
Company and the Restricted Subsidiaries shall have no Indebtedness outstanding
under any Bank Credit Agreement, (b) the consideration received by the Company
for such sale is at least 80% cash or Cash Equivalent and (c) the proceeds of
such sale are used by the Company for working capital or as provided in clause
(i) or (ii) of paragraph (b) of the 'Limitation on Sale of Assets' covenant.
'Attributable Indebtedness' means with respect to an operating lease
included in any Sale and Leaseback Transaction at the time of determination, the
present value (discounted at the interest rate implicit in the lease or, if not
known, at the Company's incremental borrowing rate) of the obligations of the
lessee of the property subject to such lease for rental payments during the
remaining term of the lease included in such transaction, including any period
for which such lease has been extended or may, at the option of the lessor, be
extended, or until the earliest date on which the lessee may terminate such
lease without penalty or upon payment of penalty (in which case the rental
payments shall include such penalty), after excluding from such rental payments
all amounts required to be paid on account of maintenance and repairs,
insurance, taxes, assessments, water, utilities and similar charges.
'Average Life' means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the date or dates of
each successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of
each such principal payment by (b) the sum of all such principal payments.
'Bank Credit Agreement' means any one or more credit agreements (which may
include or consist of revolving credit agreements or similar arrangements)
between the Company and one or more banks or other financial institutions
providing financing for the business of the Company and its Restricted
Subsidiaries.
'Bankruptcy Law' means Title 11 of the United States Code, as amended, or
any similar United States federal or state law, or any similar law of any other
jurisdiction, relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization or relief of debtors or any amendment to, succession
to or change in any such law.
'Board of Directors' means the Board of Directors of the Company or any
duly authorized committee thereof.
'Capital Stock' of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Stock, and any rights (other than debt
securities convertible into capital
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stock), warrants or options exchangeable for or convertible into such capital
stock, whether now outstanding or issued after the date of the Indenture.
'Capitalized Lease Obligation' of any Person means any obligation of such
Person and its subsidiaries on a consolidated basis under a lease of (or other
agreement conveying the right to use) any property (whether real, personal or
mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
'Cash Equivalents' means (i) any evidence of Indebtedness with a maturity
of 180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) certificates of deposit or acceptances with a maturity of 180
days or less of any financial institution that is a member of the Federal
Reserve System, in each case having combined capital and surplus and undivided
profits of not less than $500,000,000; and (iii) commercial paper with a
maturity of 180 days or less issued by a corporation that is not an Affiliate of
the Company and is organized under the laws of any state of the United States or
the District of Columbia and rated at least A-1 by S&P or at least P-l by
Moody's and (iv) any money market mutual fund organized under the laws of the
United States or any state thereof whose assets consist solely of cash or the
foregoing instruments.
'CD Radio Assets' means all assets, rights, services and properties,
whether tangible or intangible, used or intended for use in connection with a CD
Radio Business, including, without limitation, satellites, terrestrial repeating
stations, uplink facilities, musical libraries and other recorded programming,
furniture, fixtures and equipment and telemetry, tracking, monitoring and
control equipment.
'CD Radio Business' means the business of transmitting digital radio
programming throughout the United States by satellite to be received by paying
subscribers, including, without limitation, any business in which the Company is
engaged on the date of the Indenture, and any business reasonably related
thereto.
'Change of Control' means the occurrence of any of the following events:
(a) any 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than a Permitted Holder, is or becomes the
'beneficial owner' (as defined in Rules 13d-3 and l3d-5 under the Exchange Act,
except that a Person shall be deemed to have 'beneficial ownership' of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 40% of the total outstanding Voting Stock of the
Company; (b) the Company consolidates with, or merges with or into another
Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with
or merges with or into the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or is converted into
or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation or (B) Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation and cash, securities
and other property (other than Capital Stock of the Surviving Entity) in an
amount that could be paid by the Company as a Restricted Payment as described
under the 'Limitation on Restricted Payments' covenant and (ii) immediately
after such transaction, no 'person' or 'group' (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is the 'beneficial owner' (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have 'beneficial ownership' of all securities that such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 40% of
the total outstanding Voting Stock of the surviving or transferee corporation;
(c) during any consecutive two-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together with any
new directors whose election to such Board of Directors, or whose nomination for
election by the stockholders of the Company, was approved by a vote of 66 2/3%
of the directors then still in office who
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were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or (d) the Company is liquidated or dissolved or a special resolution is passed
by the shareholders of the Company approving the plan of liquidation or
dissolution other than in a transaction which complies with the provisions
described under 'Consolidation, Merger and Sales of Assets.'
'Closing Price' on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the
National Association of Securities Dealers Automated Quotations National Market
System or, if such shares are not listed or admitted to trading on any national
securities exchange or quoted on such automated quotation system but the issuer
is a Foreign Issuer (as defined in Rule 3b-4(b) of the Exchange Act) and the
principal securities exchange on which such shares are listed or admitted to
trading is a Designated Offshore Securities Market (as defined in Rule 902(a) of
the Securities Act of 1933, as amended), the average of the reported closing bid
and asked prices regular way on such principal exchange, or, if such shares are
not listed or admitted to trading on any national securities exchange or quoted
on such automated quotation system and the issuer of such shares and/or
principal securities exchange or quoted on such automated quotation system and
the issuer of such shares and/or principal securities exchange do not meet such
requirements, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose.
'Common Stock' means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such Person's common stock or ordinary
shares, whether outstanding at the date of the Indenture, and includes, without
limitation, all series and classes of such common stock or ordinary shares.
'Consolidated Income Tax Expense' means, with respect to any period, the
provision for United States corporation, local, foreign and other income taxes
of the Company and the Restricted Subsidiaries for such period as determined on
a consolidated basis in accordance with GAAP.
'Consolidated Interest Expense' means, for any period, without duplication,
the sum of (a) the interest expense of the Company and the Restricted
Subsidiaries for such period, including, without limitation, (i) amortization of
original issue discount, (ii) the net cost of Interest Rate Agreements
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) accrued interest, (v) the consolidated amount
of any interest capitalized by the Company, and (vi) all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, plus (b) the interest component of Capitalized Lease
Obligations of the Company and the Restricted Subsidiaries paid, accrued and/or
scheduled to be paid or accrued during such period, in each case as determined
on a consolidated basis in accordance with GAAP, plus (c) cash and non-cash
dividends paid on Redeemable Capital Stock by the Company and any Restricted
Subsidiary (to any Person other than the Company and any Restricted Subsidiary),
in each case as determined on a consolidated basis in accordance with GAAP minus
(d) to the extent included in the calculation of interest expense, the
amortization of underwriting discounts and commissions and fees related to the
issuance of the Notes; provided that the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a pro forma basis and
(A) bearing a floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the entire period
and (B) which was not outstanding during the period for which the computation is
being made but which bears, at the option of the Company, a fixed or floating
rate of interest, shall be computed by applying, at the option of the Company,
either the fixed or the floating rate.
'Consolidated Net Income' means, for any period, the consolidated net
income (or loss) of the Company and all Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding, without
duplication, (a) any net after-tax extraordinary gains or losses (less all fees
and expenses relating thereto), (b) any net after-tax gains or losses (less all
fees and expenses
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relating thereto) attributable to asset dispositions other than in the ordinary
course of business, (c) the portion of net income (or loss) of any Person (other
than the Company or a Restricted Subsidiary), including Unrestricted
Subsidiaries, in which the Company or any Restricted Subsidiary has an ownership
interest, except to the extent of the amount of dividends or other distributions
actually paid to the Company or any Restricted Subsidiary in cash dividends or
distributions during such period, (d) net income (or loss) of any Person
combined with the Company or any Restricted Subsidiary on a 'pooling of
interests' basis attributable to any period prior to the date of combination,
(e) the net income of any Restricted Subsidiary, to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary or its stockholders and (f) any
non-cash items of the Company and any Restricted Subsidiary (including monetary
corrections) increasing or decreasing Consolidated Net Income for such period
(other than items that will result in the receipt or payment of cash).
'Consolidated Operating Cash Flow' means, with respect to any period, the
Consolidated Net Income of the Company and its Restricted Subsidiaries for such
period increased by (in each case to the extent included in computing
consolidated Net Income) the sum of (i) the Consolidated Income Tax Expense of
the Company and its Restricted Subsidiaries accrued according to GAAP for such
period (other than taxes attributable to extraordinary, unusual or non-recurring
gains or losses); (ii) Consolidated Interest Expense for such period; (iii)
depreciation of the Company and its Restricted Subsidiaries for such period; and
(iv) amortization of the Company and its Restricted Subsidiaries for such
period, including, without limitation, amortization of capitalized debt issuance
costs for such period, all determined on a consolidated basis in accordance with
GAAP.
'Cumulative Available Cash Flow' means, as at any date of determination,
the positive cumulative Consolidated Operating Cash Flow realized during the
period commencing on the first day of the first month following the date of the
Indenture and ending on the last day of the most recent fiscal quarter
immediately preceding the date of determination for which consolidated financial
information of the Company is available or, if such cumulative Consolidated
Operating Cash Flow for such period is negative, the negative amount by which
cumulative Consolidated Operating Cash Flow is less than zero.
'Currency Agreement' means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement entered into by a Person
that is designed to protect such Person against fluctuations in currency values.
'Default' means any event that after notice or passage of time or both
would be an Event of Default.
'Disinterested Director' means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
'Exchange Act' means the Securities Exchange Act of 1934, as amended.
'Fair Market Value' means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
'Generally Accepted Accounting Principles' or 'GAAP' means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the date of the Indenture.
'guarantee' means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
'Indebtedness' means, with respect to any Person, without duplication,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) all liabilities of such Person for borrowed money
(including overdrafts) or for the deferred purchase price of property or
services,
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excluding any trade payables and other accrued current liabilities (including
outstanding disbursements) incurred in the ordinary course of business (whether
or not evidenced by a note), but including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any letters of credit
and acceptances issued under letter of credit facilities, acceptance facilities
or other similar facilities, (b) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (c) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business, (d)
all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred
to in (but not excluded from) the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or with respect to property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness
(the amount of such obligation being deemed to be the lesser of the value of
such property or asset or the amount of the obligation so secured), (f) all
guarantees by such Person of Indebtedness referred to in this definition of any
other Person, (g) all Redeemable Capital Stock of such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends, (h) all obligations of such Person under or in
respect of Interest Rate Agreements or Currency Agreements and (i) all
Attributable Indebtedness of such Person. For purposes hereof, the 'maximum
fixed repurchase price' of any Redeemable Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Redeemable Capital Stock, such fair market value shall be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. For purposes of the 'Limitation on Indebtedness' and
'Limitation on Restricted Payments' covenants and the definition of 'Events of
Default,' in determining the principal amount of any Indebtedness to be incurred
by the Company or a Restricted Subsidiary or which is outstanding at any date,
(x) the principal amount of any Indebtedness which provides that an amount less
than the principal amount at maturity thereof shall be due upon any declaration
of acceleration thereof shall be the Accreted Value thereof at the date of
determination and (y) effect shall be given to the impact of any Currency
Agreement with respect to such Indebtedness.
'Interest Rate Agreements' means any interest rate protection agreement and
other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements) designed to protect against or manage exposure to fluctuations in
interest rates in respect of Indebtedness.
'Investment' means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued or owned by any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP. In addition, the Fair Market Value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary shall be deemed to be an 'Investment'
made by the Company in such Unrestricted Subsidiary at such time. 'Investments'
shall exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices.
'Lien' means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
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'Loral Satellite Purchase Contract' means the Contract No. SS/L-TP93002-01,
dated March 2, 1993, among the Company and Loral Space Systems, Inc., as
amended, modified or supplemented from time to time.
'Maturity' means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.
'Moody's' means Moody's Investors Service, Inc. and its successors.
'Net Cash Proceeds' means, (a) with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations or escrowed funds, but only when received in the
form of, or stock or other assets when disposed for, cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Company or any Restricted Subsidiary), net of (i) brokerage commissions
and other fees and expenses (including fees and expenses of legal counsel,
accountants, consultants and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) payments
made to retire Indebtedness where payment of such Indebtedness is secured by the
assets or properties the subject of such Asset Sale or becomes due and payable
as a result thereof, (iv) amounts required to be paid to any Person (other than
the Company or any Restricted Subsidiary) owning a beneficial interest in the
assets subject to the Asset Sale and (v) appropriate amounts to be provided by
the Company or any Restricted Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee and (b) with respect to any capital contribution or issuance or sale of
Capital Stock as referred to under the 'Limitation on Restricted Payments'
covenant, the proceeds of such capital contribution, issuance or sale in the
form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets when
disposed for, cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary), net of attorney's fees, accountant's fees and brokerage,
consultation, financial, advisory, underwriting and other fees and expenses
actually incurred in connection with such capital contribution, issuance or sale
and net of taxes paid or payable as a result thereof.
'Pari Passu Indebtedness' means Indebtedness of the Company that is pari
passu in right of payment to the Notes.
'Permitted Holder' means Loral Space & Communications Ltd. and Arianespace
S.A.
'Permitted Indebtedness' means any of the following:
(a) Indebtedness of the Company or any Restricted Subsidiary incurred
under any one or more Bank Credit Agreements or Vendor Credit Facilities,
in an aggregate principal amount not to exceed $50 million at any one time
outstanding;
(b) Indebtedness of the Company incurred under the Arianespace
Agreement and Loral Satellite Purchase Contract, in an aggregate principal
amount not to exceed $145 million at any one time outstanding;
(c) Indebtedness of the Company pursuant to the Notes or of any
Restricted Subsidiary pursuant to a guarantee of the Notes;
(d) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the date of the Indenture and listed on a schedule thereto;
(e) Indebtedness of the Company owing to any Restricted Subsidiary;
provided that any Indebtedness of the Company owing to any such Restricted
Subsidiary is subordinated in right of payment to the Notes from and after
such time as the Notes shall become due and payable (whether at Stated
Maturity, acceleration or otherwise) to the payment and performance of the
Company's obligations under the Notes; provided further that any
disposition, pledge or transfer of any such Indebtedness to a Person (other
than a disposition, pledge or transfer to the Company or
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another Restricted Subsidiary) shall be deemed to be an incurrence of such
Indebtedness by the Company not permitted by this clause (e);
(f) Indebtedness of a Restricted Subsidiary owing to the Company or to
a Restricted Subsidiary, provided that any disposition, pledge or transfer
of any such Indebtedness to a Person (other than a disposition, pledge or
transfer to the Company or a Restricted Subsidiary) shall be deemed to be
an incurrence of such Indebtedness by such Restricted Subsidiary not
permitted by this clause (f);
(g) obligations of the Company entered into in the ordinary course of
business (i) pursuant to bona fide Interest Rate Agreements designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates in respect of Indebtedness of the Company or any Restricted
Subsidiary, which obligations do not exceed the aggregate principal amount
of such Indebtedness, and (ii) pursuant to bona fide Currency Agreements
entered into by the Company or any of its Restricted Subsidiaries and
designed to protect such Person against fluctuation in currency values in
respect of its (x) assets or (y) obligations;
(h) Capitalized Lease Obligations and Purchase Money Obligations of
the Company, the aggregate value (in the case of Capitalized Lease
Obligations) or principal amount (in the case of Purchase Money
Obligations) of which (including any refinancings (as defined in clause (l)
below) thereof) does not exceed $20 million at any one time outstanding,
less the amount of any Capitalized Lease Obligations and Purchase Money
Obligations outstanding on the date of the Indenture which are included in
the amount of Indebtedness permitted under clause (d) above;
(i) Indebtedness of the Company incurred on or prior to December 31,
2000 (x) such that, after giving effect to the incurrence thereof, the
total aggregate principal amount of Indebtedness incurred under this clause
(i)(x) and any refinancings thereof pursuant to clause (l) below would not
exceed 200% of Total Incremental Equity; and (y) in an aggregate principal
amount not to exceed the amount of net proceeds received from the Stock
Offerings less any amounts used to redeem preferred stock of the Company;
(j) Indebtedness incurred by the Company (i) in an aggregate principal
amount not to exceed $100 million at any one time outstanding to finance
the operation of CD Radio Assets or the construction, expansion,
development or acquisition of music libraries and other recorded
programming, furniture, fixtures and equipment and (ii) to finance the
purchase, construction, launch, insurance and other costs with respect to
Satellite Assets for use in the CD Radio Business; provided that the net
cash proceeds from the issuance of such Indebtedness does not exceed, as of
the date of incurrence of such Indebtedness, 100 percent of the lesser of
cost or fair market value of such Satellite Assets;
(k) in addition to the items referred to in clauses (a) through (j)
above, Indebtedness of the Company having an aggregate principal amount not
to exceed $15 million at any time outstanding; and
(l) Indebtedness of the Company or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing, refunding or
extension of outstanding Indebtedness of the Company and/or of any
Restricted Subsidiary incurred or outstanding pursuant to clauses (a), (b),
(c), (d), (h), (i) and (j) of this definition or the proviso of the
covenant 'Limitation on Indebtedness'; provided that (i) Indebtedness of
the Company may not be replaced, renewed, refinanced, refunded or extended
to such extent under this clause (l) with Indebtedness of any Restricted
Subsidiary and (ii) any such replacement, renewal, refinancing, refunding
or extension (x) shall not result in a lower Average Life of such
Indebtedness as compared with the Indebtedness being replaced, renewed,
refinanced, refunded or extended, (y) shall not exceed the sum of the
principal amount (or, if such Indebtedness provides for a lesser amount to
be due and payable upon a declaration of acceleration thereof, an amount no
greater than such lesser amount) of the Indebtedness being replaced,
renewed, refinanced, refunded or extended plus the amount of accrued
interest thereon and the amount of any reasonably determined prepayment
premium necessary to accomplish such replacement, renewal, refinancing,
refunding or extension and the reasonable fees and expenses incurred in
connection therewith, and (z) in the case of any replacement, renewal,
refinancing, refunding or extension by the Company of Pari Passu
Indebtedness or Subordinated Indebtedness, such new Indebtedness is made
pari passu with or
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subordinate to the Notes, at least to the same extent as the Indebtedness
being replaced, renewed, refinanced or extended.
'Permitted Investments' means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits;
(c) loans and advances to employees made in the ordinary course of
business; (d) Interest Rate Agreements and Currency Agreements; (e) bonds,
notes, debentures or other securities received as a result of Asset Sales
permitted under the 'Limitation on Sale of Assets' covenant, provided that
the Company and/or the Restricted Subsidiaries, as the case may be, have
received at least 80% of the aggregate consideration therefrom in cash or
Cash Equivalents; (f) Investments by the Company or any Restricted
Subsidiary in another Person, if as a result of such Investment (i) such
other Person becomes a Restricted Subsidiary or (ii) such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Restricted Subsidiary;
(g) Investments in the Company or in any Restricted Subsidiary and (h)
investments not otherwise permitted by the foregoing clauses (a) through
(g) in an amount not to exceed $5.0 million at any one time outstanding.
'Permitted Liens' means the following types of Liens:
(a) Liens existing on the date of the Indenture;
(b) Liens securing Indebtedness under any Vendor Credit Facility or
Bank Credit Agreement incurred pursuant to clause (a) of the definition of
Permitted Indebtedness;
(c) Liens securing Indebtedness under the Arianespace Agreement;
(d) Liens on any property or assets of a Restricted Subsidiary granted
in favor of the Company or any other Restricted Subsidiary;
(e) Liens securing the Notes;
(f) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by the Company or any Restricted Subsidiary; provided that such Lien does
not extend to any property or assets of the Company or any Restricted
Subsidiary other than the assets acquired in connection with the incurrence
of such Acquired Indebtedness;
(g) any interest or title of a lessor under any Capitalized Lease
Obligation or any Purchase Money Obligation, in each case as permitted
under clause (h) of the definition of 'Permitted Indebtedness', and Liens
securing Indebtedness incurred pursuant to clause (j)(ii) of the definition
of Permitted Indebtedness to finance the purchase, acquisition,
construction or launch of a satellite that is not one of the first three
satellites acquired or constructed by the Company;
(h) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in
the ordinary course of business of the Company or any Restricted Subsidiary
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate proceeding promptly instituted and diligently
proceeding and for which a reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made;
(i) Liens for taxes, assessments, government charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made;
(j) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts
for the payment of money);
(k) easements, rights-of-way, encroachments and survey defects
restrictions and other similar charges or encumbrances not interfering in
any material respect with the business of the Company or any Restricted
Subsidiary incurred in the ordinary course of business;
(l) Liens arising by reason of any judgment, decree or order of any
court or arbitration proceeding so long as such Lien is adequately bonded
and any appropriate legal proceedings that may have been duly initiated for
the review of such judgment, decree or order shall not have been
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finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(m) Liens securing obligations of the Company under Interest Rate
Agreements or Currency Agreements or any collateral for the Indebtedness to
which such Interest Rate Agreements or Currency Agreements relate;
(n) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(o) Liens securing reimbursement obligations of the Company or any
Restricted Subsidiary with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the
products and proceeds thereof;
(p) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a), (b) (with respect to
extensions, renewals or replacements securing Indebtedness incurred
pursuant to clause (a) of the definition of Permitted Indebtedness), (c)
(with respect to extensions, renewals or replacements securing Indebtedness
incurred to Arianespace S.A., any Affiliate thereof or any bank or any
other vendor) or (d) through (o); provided that any such extension, renewal
or replacement shall be no more restrictive in any material respect than
the Lien so extended, renewed or replaced and shall not extend to any
additional property or assets; and
(q) Liens incurred in the ordinary course of business of the Company
or any shareholder Restricted Subsidiary with respect to obligations that
do not exceed $5 million at any one time outstanding.
'Person' means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
'Preferred Stock' means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Closing Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
'Public Equity Offering' means (a) an offer and sale of common stock (which
is Qualified Capital Stock) of the Company pursuant to a registration statement
that has been declared effective by the Commission pursuant to the Securities
Act (other than a registration statement on Form S-8 or otherwise relating to
equity securities issuable under any employee benefit plan of the Company) and
(b) a sale or series of related sales by the Company of its Common Stock (which
is Qualified Capital Stock) to one or more Strategic Equity Investors, in each
case for aggregate proceeds of at least $50 million, other than a sale or series
of related sales that results in a Change of Control.
'Purchase Money Obligations' means Indebtedness of the Company or any
Restricted Subsidiary (i) issued to finance or refinance the purchase or
construction of any assets of the Company or any Restricted Subsidiary, (ii)
issued to finance the construction of satellite dish antennas or radio adapters
to receive the Company's services or (iii) secured by a Lien on any assets of
the Company or any Restricted Subsidiary where the lender's sole recourse is to
the assets so encumbered, (a) in the case of clauses (i) or (iii) above, to the
extent the purchase or construction prices for such assets are or should be
included in 'addition to property, plant or equipment' in accordance with GAAP
and (b) in each case, if the purchase or construction of such assets is not part
of any acquisition of a Person or business unit.
'Qualified Capital Stock' of any person means any and all Capital Stock of
such person other than Redeemable Capital Stock.
'Redeemable Capital Stock' means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity; provided, however, that Redeemable Capital Stock shall not include any
Common Stock the holder of which has a right to put to the Company upon certain
terminations of employment and provided further that any class or series of
Capital Stock that would not constitute
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Redeemable Capital Stock but for provisions thereof giving holders thereof the
right to require the issuer of such Capital Stock to repurchase or redeem such
Capital Stock upon the occurrence of an 'asset sale' or 'change of control'
occurring prior to the final Stated Maturity of the Notes shall not constitute
Redeemable Capital Stock if the 'asset sale' or 'change of control' provisions
applicable to such class or series of Capital Stock are no more favorable to the
holders of such Capital Stock in any material respect than the provisions of the
'Purchase of Notes Upon a Change of Control' and 'Limitation on Sale of Assets'
covenants and such class or series of Capital Stock specifically provides that
the issuer of such Capital Stock will not repurchase or redeem any such stock
pursuant to such provision prior to the Company's repurchase of such Notes as
are required to be purchased pursuant to the 'Purchase of Notes Upon a Change of
Control' or 'Limitation on Sale of Assets' covenant, as applicable.
'Restricted Subsidiary' means a Subsidiary other than an Unrestricted
Subsidiary.
'S&P' means Standard and Poor's Ratings Services, a division of
McGraw-Hill, Inc. and its successors.
'Sale and Leaseback Transaction' means an arrangement by the Company or a
Restricted Subsidiary with any lender or investor or to which such lender or
investor is a party providing for the leasing by the Company or such Restricted
Subsidiary of any property or asset of the Company or such Restricted Subsidiary
which has been or is being sold or transferred by the Company or such Restricted
Subsidiary not more than 270 days after the acquisition thereof to such lender
or investor or any Affiliate thereof or to any Person to whom funds have been or
are to be advanced by such lender or investor or any Affiliate thereof on the
security of such property or asset.
'Satellite Assets' means satellites, terrestial repeating stations, uplink
facilities and telemetry, tracking, monitoring and control equipment.
'Series C Preferred Stock' means the 10 1/2% Series C Convertible Preferred
Stock of the Company.
'Stated Maturity' means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
'Stock Offerings' means (i) the offering of 2,800,000 shares of Common
Stock in the United States and Canada and (ii) the offering of 700,000 shares of
Common Stock outside the United States and Canada, both of which offerings are
registered under the Securities Act on a Form S-3 Registration Statement (No.
333-34767).
'Strategic Equity Investor' means any company which is (or a controlled
Affiliate of any company which is or a controlled affiliate of which is) engaged
principally in the CD Radio Business or the satellite launch or manufacturing,
broadcasting, programming production, satellite broadcasting, automotive
manufacturing, automotive dealership, telecommunications or other business
reasonably related to the foregoing which has a Total Market Capitalization of
at least $1.0 billion.
'Subordinated Indebtedness' means Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes.
'Subsidiary' means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries.
'Total Consolidated Indebtedness' means, at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of the Company and the
Restricted Subsidiaries outstanding as of the date of determination.
'Total Incremental Equity' means, at any date of determination, the sum of,
without duplication (i) the aggregate cash proceeds received by the Company
after January 1, 1998 from the issuance or sale of Qualified Capital Stock of
the Company (including Capital Stock issued upon the conversion of convertible
Indebtedness or from the exercise of options, warrants or rights to purchase
Qualified Capital Stock of the Company) to any Person other than a Subsidiary;
plus (ii) an amount equal to the sum of (1) the net reduction in Investments in
any Person (other than Permitted Investments) resulting from the payment in cash
of dividends, repayments of loans or advances or other transfers of assets, in
each case to the Company or any Restricted Subsidiary after the date of the
Indenture from such
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Person and (2) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of any Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that in the case of (1) or (2) above the
foregoing sum shall not exceed the amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted Subsidiary in
such Person or Unrestricted Subsidiary and that constitutes a Restricted Payment
that has been deducted from Total Incremental Equity pursuant to clause (iii)
below, minus (iii) the aggregate amount of all Restricted Payments declared or
made on or after the date of the Indenture and minus (iv) the aggregate amount
paid pursuant to clauses (i), (ii), (iii), (iv), (vi) and (viii) of the second
paragraph of the 'Limitation on Restricted Payments' covenant.
'Total Market Capitalization' of any Person means, at the time of
determination, the sum of (a) the consolidated Indebtedness of such Person, plus
(b) the product of (i) the aggregate number of outstanding primary shares of
Common Stock of such person (which shall not include any options or warrants on,
or securities convertible or exchangeable into, shares of Common Stock of such
person) and (ii) the average Closing Price of such Common Stock over the
preceding 20 consecutive Trading Days, plus (c) the liquidation value of any
outstanding shares of Preferred Stock of such Person. If no such Closing Price
exists with respect to shares of any such class, the value of such shares for
purposes of clause (b) of the preceding sentence shall be determined by the
Board of Directors in good faith and evidenced by a Board Resolution filed with
the Trustee.
'Trading Day' with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for a full day of
trading.
'Trust Indenture Act' means the Trust Indenture Act of 1939, as amended.
'Unrestricted Subsidiary' means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors, as provided below) and (b) any subsidiary of an Unrestricted
Subsidiary; provided, however, that in no event shall any Person that is a
Restricted Subsidiary on the date of the Indenture become an Unrestricted
Subsidiary. The Board of Directors may designate any newly acquired or newly
formed Subsidiary to be an Unrestricted Subsidiary so long as (i) neither the
Company nor any Restricted Subsidiary is directly or indirectly liable for any
Indebtedness of such Subsidiary, (ii) no default with respect to any
Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity, (iii) neither
the Company nor any Restricted Subsidiary has a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or oral,
with such Subsidiary other than those that might be obtained at the time from
persons who are not Affiliates of the Company and (iv) neither the Company nor
any Restricted Subsidiary has any obligation (1) to subscribe for additional
shares of Capital Stock or other equity interest in such Subsidiary or (2) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to the Trustee by
filing a board resolution with the Trustee giving effect to such designation.
The Board of Directors may designate any Unrestricted Subsidiary as a Restricted
Subsidiary if immediately after giving effect to such designation, there would
be no Default or Event of Default under the Indenture and the Company could
incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the 'Limitation on Indebtedness' covenant.
'Vendor Credit Facility' means any credit facility (other than the
Arianespace Agreement) entered into with any vendor or supplier (or any
financial institution acting on behalf of such a vendor or supplier); provided
that the Indebtedness thereunder is incurred solely for the purpose of financing
the cost (including the cost of design, development, construction, or
integration) of CD Radio Assets, including, without limitation, the Loral
Satellite Purchase Contract.
'Voting Stock' means, with respect to any Person, any class or classes of
Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not,
at the time, stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency).
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DESCRIPTION OF THE WARRANTS
GENERAL
The Warrants will be issued under a Warrant Agreement (the 'Warrant
Agreement') between the Company and , as Warrant Agent
(the 'Warrant Agent'), a form of which will be filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following summary
of certain provisions of the Warrant Agreement does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all the
provisions of the Warrants and the Warrant Agreement, including the definitions
of certain terms contained therein.
Each Warrant will entitle the registered holder thereof, subject to and
upon compliance with the provisions thereof and of the Warrant Agreement, at
such holder's option, from and after the Exercisability Date and prior to 5:00
P.M., New York City time, on , 2007 (the 'Warrant Expiration Date')
to purchase from the Company one share of Common Stock at an exercise price (the
'Exercise Price') of $ per share (representing a 10% premium over the
closing bid price of the Common Stock as reported on the Nasdaq National Market
on the date of this Prospectus) issuable upon exercise of the Warrants (the
'Warrant Shares') (both the Exercise Price and securities issuable upon exercise
of the Warrants being subject to adjustments as provided in the Warrant
Agreement). Each Warrant may be exercised on any business day on or after the
Exercisability Date and on or prior to the Warrant Expiration Date. Any Warrant
not exercised before the close of business on the Warrant Expiration Date shall
become void, and all rights of the holder under the Warrant Certificate
evidencing such Warrant and under the Warrant Agreement shall cease.
EXERCISE
Warrants may be exercised by surrendering the Warrant Certificate
evidencing such Warrants with the form of election to purchase shares of Common
Stock set forth on the reverse side thereof duly completed and executed by the
holder thereof and paying in full the Exercise Price for such Warrants at the
office or agency designated for such purpose, which will initially be the
corporate trust office or agency of the Warrant Agent in New York, New York.
Each Warrant may only be exercised in whole and the Exercise Price may be paid,
at the option of the holder, (i) in cash or by certified or official bank check,
(ii) by the surrender (which surrender shall be evidenced by cancellation of the
number of Warrants represented by any Warrant Certificate presented in
connection with a Cashless Exercise (as defined below)) of a Warrant or Warrants
(represented by one or more Warrant Certificates), and without the payment of
the Exercise Price in cash, for such number of shares of Common Stock equal to
the product of (1) the number of shares of Common Stock for which such Warrant
is exercisable with payment in cash of the Exercise Price as of the date of
exercise and (2) the Cashless Exercise Ratio or (iii) by any combination of (i)
or (ii). For purposes of the Warrant Agreement, the 'Cashless Exercise Ratio'
shall equal a fraction, the numerator of which is the excess of the Current
Market Value (as defined below) per share of Common Stock (as defined below) on
the date of exercise over the exercise price per share as of the date of
exercise and the denominator of which is the Current Market Value per share of
the Common Stock on the date of exercise (calculated as set forth in the Warrant
Agreement). An exercise of a Warrant in accordance with the immediately
preceding sentences is herein called a 'Cashless Exercise.' Upon surrender of a
Warrant Certificate representing more than one Warrant in connection with the
holder's option to elect a Cashless Exercise, the number of shares of Common
Stock deliverable upon a Cashless Exercise shall be equal to the Cashless
Exercise Ratio multiplied by the product of (a) the number of Warrants that the
holder specifies is to be exercised pursuant to the Cashless Exercise and (b)
the number of shares of Common Stock for which such Warrant is exercisable
(without giving effect to such Cashless Exercise). All provisions of the Warrant
Agreement shall be applicable with respect to an exercise of a Warrant
Certificate pursuant to a Cashless Exercise for less than the full number of
Warrants represented thereby. No payment or adjustment shall be made on account
of any dividends on the Common Stock issued upon exercise of a Warrant.
The Company shall as soon as practicable after the occurrence of an
Exercise Event send to each holder of Warrants and to each beneficial owner of
the Warrants to the extent that the Warrants are held of record by a depository
or other agent, by first-class mail, at the addresses appearing on the
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Warrant Register, a notice of the Exercise Event which has occurred, which
notice shall describe the type of Exercise Event and the date of the occurrence
thereof and the date of expiration of the right to exercise the Warrants
prominently set forth on the face of such notice.
Subject to the terms of the Warrant Agreement, the Warrant Certificates
evidencing the Warrants may be surrendered for exercise or exchange, and the
transfer of Warrant Certificates will be registerable, at the office or agency
of the Company maintained for such purpose, which initially will be the
corporate trust office of the Warrant Agent in New York, New York. The Warrant
Certificates will be issued in global form. No service charge will be made for
any exercise, exchange or registration of transfer of Warrant Certificates, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
DISTRIBUTION RIGHTS; ADJUSTMENT TO EXERCISE RATE; MERGER OR CONSOLIDATION
In general, holders of Warrants will not be entitled, by virtue of being
such holders, to receive notice of any meetings of stockholders or otherwise
have any right of stockholders of the Company.
The number of Warrant Shares issuable upon exercise of a Warrant (the
'Exercise Rate') is subject to adjustment from time to time upon the occurrence
of certain events occurring after the Issue Date of the Notes, including (a)
certain dividends or distributions on shares of Common Stock payable in shares
of Common Stock or certain other Capital Stock of the Company; (b) subdivisions,
combinations or certain reclassifications of shares of Common Stock of the
Company, (c) the distribution to all holders of Common Stock of any of the
Company's assets (including cash), debt securities, preferred stock or any
rights or warrants to purchase any such securities other than ordinary cash
dividends at a rate not exceeding that specified in the Warrant Agreement and
(d) sales by the Company of shares of Common Stock or of securities convertible
into or exchangeable or exercisable for shares of Common Stock to an Affiliate
of the Company at less than the then Current Market Value (other than (1)
pursuant to the exercise of the Warrants, (2) pursuant to any security
convertible into, or exchangeable or exercisable for, shares of Common Stock
outstanding as of the Issue Date, (3) upon the conversion, exchange or exercise
of any convertible, exchangeable or exercisable security as to which the
issuance thereof has previously been the subject of any required adjustment
pursuant to the Warrant Agreement and (4) upon the conversion, exchange or
exercise of convertible, exchangeable or exercisable securities of the Issuer
outstanding on the Issue Date (to the extent in accordance with the terms of
such securities as in effect on such date). Notwithstanding the foregoing, no
adjustment in the Exercise Rate will be required upon the conversion, exchange
or exercise of options to acquire shares of Common Stock by officers, directors
or employees of the Company; provided that such options are issued prior to the
date of the Warrant Agreement.
If the Company, in a single transaction or through a series of related
transactions, consolidates with or merges with or into any other person or
sells, assigns, transfers, leases, conveys or otherwise disposes of all or
substantially all of its properties and assets to another person or group of
affiliated persons or is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock (a 'Fundamental
Transaction'), as a condition to consummating any such transaction the person
formed by or surviving any such consolidation or merger if other than the
Company or the person to whom such transfer has been made (the 'Surviving
Person') shall enter into a supplemental warrant agreement. The supplemental
warrant agreement shall provide (a) that the holder of a Warrant then
outstanding may exercise it for the kind and amount of securities, cash or other
assets which such holder could have received immediately after the Fundamental
Transaction if such holder had exercised the Warrant immediately before the
effective date of the transaction (regardless of whether the Warrants are then
exercisable and without giving effect to the Cashless Exercise option), assuming
(to the extent applicable) that such holder (i) was not a constituent person or
an affiliate of a constituent person to such transaction, (ii) made no election
with respect thereto and (iii) was treated alike with the plurality of
non-electing holders, and (b) that the Surviving Person shall succeed to and be
substituted for every right and obligation of the Company in respect of the
Warrant Agreement and the Warrants. The Surviving Person shall mail to holders
of Warrants at the addresses appearing on the Warrant Register a notice briefly
describing the supplemental warrant agreement. If the issuer of securities
deliverable
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upon exercise of Warrants is an affiliate of the Surviving Person, that issuer
shall join in the supplemental warrant agreement.
Notwithstanding the foregoing, if the Company enters into Fundamental
Transaction with another person (other than a subsidiary of the Company) and
consideration is payable to holders of the shares of Capital Stock (or other
securities or property) issuable or deliverable upon exercise of the Warrants
that are exercisable in exchange for their shares in connection with such
Fundamental Transaction which consists solely of cash, then the holders of
Warrants shall be entitled to receive distributions on the date of such event on
an equal basis with holders of such shares (or other securities issuable upon
exercise of the Warrants) as if the Warrants had been exercised immediately
prior to such event, less the Exercise Price therefor. Upon receipt of such
payment, if any, the rights of a holder of a Warrant shall terminate and cease
and such holder's Warrants shall expire.
In the event of a taxable distribution to holders of shares of Common Stock
of the Company which results in an adjustment to the number of shares of Common
Stock or other consideration for which such a Warrant may be exercised, the
holders of the Warrants may, in certain circumstances, be deemed to have
received a distribution subject to United States federal income tax as a
dividend. See 'Certain Federal Income Tax Considerations.'
Fractional shares of Common Stock are not required to be issued upon
exercise of Warrants, but in lieu thereof the Company will pay a cash
adjustment, except in limited circumstances.
The Warrant Agreement permits, with certain exceptions, the amendment
thereof and the modification of rights and obligations of the Company and the
rights of the holders of Warrant Certificates under the Warrant Agreement and at
any time by the Company and the Warrant Agent with the consent of the holders of
Warrant Certificates representing a majority in number of then outstanding
Warrants.
CERTAIN COVENANTS
The Company will file the reports required to be filed by it under the
Securities Act and the Exchange Act, and the rules, regulations and policies
adopted by the Commission thereunder in a timely manner in accordance with the
requirements of the Securities Act and the Exchange Act, and if at any time the
Company is not required to file such reports, it will, upon the request of any
holder or beneficial owner of Warrants, make available such information as
necessary to permit sales pursuant to Rule 144A under the Securities Act.
The Company will also agree to comply with all applicable laws, including
the Securities Act and any applicable state securities laws, in connection with
the offer and sale of Common Stock (and other securities and property
deliverable), upon exercise of the Warrants.
REGISTRATION RIGHTS
Subject to applicable United States federal and state securities laws, the
Company has agreed to file and use its best effects to cause to be declared
effective on or prior to the Exercisability Date, the Warrant Shares
Registration Statement on the appropriate form covering the issuance of the
Warrant Shares upon the exercise of Warrants and to keep the Warrant Shares
Registration Statement effective (except in certain limited periods) until the
earlier of (i) such time as all Warrants have been exercised and (ii) the
Expiration Date.
Pursuant to the Warrant Agreement, the Company has agreed that if a Warrant
Registration Default occurs, the Company shall pay liquidated damages for each
Warrant to the holder thereof (the 'Warrant Registration Damages') for each week
or portion thereof during which the Warrant Registration Default continues. The
Warrant Registration Damages will be equal to $0.03 per week per Warrant for the
first 90-day period during which the Warrant Registration Default continues and
will increase by an amount equal to $0.02 per week per Warrant with respect to
each subsequent 90-day period during which the Warrant Registration Default
continues and until the Warrant Registration Default is cured, up to a maximum
of $0.07 per week per Warrant. All Warrant Registration Damages accrued, but not
paid, on or prior to any Semiannual Accrual Date or interest payment date, as
the case
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may be, will be paid to holders of Warrants on such Semiannual Accrual Date or
interest payment date, as the case may be.
CERTAIN DEFINITIONS
'Common Stock' is defined in the Warrant Agreement to include the Company's
Common Stock, par value $0.001 per share, and any other class or series of
common equity equivalent shares of the Company hereafter created.
'Current Market Value' per share of Common Stock of the Company or any
other security at any date means (i) if the security is not registered under the
Exchange Act, (a) the value of the security, determined in good faith by the
Board of Directors of the Company and certified in a board resolution, based on
the most recently completed arms-length transaction between the Company and a
person other than an Affiliate of the Company and the closing of which occurs on
such date or shall have occurred within the six-month period preceding such
date, or (b) if no such transaction shall have occurred on such date or within
such six-month period, the fair market value of the security as determined by a
nationally or regionally recognized independent financial expert (provided that,
in the case of the calculation of Current Market Value for determining the cash
value of fractional shares, any such determination within six months that is, in
the good faith judgment of the Board, a reasonable determination of value, may
be utilized) or (ii) (a) if the security is registered under the Exchange Act,
the average of the daily closing sales prices of the securities for the 20
consecutive days immediately preceding such date, or (b) if the securities have
been registered under the Exchange Act for less than 20 consecutive trading days
before such date, then the average of the daily closing sales prices for all of
the trading days before such date for which closing sales prices are available,
in the case of each of (ii) (a) and (ii)(b), as certified to the Warrant Agent
by the President, any Vice President or the Chief Financial Officer of the
Company. The closing sales price for each such trading day shall be: (A) in the
case of a security listed or admitted to trading on any United States national
securities exchange or quotation system, the closing sales price, regular way,
on such day, or if no sale takes place on such day, the average of the closing
bid and asked prices on such day, (B) in the case of a security not then listed
or admitted to trading on any national securities exchange or quotation system,
the last reported sale price on such day, or if no sale takes place on such day,
the average of the closing bid and asked prices on such day, as reported by a
reputable quotation source designated by the Company, (C) in the case of a
security not then listed or admitted to trading on any national securities
exchange or quotation system and as to which no such reported sale price or bid
and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a reputable quotation service, or a
newspaper of general circulation in the Borough of Manhattan, City and State of
New York, customarily published on each business day, designated by the Company,
or, if there shall be no bid and asked prices on such day, the average of the
high bid and low asked prices, as so reported, on the most recent day (not more
than 30 days prior to the date in question) for which prices have been so
reported and ( D) if there are not bid and asked prices reported during the 30
days prior to the date in question, the Current Market Value shall be determined
as if the securities were not registered under the Exchange Act.
'Exercise Event' is defined in the Warrant Agreement to have occurred upon
the earliest of (i) immediately prior to a Warrant Change of Control, or (ii)
, 1998.
'Person' is defined to mean any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
'Warrant Change of Control' is defined to mean the occurrence of any of the
following events: (a) any 'person' or 'group' (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, is
or becomes the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have a 'beneficial
ownership' of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 40% of the total Voting Stock of the
Company; or (b) the Company consolidates with, or merges with or into another
Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with
or merges with or into the Company, in any such event pursuant to a transaction
in
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which the outstanding Voting Stock of the Company is converted into or exchanged
for cash, securities or other property, other than any such transaction where
(other than Redeemable Capital Stock) (i) the outstanding Voting Stock of the
Company is not converted into or exchanged at all (except to the extent
necessary to reflect a change in the jurisdiction of incorporation of the
Company) or is converted into or exchanged for (A) Voting Stock of the surviving
or transferee corporation (B) Voting Stock (other than Redeemable Capital Stock)
of the surviving or transferee corporation and cash, securities and other
property (other than Capital Stock of the Surviving Entity) in an amount that
could be paid by the Company as a Restricted Payment as described under the
'Limitation on Restricted Payments' covenant and (ii) immediately after such
transaction no 'person' or 'group' (as such terms are used in Section 13(d) and
14(d) of the Exchange Act) is the 'beneficial owner' (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be deemed to have
'beneficial ownership' of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 40% of the total outstanding
Voting Stock of the surviving or transferee corporation; (c) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election to such Board of Directors or whose nomination for
election by the stockholders of the Company, was approved by a vote of a 66 2/3%
of the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or (d) the Company is liquidated or
dissolved or a special resolution is passed by the shareholders of the Company
approving the plan of liquidation or dissolution other than in a transaction
which complies with the provisions described under 'Description of the Notes --
Consolidation, Merger and Sales of Assets.'
DESCRIPTION OF CAPITAL STOCK
The Company's Amended and Restated Certificate of Incorporation provides
for authorized capital of 250,000,000 shares, consisting of 200,000,000 shares
of Common Stock, par value $0.001 per share, and 50,000,000 shares of Preferred
Stock, par value $0.001 per share.
COMMON STOCK
As of September 30, 1997, the Company had 12,577,884 shares of Common Stock
outstanding held of record by 105 persons, and had reserved for issuance
3,763,000 shares of Common Stock with respect to outstanding options and
warrants, including 1,800,000 shares pursuant to warrants exercisable at $50.00
per share and expiring in 2005.
Holders of the Company's Common Stock are entitled to cast one vote for
each share held of record on all matters acted upon at any stockholders' meeting
and to dividends if, as and when declared by the Board of Directors out of funds
legally available therefor. There are no cumulative voting rights. In the event
of any liquidation, dissolution or winding up of the Company, each holder of the
Company's Common Stock will be entitled to participate, subject to the rights of
any outstanding Preferred Stock, ratably in all assets of the Company remaining
after payment of liabilities. Holders of the Company's Common Stock have no
preemptive or conversion rights. All outstanding shares of Common Stock are, and
the shares of Common Stock offered hereby will be when issued against the
consideration set forth in this prospectus, fully paid and non-assessable.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol 'CDRD.'
PREFERRED STOCK
The Board of Directors has the authority to issue shares of Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof including dividend rights, conversion rights, voting
rights, redemption rights, liquidation preferences and the number of shares
constituting any series, without any further vote or action by the stockholders.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock. In addition, because the
terms of such Preferred Stock may be fixed by the Board of Directors without
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stockholder action, the Preferred Stock could be designated and issued quickly
in the event the Company determines to issue preferred stock to raise additional
equity capital. The Preferred Stock could also be designated and issued with
terms calculated to deter, delay or defeat a proposed takeover of the Company,
or with terms making the removal of management more difficult. Under certain
circumstances, this could have the effect of decreasing the market price of the
Common Stock. Otherwise, the Company currently has no plans to issue Preferred
Stock.
5% DELAYED CONVERTIBLE PREFERRED STOCK
On March 19, 1997, the Board of Directors authorized the issuance of up to
8,000,000 shares of the 5% Preferred Stock. As of September 30, 1997, there were
5,222,608 shares of the 5% Preferred Stock outstanding held of record by 37
entities. The Company has agreed to grant a warrant to purchase an additional
486,000 shares of 5% Preferred Stock at a price of $25.00 per share to Libra
Investments, Inc. ('Libra'), the original placement agent for the 5% Preferred
Stock. If the Exchange Offer is consummated, the Company will instead grant
Libra a warrant to purchase 121,500 shares of Series C Preferred Stock at a
price of $100.00 per share.
10 1/2% SERIES C CONVERTIBLE PREFERRED STOCK
On October 13, 1997, the Board of Directors authorized the issuance of up
to 7,000,000 shares of the 10 1/2% Series C Convertible Preferred Stock (the
'Series C Preferred Stock'). On October 16, 1997, the Company offered to
exchange up to 1,932,073 shares of its Series C Preferred Stock for up to all of
the outstanding shares of its 5% Preferred Stock upon the terms and subject to
the conditions of the Exchange Offer.
Dividends. The annual dividend rate per share of the Series C Preferred
Stock will be an amount equal to 10.5% of the sum of (x) the Liquidation
Preference (as defined herein) of the Series C Preferred Stock and (y) all
accrued and unpaid dividends, if any, whether or not declared, from the date of
issuance of the shares of Series C Preferred Stock to the applicable dividend
payment date. Dividends on the shares of Series C Preferred Stock will be
cumulative, accruing quarterly and, when and as declared by the Board of
Directors of the Company, will be payable quarterly initially on November 15,
2002 (the 'First Scheduled Dividend Payment Date') and on February 15, May 15,
August 15 and November 15 of each year (each, a 'Dividend Payment Date') in each
year thereafter. In addition, accrued dividends on the shares of Series C
Preferred Stock will be paid on the redemption date of any share of Series C
Preferred Stock redeemed by the Company, on the purchase date of any share of
Series C Preferred Stock purchased by the Company pursuant to an Offer to
Purchase (as defined herein) or on the conversion date of any share of Series C
Preferred Stock converted into shares of Common Stock on or after the First
Scheduled Dividend Payment Date. No accrued dividends will be paid on any shares
of Series C Preferred Stock that are converted by the holders thereof prior to
the First Scheduled Dividend Payment Date, unless such shares of Series C
Preferred Stock are converted on or prior to a redemption date by holders
thereof electing to convert such shares after having received a notice of
redemption for such shares. Dividends may be paid in cash, shares of Common
Stock or any combination thereof, at the option of the Company. Common Stock
issued to pay dividends will be valued at the average closing price of the
Common Stock as reported in The Wall Street Journal for the 20 consecutive
trading days immediately preceding the date of such payment. Dividends with
respect to any share of Series C Preferred Stock will accumulate from November
15, 1997.
If and so long as any full cumulative dividends payable on the shares of
Series C Preferred Stock in respect of all prior dividend periods will not have
been paid or set apart for payment, the Company will not pay any dividends or
make any distributions of assets on or redeem, purchase or otherwise acquire for
consideration shares of capital stock of the Company ranking junior to or on a
par with the Series C Preferred Stock in payment of dividends.
Redemption. Except as described below, the shares of Series C Preferred
Stock may not be redeemed by the Company at its option prior to November 15,
2002. From and after November 15, 1999 and prior to November 15, 2002, the
Company may redeem shares of Series C Preferred Stock, in whole or in part, at
any time at a redemption price of 100% of the Liquidation Preference of the
shares of
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Series C Preferred Stock redeemed, plus accrued and unpaid dividends, if any,
whether or not declared, to the redemption date, if the average closing price of
the Common Stock as reported in The Wall Street Journal for the 20 consecutive
trading days prior to the notice of redemption thereof equals or exceeds $31.50
per share (subject to adjustments). From and after November 15, 2002, the
Company may redeem shares of Series C Preferred Stock, in whole or in part, at
the following redemption prices per share, expressed as percentages of the
Liquidation Preference thereof, if redeemed during the 12-month period beginning
November 15 in the year indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------- ----------
<S> <C>
2002................................................................... 105.25%
2003................................................................... 103.50
2004................................................................... 101.75
2005 and thereafter.................................................... 100.00
</TABLE>
plus, in each case, accrued and unpaid dividends, if any, to the redemption
date.
Following the issuance of the Series C Preferred Stock, within 30 days of
the closing date of the first offering by the Company of debt securities in
excess of $50,000,000 pursuant to a registration statement filed with the
Commission under the Securities Act or pursuant to Rule 144A under the
Securities Act, the Company may redeem up to 50% of the outstanding shares of
Series C Preferred Stock at a redemption price of 100% of the Liquidation
Preference of the shares of Series C Preferred Stock redeemed, plus accrued and
unpaid dividends, if any, whether or not declared, to the redemption date. On
November 15, 2012 (the 'Mandatory Redemption Date'), the Company is required to
redeem all outstanding shares of Series C Preferred Stock at a redemption price
of 100% of the Liquidation Preference of the shares of Series C Preferred Stock,
plus accrued and unpaid dividends, if any, whether or not declared, to the
Mandatory Redemption Date.
The amount paid to the holders of shares of Series C Preferred Stock upon
redemption which is allocable to the Liquidation Preference of the shares of
Series C Preferred Stock shall be paid in cash and the amount of any accrued and
unpaid dividends to be paid on the shares of Series C Preferred Stock redeemed
shall be paid in cash, shares of Common Stock or any combination thereof at the
option of the Company.
Change in Control. Upon the occurrence of a Change in Control, the Company
must make an offer to purchase (an 'Offer to Purchase') all then outstanding
shares of Series C Preferred Stock at a purchase price (the 'Change in Control
Purchase Price') in cash equal to 101% of their Liquidation Preference, plus all
accrued and unpaid dividends (paid in cash), if any, whether or not declared, to
the date such shares are purchased (the 'Change in Control Purchase Date'). A
'Change in Control' is defined as the occurrence of any of the following events:
(a) any 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Loral Space, Arianespace or David Margolese is
or becomes the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have 'beneficial
ownership' of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 40% of the total outstanding voting stock
of the Company; (b) the Company consolidates with, or merges with or into
another person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates with
or merges with or into the Company, in any such event, pursuant to a transaction
in which the outstanding voting stock of the Company is converted into or
exchanged for cash, securities or other property, other than, at all times when
the Notes are outstanding, those transactions that are not deemed a 'Change of
Control' under the terms of the Indenture; (c) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election to such
Board of Directors, or whose nomination for election by the stockholders of the
Company, was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or (d) the Company is liquidated or dissolved or a special resolution is passed
by the shareholders of the Company approving the plan of liquidation or
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dissolution, other than, at all times when the Notes are outstanding, those
transactions that are not deemed a 'Change of Control' under the terms of the
Indenture.
Conversion. Each share of Series C Preferred Stock may be converted at any
time, at the option of the holder, unless previously redeemed, into a number of
shares of Common Stock calculated by dividing the Liquidation Preference of the
Series C Preferred Stock (without accrued and unpaid dividends) by a conversion
price (the 'Conversion Price') equal to (x) prior to the date of the first
underwritten public offering of the Company's Common Stock following the initial
issuance of the Series C Preferred Stock, $21.00 and (y) thereafter, the lower
of $21.00 per share or the issue price per share of the Common Stock in such
underwritten public offering. The Conversion Price will not be adjusted at any
time for accrued and unpaid dividends on the shares of Series C Preferred Stock,
but will be subject to adjustment for the occurrence of certain corporate events
affecting the Common Stock. Upon conversion, at any time after the First
Scheduled Dividend Payment Date, holders of the Series C Preferred Stock will be
entitled to receive all accrued and unpaid dividends upon the shares of Series C
Preferred Stock converted payable in cash or shares of Common Stock, or a
combination thereof, at the option of the Company. No accrued dividends will be
paid on any shares of Series C Preferred Stock that are converted by the holders
thereof prior to the First Scheduled Dividend Payment Date, unless such shares
of Series C Preferred Stock are converted prior to a redemption date by holders
thereof electing to convert such shares after having received a notice of
redemption for such shares. Common Stock issued to pay dividends will be valued
at the average closing price of the Common Stock as reported in The Wall Street
Journal for the 20 consecutive trading days immediately preceding the date of
such payment.
The Conversion Price for shares of Series C Preferred Stock is subject to
adjustment in certain events, including (i) dividends and other distributions
payable in Common Stock on any class of capital stock of the Company, (ii) the
issuance to all holders of Common Stock of rights or warrants entitling them to
subscribe for or purchase Common Stock at less than fair market value, (iii)
subdivisions, combinations and reclassifications of the Common Stock, (iv)
distributions to all holders of Common Stock of evidences of indebtedness of the
Company or assets and (v) a consolidation or merger to which the Company is a
party or the sale or transfer of all or substantially all of the assets of the
Company.
Automatic Exchange. If the Company has not consummated one or more
Qualifying Offerings yielding gross proceeds in an aggregate cash amount of at
least $100 million by May 15, 1998 (the 'Automatic Exchange Date'), all
outstanding shares of Series C Preferred Stock shall be exchanged automatically
(the 'Automatic Exchange') for shares of the Series D Preferred Stock, with an
initial liquidation preference of $102.50 on the Automatic Exchange Date, at an
exchange rate of one share of Series D Preferred Stock for each $100 of
Automatic Exchange Rate Liquidation Preference represented by the shares of
Series C Preferred Stock held by any holder. The 'Automatic Exchange Rate
Liquidation Preference' for the shares of Series C Preferred Stock shall be
$69.6145 per share (the amount determined by multiplying (x) the Liquidation
Preference for the Series C Preferred Stock (without accrued and unpaid
dividends thereon), by (y) 0.696145.) The Company will pay cash to holders of
Series C Preferred Stock in lieu of issuing fractional shares of Series D
Preferred Stock in the Automatic Exchange. Although holders of Series C
Preferred Stock will not be entitled to receive accrued dividends thereon on or
after the Automatic Exchange Date, shares of Series D Preferred Stock will be
issued with an initial liquidation preference equal to $102.50. For a
description of the terms, preferences and rights of the Series D Preferred
Stock, see ' -- Series D Preferred Stock.'
In the event of an Automatic Exchange, the Company will give written notice
to the holders of record on the Automatic Exchange Date of shares of Series C
Preferred Stock at their addresses appearing on the books of the Company that
the shares of Series C Preferred Stock have been automatically exchanged into
shares of Series D Preferred Stock. The notice of exchange will specify the
number of shares of Series D Preferred Stock into which the shares of Series C
Preferred Stock have been automatically exchanged and the place where the
holders are to deliver the certificates evidencing shares of Series C Preferred
Stock in exchange for certificates evidencing shares of Series D Preferred
Stock. Thereafter, the holders will surrender their certificates evidencing
shares of Series C Preferred Stock at the place designated in the notice of
exchange. As promptly as practicable after receipt of such certificates, the
Company will issue and deliver to each holder a certificate or certificates
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for the number of shares of Series D Preferred Stock to which such holder is
entitled. Shares of Series D Preferred Stock will be deemed to have been
exchanged immediately prior to the close of business on the Automatic Exchange
Date and the holders of the Series C Preferred Stock of record on such date
shall be treated for all purposes as the record holders of the Series D
Preferred Stock at such time.
Voting Rights. Other than the consent rights described below with respect
to certain corporate actions, and except as otherwise provided by applicable
law, holders of shares of Series C Preferred Stock will have no voting rights.
Consent of the holders of a majority of the outstanding shares of Series C
Preferred Stock will be required before the Company may take certain corporate
actions, including (i) any amendment, alteration or repeal of any of the
provisions of the Company's Certificate of Incorporation or Bylaws which affects
adversely the voting powers, rights or preferences of the holders of the shares
of Series C Preferred Stock, (ii) the authorization or creation of, or the
increase in authorized amount of, any shares of any class or series of equity
securities that ranks senior to or on a parity with the Series C Preferred Stock
with respect to dividend rights and rights upon liquidation, winding up or
dissolution and (iii) the merger or consolidation of the Company with or into
any other entity, unless the resulting corporation will thereafter have no class
or series of shares and no other securities either authorized or outstanding
ranking prior to, or on a parity with, the Series C Preferred Stock in the
payment of dividends or the distribution of its assets on liquidation,
dissolution or winding up. In addition, in the event that (i) after the First
Scheduled Dividend Payment Date, dividends payable on the shares of Series C
Preferred Stock shall be in arrears in an aggregate amount equal to at least six
quarterly dividend payments, (ii) the Company fails to redeem all of the
outstanding shares of Series C Preferred Stock on the Mandatory Redemption Date,
or (iii) the Company fails to make an Offer to Purchase upon a Change in
Control, the holders of a majority of the outstanding shares of Series C
Preferred Stock, voting as a class, will be entitled to elect (i) one director
in the event that there are seven or fewer directors on the Board of Directors
at such time or (ii) two directors in the event that there are eight or more
directors on the Board of Directors at such time.
In exercising the voting rights set forth herein or when otherwise granted
voting rights by operation of law, each share of Series C Preferred Stock will
be entitled to one vote per share.
No consent of the holders of the Series C Preferred Stock will be required
for (i) the creation of any indebtedness of any kind of the Company or (ii) the
authorization or issuance of any class of capital stock of the Company ranking
junior to the Series C Preferred Stock in payment of dividends or upon
liquidation, dissolution or winding up of the Company.
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, before any distribution of the assets
of the Company to the holders of shares of Common Stock or any other capital
stock of the Company ranking junior to the Series C Preferred Stock upon
liquidation, dissolution or winding up of the Company, the holders of shares of
Series C Preferred Stock will be entitled to receive out of the assets of the
Company available for distribution to its stockholders, whether from capital,
surplus or earnings, an amount per share of Series C Preferred Stock equal to
$100.00 (the 'Liquidation Preference'), plus accrued and unpaid dividends on
such share of Series C Preferred Stock, if any, to the date of final
distribution.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, before any distribution of assets of the Company to
the holders of shares of Series C Preferred Stock or any capital stock of the
Company ranking on a par with the shares of Series C Preferred Stock, the
holders of any shares of capital stock of the Company ranking senior to the
Series C Preferred Stock and such parity stock (including the shares of 5%
Preferred Stock in the event not all shares of 5% Preferred Stock are exchanged
or otherwise redeemed in the Exchange Offer) shall be entitled to receive out of
the assets of the Company available for distribution to its stockholders,
whether from capital, surplus or earnings, an amount per share of such senior
stock equal to the liquidation preference thereof, plus accrued and unpaid
dividends thereon, if any, to the date of final distribution.
If, upon any liquidation, dissolution or winding up of the Company, the
amounts payable with respect to the shares of Series C Preferred Stock or any
capital stock ranking on a par with the shares of Series C Preferred Stock are
not paid in full, then such holders will share ratably in any such distribution
of assets, or proceeds thereof, in proportion to the full respective
preferential amounts to which they are entitled. Neither a consolidation nor a
merger of the Company with one or more other
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corporations, nor a sale or a transfer of all or substantially all of the assets
of the Company, will be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of the Company.
SERIES D PREFERRED STOCK
On October 13, 1997, the Board of Directors approved the issuance of up to
7,000,000 shares of Series D Preferred Stock. Shares of Series D Preferred Stock
will be issued in the event of an Automatic Exchange with respect to the New
Preferred Stock. See ' -- 10 1/2% Series C Convertible Preferred
Stock -- Automatic Exchange.'
NEW CONVERTIBLE PREFERRED STOCK
Pursuant to a binding Summary Term Sheet/Commitment (the 'Commitment')
dated June 15, 1997 among Everest Capital International, Ltd., Everest Capital
Fund, L.P., The Ravich Revocable Trust of 1989 (together 'Everest') and the
Company, Everest committed to purchase from the Company, and the Company
committed to sell to Everest in a private placement, up to $58 million of a new
series of convertible preferred stock (the 'New Convertible Preferred Stock') in
conjunction with a financing by the Company to yield gross proceeds of $150
million or more in 'new money,' subject to certain conditions. Everest can
satisfy its obligation to purchase the New Convertible Preferred Stock by either
exchanging some or all of the 5% Preferred Stock it currently holds or by paying
cash. The terms of the New Convertible Preferred Stock differ substantially from
the terms of the New Preferred Stock. If Everest pursues its right to purchase
the New Convertible Preferred Stock pursuant to the Commitment and seeks to
enforce the Company's obligations thereunder, the Company may be required to
issue the New Convertible Preferred Stock. Everest has not made known to the
Company its intentions with respect to the Commitment and its current holding of
5% Preferred Stock.
PREFERRED STOCK PURCHASE RIGHTS
On October 22, 1997, the Board of Directors adopted a stockholders rights
plan and, in connection with the adoption of such plan, declared a dividend
distribution of one 'Right' for each outstanding share of Common Stock (a
'Common Share') of the Company to stockholders of record at the close of
business on November 3, 1997 (the 'Rights Record Date'). Except as set forth
below, each Right will entitle the registered holder thereof to purchase from
the Company one one-hundredth of a share of Series B Preferred Stock, par value
$0.001 per share (the 'Series B Shares'), at a purchase price of $115.00 (the
'Purchase Price'), subject to adjustment. The Purchase Price shall be paid in
cash. The description and terms of the Rights will be set forth in a Rights
Agreement (the 'Rights Agreement') to be entered into by the Company and
Continental Stock Transfer & Trust Company, as Rights Agent.
Initially, no separate Right Certificates will be distributed and the
Rights will be evidenced, with respect to any Common Shares outstanding on the
Rights Record Date, by the certificates representing such Common Shares. Until
the Separation Date (as defined below), the Rights will be transferred with, and
only with, Common Share certificates. Until the earlier of the Separation Date
and the redemption or expiration of the Rights, new Common Share certificates
issued after the Rights Record Date will contain a notation incorporating the
Rights Agreement by reference. The Rights are not exercisable until the earlier
to occur of (a) 10 business days following a public announcement that a person
or group of affiliated or associated persons (an 'Acquiring Person') has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding Common Shares (except by reason of (i) exercise by such
person of stock options granted to such person by the Company pursuant to any
stock option or similar plan of the Company (ii) the exercise of conversion
rights contained in specified classes of Preferred Stock, or (iii) the exercise
of Warrants owned on the date of the Rights Agreement to acquire Common Shares
deemed to be benefically owned by such person on such date, which will include
warrants to acquire 1,740,000 Common Shares to be issued to an affiliate of
Everest Capital Fund, Ltd.) or (b) 15 business days following the commencement
of a tender offer or exchange offer by any person (other than the Company, any
subsidiary of the Company or any employee benefit plan thereof) if, upon
consummation hereof, such person or group would be the beneficial owner of 15%
or more of such outstanding Common Shares (the earlier of such dates being
called the 'Separation
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Date'), and will expire on October 22, 2002, unless earlier redeemed by the
Company as described below. As soon as practicable following the Separation
Date, separate certificates evidencing the Rights ('Right Certificates') will be
mailed to holders of record of the Common Shares as of the close of business on
the Separation Date and, thereafter, such separate Right Certificates alone will
evidence the Rights. A holder of 15% or more of the Common Stock as of the date
of the Rights Agreement will be excluded from the definition of 'Acquiring
Person' unless such holder increases the aggregate percentage of its and its
affiliates' beneficial ownership interest in the Company by an additional 1%.
In the event that, at any time following the Separation Date, (a) the
Company is the surviving corporation in a merger with an Acquiring Person and
the Company's Common Shares are not changed or exchanged, (b) a person (other
than the Company, any subsidiary of the Company or any employee benefit plan
thereof), together with its Affiliates and Associates (as defined in the Rights
Agreement), becomes an Acquiring Person (except pursuant to a tender offer for
any and all outstanding Common Shares made in accordance with applicable laws,
which remains open for at least 40 Business Days and into which holders of 80%
or more of the Company's outstanding Common Shares tender their shares), (c) an
Acquiring Person engages in one or more 'self-dealing' transactions as set forth
in the Rights Agreement or (d) during such time as there is an Acquiring Person,
an event occurs (e.g., a reverse stock split), that results in such Acquiring
Person's ownership interest being increased by more than one percent, the Rights
Agreement provides that proper provision shall be made so that each holder of a
Right will thereafter be entitled to receive, upon the exercise thereof at the
then current exercise price of the Right, Common Shares (or, in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the exercise price of the Right.
In the event that, at any time following the first date of public
announcement by the Company or an Acquiring Person indicating that an Acquiring
Person has become such (the 'Shares Acquisition Date'), (a) the Company
consolidates or merges with another person and the Company is not the surviving
corporation, (b) the Company consolidates or merges with another person and is
the surviving corporation, but in such transaction its Common Shares are changed
or exchanged or (c) 50% or more of the Company's assets or earning power is sold
or transferred, the Rights Agreement provides that proper provision shall be
made so that each holder of a Right shall thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right,
common shares of the acquiring company having a value equal to two times the
exercise price of the Right.
The Board may, at its option, at any time after the right of the Board to
redeem the Rights has expired or terminated (with certain exceptions), exchange
all or part of the then outstanding and exercisable Rights (other than those
held by the Acquiring Person and Affiliates and Associates of the Acquiring
Person) for Common Shares at a ratio of one Common Share per Right, as adjusted;
provided, however, that such Right cannot be exercised once a Person, together
with such Person's Affiliates and Associates, becomes the beneficiary owner of
50% or more of the Common Shares then outstanding. If the Board authorizes such
an exchange, the Rights will immediately cease to be exercisable.
Notwithstanding any of the foregoing, following the occurrence of any of
the events set forth in the fourth and fifth paragraphs of this section, any
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person or Affiliate or
Associate thereof shall immediately become null and void. The Rights Agreement
contains provisions intended to prevent the utilization of voting trusts or
similar arrangements (except for the voting arrangement between two of the
Company's principal stockholders and the Company) that could have the effect of
rendering ineffective or circumventing the beneficial ownership rules set forth
in the Rights Agreement.
The Purchase Price payable, and the number of Series B Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (a) in the event of a dividend
of Series B Shares on, or a subdivision, combination or reclassification of, the
Series B Shares, (b) upon the grant to holders of the Series B Shares of certain
rights or warrants to subscribe for Series B Shares or securities convertible
into Series B Shares at less than the current market price of the Series B
Shares or (c) upon the distribution to holders of the Series B Shares of
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debt securities or assets (excluding regular quarterly cash dividends and
dividends payable in Series B Shares) or of subscription rights or warrants
(other than those referred to above).
At any time after the date of the Rights Agreement until ten Business Days
(as defined in the Rights Agreement) (a period that can be extended) following
the Shares Acquisition Date, the Board of Directors, with the concurrence of a
majority of the Independent Directors (those members of the Board who are not
officers or employees of the Company or of any Subsidiary of the Company and who
are not Acquiring Persons or their Affiliates, Associates, nominees or
representatives, and who either (a) were members of the Board prior to the
adoption of the Rights Plan or (b) were subsequently elected to the Board and
were recommended for election or approved by a majority of the Independent
Directors then on the Board), may redeem the Rights, in whole but not in part,
at a price of $0.01 per Right, subject to adjustment (the 'Redemption Price').
Thereafter, the Board may only redeem the Rights in certain specified
circumstances including in connection with certain events not involving an
Acquiring Person or an Affiliate or Associate of an Acquiring Person. In
addition, the Company's right of redemption may be reinstated if (a) an
Acquiring Person reduces its beneficial ownership to 10% or less of the
outstanding Common Shares in a transaction or series of transactions not
involving the Company and (b) there is at such time no other Acquiring Person.
The Rights Agreement may also be amended, as described below, to extend the
period of redemption.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders or to the Company, shareholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Shares (or other consideration) of the Company or for
common shares of the Acquiring Person as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights or imposing limitations on the right to amend the Agreement, any of the
provisions of the Rights Agreement may be amended by the Board with the
concurrence of a majority of the Independent Directors or by special approval of
the stockholders of the Company prior to the Separation Date. Thereafter, the
period during which the Rights may be redeemed may be extended (by action of the
Board, with the concurrence of a majority of the Independent Directors or by
special approval of the stockholders of the Company), and other provisions of
the Rights Agreement may be amended by action of the Board with the concurrence
of a majority of the Independent Directors or by special approval of the
shareholders of the Company; provided, however, that (a) such amendment will not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person) and (b) no amendment shall be made at such time as the
Rights are no longer redeemable (except for the possibility of the right of
redemption being reinstated as described above).
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Section 203 of the Delaware General Corporation Law ('Section 203')
generally provides that a stockholder acquiring more than 15% of the outstanding
voting stock of a corporation subject to the statute (an 'Interested
Stockholder') but less than 85% of such stock may not engage in certain Business
Combinations (as defined in Section 203) with the corporation for a period of
three years after the time the stockholder became an Interested Stockholder
unless (i) prior to such time, the corporation's board of directors approved
either the Business Combination or the transaction in which the stockholder
became an Interested Stockholder or (ii) the Business Combination is approved by
the corporation's board of directors and authorized at a stockholders' meeting
by a vote of at least two-thirds of the corporation's outstanding voting stock
not owned by the Interested Stockholder. Under Section 203, these restrictions
will not apply to certain Business Combinations proposed by an Interested
Stockholder following the earlier of the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
was not an Interested Stockholder during the previous three years, who became an
Interested Stockholder with the approval of the corporation's board of directors
or who became an Interested Stockholder at a time when the restrictions
contained in Section 203 did not apply for reasons specified in Section 203, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors
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prior to such person becoming an Interested Stockholder during the previous
three years or were recommended for election or elected to succeed such
directors by a majority of such directors.
Section 203 defines the term 'Business Combination' to encompass a wide
variety of transactions with or caused by an Interested Stockholder, including
transactions in which the Interested Stockholder receives or could receive a
benefit on other than a pro rata basis with other stockholders, transactions
with the corporation which increase the proportionate interest in the
corporation directly or indirectly owned by the Interested Stockholder or
transactions in which the Interested Stockholder receives certain other
benefits.
The provisions of Section 203, coupled with the Board's authority to issue
preferred stock without further stockholder action, could delay or frustrate the
removal of incumbent directors or a change in control of the Company. The
provisions also could discourage, impede or prevent a merger, tender offer or
proxy contest, even if such event would be favorable to the interests of
stockholders. The Company's stockholders, by adopting an amendment to the
Company's Amended and Restated Certificate of Incorporation (the 'Certificate'),
may elect not to be governed by Section 203 effective 12 months after such
adoption. Neither the Certificate nor the Company's Amended and Restated Bylaws
exclude the Company from the restrictions imposed by Section 203.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock, the 5% Preferred
Stock and the Series C Preferred Stock is Continental Stock Transfer & Trust
Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Stock Offerings, the Company will have
16,077,884 shares of Common Stock outstanding, assuming no exercise of (i) the
Underwriters' overallotment option, (ii) outstanding options and (iii) Warrants
issued in connection with the Units Offering. Of these shares, 9,795,896 shares
will be freely tradeable without restriction under the Securities Act unless
such shares are purchased in the Stock Offerings by Affiliates. Of the remaining
6,281,988 shares of Common Stock, 3,547,488 shares are Restricted Shares.
Restricted Shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act. Up to 1,642,000 of the Restricted Shares
held by the directors and certain officers of the Company will be eligible for
sale, subject to the restrictions of Rule 144, upon expiration of the Lock-up
Agreements, which shall expire, with respect to a Lock-up Agreement concerning
1,600,000 of such shares, on a cumulative basis as to 25% of such 1,600,000
shares at the expiration of each of the 15th, 18th, 21st and 24th month
following August 26, 1997, and, with respect to Lock-up Agreements concerning
the remaining 42,000 shares, 180 days after the effective date of the Stock
Offerings. The remaining 1,905,488 Restricted Shares will not become eligible
for resale until August 1998, and then only pursuant to the restrictions under
Rule 144. In addition, the Company's largest stockholder has entered into a
lock-up agreement relating to 2,734,500 shares lasting for a period ending, on a
cumulative basis, as to 25% of the shares of Common Stock owned by each holder,
on the expiration of the 15th, 18th, 21st and 24th month following August 26,
1997. As such shares become free of such lock-up, they will be eligible for sale
without restriction.
In general, under Rule 144 as currently in effect, beginning 90 days after
the conclusion of the Stock Offerings, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including persons who may be deemed 'affiliates' of the Company, will be
entitled to sell in any three month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock or
(ii) the average weekly trading volume of the Common Stock during the four
calendar weeks immediately preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission. Sales pursuant to Rule 144
are also subject to certain other requirements relating to manner of sale,
notice and availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is not
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deemed to have been an affiliate of the Company at any time during the three
months immediately preceding the sale is entitled to sell restricted shares
pursuant to Rule 144(k) without regard to the limitations described above,
provided that two years have expired since the later of the date on which such
restricted shares were first acquired from the Company or from an affiliate of
the Company. Certain of the Company's current stockholders have demand and
incidental registration rights. See 'Principal Stockholders.'
The Company has granted options to purchase 1,733,000 shares of Common
Stock to certain directors, officers and key employees of the Company pursuant
to the stock plans. Of the shares underlying these outstanding options,
1,705,000 are subject to the agreements described above restricting the sale of
such shares for a period of 180 days after the date of this Prospectus.
Following the Stock Offerings, the Company intends to file a registration
statement under the Securities Act to register shares of Common Stock issuable
upon the exercise of stock options granted under the Company's stock option
plans. Except as limited by the agreements described above and by Rule 144
volume limitations applicable to affiliates, shares issued upon the exercise of
stock options after the effective date of such registration statement generally
will be available for sale in the open market.
The Company is unable to predict the effect that sales made under Rule 144,
pursuant to future registration statements, or otherwise, may have on any then
prevailing market price for shares of the Common Stock. Nevertheless, sales of a
substantial amount of Common Stock in the public market, or the perception that
such sales could occur, could adversely affect market prices.
CERTAIN UNITED STATES TAX CONSIDERATIONS
The federal income tax discussion set forth below summarizes certain United
States federal income tax consequences that may be relevant to holders of the
Units, Warrants and Notes who are United States Persons (as defined below) and
hold their Units, Warrants and Notes as capital assets ('Holders'). The
discussion is intended only as a summary and does not purport to be a complete
analysis or listing of all potential tax considerations that may be relevant to
such Holders of the Units, Warrants and Notes. The discussion does not include
special rules that may apply to certain holders (including insurance companies,
tax-exempt organizations, financial institutions or broker-dealers, and persons
holding the Units, Notes and Warrants as part of a 'straddle,' 'hedge' or
'conversion transaction,' and investors who are not United States Persons), and
does not address the tax consequences of the law of any state, locality or
foreign jurisdiction. The discussion is based upon currently existing provisions
of the Internal Revenue Code of 1986, as amended (the 'Code'), existing and
proposed Treasury regulations promulgated thereunder and current administrative
rulings and court decisions. All of the foregoing are subject to change and any
such change could affect the continuing validity of this discussion.
As used herein, 'United States Person' means a beneficial owner of the
Units, Notes or Warrants who or that (i) is a citizen or resident of the United
States, (ii) is a corporation, partnership or other entity created or organized
in or under the laws of the United States or political subdivision thereof,
(iii) is an estate the income of which is subject to U.S federal income taxation
regardless of its source, (iv) is a trust if (A) a U.S. court is able to
exercise primary supervision over the administration of the trust and (B) one or
more U.S. fiduciaries have authority to control all substantial decisions of the
trust, or (v) is otherwise subject to U.S. federal income tax on a net income
basis in respect of the Units, Notes or Warrants, as the case may be.
THE UNITS
The purchase of a Unit consisting of a Note and Warrants will be treated as
the purchase of an 'investment unit' for federal income tax purposes. The issue
price of a Unit for U.S. federal income tax purposes will be the first price at
which a substantial amount of Units are sold to the public (excluding sales to
bond houses, brokers or similar persons acting as underwriters, placement agents
or wholesalers). The aggregate issue price of the Unit must be allocated among
the Note and the Warrants based on their relative fair market values on the date
of issuance of the Unit to determine the issue price of each of the securities.
The Company believes that the aggregate issue price of each Unit should
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be allocated $ to the Note and $ to the Warrants, which amounts
are based on the instruments' anticipated relative fair market value at the time
of issuance. Although the Company's allocation is not binding on the IRS, a
Holder of a Unit must use the Company's allocation unless the Holder discloses
on its federal income tax return for the year in which the Unit was acquired
that it plans to use an allocation that is inconsistent with the Company's
allocation. A Unit Holder's initial tax basis in each security will be the issue
price allocated thereto.
THE NOTES
Original Issue Discount. The Notes will have original issue discount for
federal income tax purposes. The amount of original issue discount ('OID') on a
Note is the excess of its 'stated redemption price at maturity' (the sum of all
payments to be made on the Note, whether denominated as interest or principal)
over its 'issue price.' The 'issue price' of each Note will be as discussed
above. Each Note Holder (whether a cash or accrual method taxpayer) will be
required to include in income such OID as it accrues, in advance of the receipt
of some or all of the related cash payments.
The amount of OID includable in income by the initial Holder of a Note is
the sum of the 'daily portions' of OID with respect to the Note for each day
during the taxable year or portion of the taxable year on which such Holder held
such Note ('accrued OID'). The daily portion is determined by allocating to each
day in any 'accrual period' a pro rata portion of the OID allocable to that
accrual period. The accrual periods for a Note will be periods that are each
selected by the Note Holder that are no longer than one year, provided that each
scheduled payment occurs either on the final day of an accrual period or on the
first day of an accrual period. The amount of OID allocable to any accrual
period other than the initial short accrual period (if any) and the final
accrual period is an amount equal to the product of the Note's 'adjusted issue
price' at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual period and
properly adjusted for the length of the accrual period). The amount of OID
allocable to the final accrual period is the difference between the amount
payable at maturity and the adjusted issue price of the Note at the beginning of
the final accrual period. The amount of OID allocable to any initial short
accrual period may be computed under any reasonable method. The adjusted issue
price of the Note at the start of any accrual period is equal to its issue price
increased by the accrued OID for each prior accrual period and reduced by any
prior payments with respect to such Note. The Company is required to report the
amount of OID accrued on Notes held of record by persons other than corporations
and other exempt Note Holders, which may be based on accrual periods other than
those chosen by the Note Holder. A Note Holder will not be required to recognize
any income upon the receipt of interest payments on the Notes.
The tax basis of a Note in the hands of the Holder will be increased by the
amount of OID, if any, on the Note that is included in the Holder's income
pursuant to these rules, and will be decreased by the amount of any payments
made with respect to the Note.
Applicable High Yield Discount Obligation. If the yield to maturity of the
Notes (as determined for U.S. federal income tax purposes) exceeds the
'applicable federal rate' ('AFR') plus 500 basis points, the Notes will be
subject to the applicable high yield discount obligation ('AHYDO') rules of the
Code. The AFR for the month of , 1997 for instruments with a
weighted average maturity in excess of nine years providing for semi-annual
compounding is %. Pursuant to the AHYDO rules, the Company's deductions
with respect to original issue discount will be suspended until such amounts are
actually paid, and the 'disqualified portion' of such original issue discount
(defined as the portion that is attributable to the yield on such Note in excess
of the applicable federal rate plus 600 basis points) will be permanently
nondeductible. These rules generally do not affect the amount, timing or
character of a Holder's income; however, domestic corporate Holders may be
eligible for a dividends-received deduction with respect to their inclusion in
income of the 'disqualified portion' (as defined above) if such amount, if paid
with respect to stock, would have been a dividend (i.e., among other things,
would have been out of earnings and profits, which the Company does not believe
that it currently has). The availability of the dividend-received deduction is
subject to a number of complex limitations.
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Market Discount. If a Note is acquired by a subsequent purchaser at a
'market discount,' some or all of any gain realized upon a disposition
(including a sale or a taxable exchange) or payment at maturity of such Note may
be treated as ordinary income. 'Market discount' with respect to a security is,
subject to a de minimis exception, the excess of (1) the issue price of the
security increased by all previously accrued original issue discount and
probably reduced (although the Code does not expressly so provide) by any cash
payments in respect of such security over (2) such Holder's initial tax basis in
the security. The amount of market discount treated as having accrued will be
determined either on a ratable basis, or, if the Holder so elects, on a constant
interest method. Upon any subsequent disposition (including a gift or payment at
maturity) of such Note (other than in connection with certain nonrecognition
transactions), the lesser of any gain on such disposition (or appreciation, in
the case of a gift) or the portion of the market discount that accrued while the
Note was held by such Holder will be treated as ordinary interest income at the
time of the disposition. In lieu of including accrued market discount in income
at the time of disposition, a Holder may elect to include market discount in
income currently. Unless a Note Holder so elects, such Holder may be required to
defer a portion of any interest expense that may otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry such Note until the
Holder disposes of the Note. The election to include market discount in income
currently, once made, is irrevocable and applies to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies and may not be revoked without the consent of the
IRS.
Acquisition Premium. A subsequent Holder of a Note is generally subject to
rules for accruing OID described above. However, if such Holder's purchase price
for the Note exceeds the 'revised issue price' (the sum of the issue price of
the Note and the aggregate amount of the OID includible in the gross income of
all Holders for periods before the acquisition of the Note by such Holder and
probably reduced (although the Code does not expressly so provide) by any cash
payment in respect of such security), the excess (referred to as 'acquisition
premium') is offset ratably against the amount of OID otherwise includible in
such Holder's taxable income (i.e., such Holder may reduce the daily portions of
OID by a fraction, the numerator of which is the excess of such Holder's
purchase price for the Note over the revised issue price, and the denominator of
which is the excess of the sum of all amounts payable on the Note after the
purchase date over the Note's revised issue price).
Disposition of Notes. A Holder of Notes will recognize gain or loss upon
the sale, redemption, retirement or other disposition of such Notes; such gain
or loss will generally be equal to the difference between (i) the amount of cash
and the fair market value of property received and (ii) the Holder's adjusted
tax basis (including any accrued OID or market discount previously included in
income by the Holder and reduced by any previous payments with respect to the
Notes) in such Notes. Subject to the market discount rules discussed above, gain
or loss recognized will be capital gain or loss, provided such Notes are held as
capital assets by the Holder, and will be long term capital gain or loss if the
Holder has held such Notes (or is treated as having held such Notes) for longer
than one year. For individuals, such gain will be taxed at rates that vary
depending upon whether the Note was held for one year or less, more than one
year but not more than 18 months, or more than 18 months.
Reporting Requirements. The Company will provide annual information
statements to Holders of the Notes and to the Internal Revenue Service, setting
forth the amount of original issue discount determined to be attributable to the
Notes for that year.
THE WARRANTS
A Warrant Holder will take a tax basis in the Warrants equal to the issue
price of the Unit allocable to them. A Warrant Holder generally will not
recognize gain or loss upon a Warrant's exercise for cash (except to the extent
cash is received in lieu of fractional shares). Furthermore, a Warrant Holder's
tax basis in the Common Stock received upon the exercise of a Warrant will equal
the Exercise Price of the Warrants plus the Holder's tax basis in the Warrant
prior to its exercise. The holding period of Common Stock received upon a
Warrant's exercise will begin with and include the day such Warrant was
exercised.
In the event that a Holder of Warrants acquires shares of Common Stock
through a Cashless Exercise of Warrants, the Holder will recognize gain or loss
equal to the excess of the fair market value
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of the Warrants deemed surrendered to pay the Exercise Price over the Holder's
tax basis in such Warrants. It is possible that such gain or loss may be treated
as ordinary income or loss on the grounds that the Warrants surrendered in the
Cashless Exercise were not sold or exchanged.
If a Holder exercises a Warrant with a combination of the payment of cash
and through a Cashless Exercise, the transaction may be divided into the
applicable number of parts with each part treated as described above.
If a Warrant is not exercised and is allowed to expire, the Holder of the
Warrant will recognize a loss equal to the Holder's tax basis in the Warrant.
Such loss will be capital loss and will be long-term or short-term depending on
the Holder's holding period for the Warrant.
Warrant Holders will recognize capital gain or loss on the sale or taxable
exchange of the Warrants in an amount equal to the difference between the amount
of cash or property received and the Holder's tax basis in the Warrants. Such
capital gain or loss will be long-term or short-term depending on the Holder's
holding period for the Warrants. For individuals, gain from such a transaction
will be taxed at rates that vary depending upon whether the Warrant exchanged
was held for one year or less, more than one year but not more than 18 months,
or more than 18 months.
The number of shares of Common Stock receivable upon the exercise of a
Warrant is subject to adjustment under certain circumstances. Under Section 305
of the Code and the Treasury Regulations promulgated thereunder, Holders of the
Warrants will be treated as having received a constructive distribution,
resulting in ordinary income (subject to a possible dividends-received deduction
in the case of corporate shareholders) to the extent of the Company's current
and/or accumulated earnings and profits, if, and to the extent that, certain
adjustments in the number of shares of Common Stock receivable upon the exercise
of a Warrant that may occur increase the proportionate interest of a holder of a
Warrant in the fully diluted Common Stock, whether or not the Holder ever
exercise the Warrant. Generally, a Holder's tax basis in a Warrant will be
increased by the amount of any constructive dividend.
BACKUP WITHHOLDING
Under certain circumstances, the failure of a Holder of Notes, Warrants or
Common Stock to provide sufficient information to establish that such Holder is
exempt from the backup withholding provisions of the Code will subject such
Holder to backup withholding at a rate of 31 percent on payments of principal
and interest on the Notes, and the proceeds from a disposition of the Notes,
Warrants or Common Stock. In general, backup withholding applies if a Holder
fails to furnish a correct taxpayer identification number, fails to report
dividend and interest income in full, or fails to certify that such Holder has
provided a correct taxpayer identification number and that the Holder is not
subject to withholding. An individual's taxpayer identification number is such
person's Social Security number.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF UNITS, WARRANTS OR NOTES
IN LIGHT OF HIS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER
OF UNITS, WARRANTS OR NOTES SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE OWNERSHIP AND DISPOSITION OF THE
UNITS, WARRANTS OR NOTES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT VERSIONS THEREOF.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
'Purchase Agreement'), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated ('Merrill Lynch') and Lehman Brothers Inc.
are acting as representatives (the 'Representatives'), has severally agreed to
purchase from the Company the number of Units set forth opposite its name below.
In the Purchase Agreement, the several Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Units offered
hereby, if any are purchased. In the event of default by an Underwriter, the
Purchase Agreement provides that, in certain circumstances, purchase commitments
of the non-defaulting Underwriters may be increased or the Purchase Agreement
may be terminated.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF UNITS
--------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................................
Lehman Brothers Inc................................................................
Libra Investments, Inc.............................................................
--------
Total................................................................
--------
--------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Units to the public at the initial public offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Units. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Units to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
The Company has agreed that it will not for a period of 180 days from the
date of this Prospectus, without the consent of Merrill Lynch directly or
indirectly offer, sell, grant any option to purchase, or otherwise dispose of,
any debt securities of the Company or securities of the Company that are
convertible into, or exchangeable for, the Units or such other debt securities.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
The Underwriters do not intend to confirm sales of Units offered hereby to
any accounts over which they exercise discretionary authority.
There is currently no public market for the Units. Accordingly, there can
be no assurance as to the liquidity of any market that may develop for the
Units, the ability of holders of the Units to sell their Units or at what price
such holders would be able to sell their Units. If such a market were to
develop, the Units could trade at prices that may be lower than the initial
offering price thereof, depending on many factors, including prevailing interest
rates, the Company's operating results and markets for similar debt securities.
The Underwriters have advised the Company that they currently intend to make a
market in the Units. However, they are not obligated to do so, and any market
making with respect to the Units may be discontinued at any time without notice
at the sole discretion of each Underwriter. If an active public market does not
develop, the market price and liquidity of the Units may be adversely affected.
The Company does not intend to apply for listing of the Units on any national
securities exchange or for quotation of the Units through an automated quotation
system.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Units. There can be no assurance that the market for the Units
will not be subject to similar disruptions.
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Until the distribution of the Units is completed, rules of the Securities
and Exchange Commission may limit the ability of the Underwriters and certain
selling group members to bid for and purchase the Units. As an exception to
these rules, the Representatives are permitted to engage in certain transactions
that stabilize the price of the Units. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Units.
If the Underwriters create a short position in the Units in connection with
the Units Offering, i.e., if they sell more Units than are set forth on the
cover page of this Prospectus, the Representatives may reduce that short
position by purchasing Units in the open market.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase Units
in the open market to reduce the Underwriters' short position or to stabilize
the price of the Units, they may reclaim the amount of the selling concession
from the Underwriters and selling group members who sold those shares as part of
the offering of Units.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Units. In addition, neither the
Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transaction or that such transactions, once
commenced, will not be discontinued without notice.
Pursuant to an agreement, dated October 21, 1992, Batcheder & Partners,
Inc., the Company's financial adviser, will receive fees in the amount of 1% of
the proceeds of the Units Offering.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two-month prior period or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters and dealers are not required to
engage in passive market making and may end passive market making activities at
any time.
LEGAL MATTERS
Certain legal matters relating to the securities offered hereby are being
passed upon for the Company by Paul, Weiss, Rifkind, Wharton & Garrison, New
York, New York. Certain regulatory matters arising under the Communications Act
are being passed upon by Wiley, Rein & Fielding, Washington, D.C. Certain legal
matters are being passed upon for the Underwriters by Shearman & Sterling, New
York, New York.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996, for each of the three years in the period ended December 31,
1996, and for the period from May 17, 1990 (the date of inception) to December
31, 1996, incorporated herein by reference, have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of said firm as experts in accounting and auditing.
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Inside back cover
Photograph of car on highway and CD Radio logo
Caption: 50 Channels of Programming
National Satellite Coverage
Commercial-Free Music
CD Quality Sound
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
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PAGE
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Additional Information...................................................................................................... 5
Incorporation of Certain Documents by Reference............................................................................. 5
Special Note Regarding Forward-Looking Statements........................................................................... 6
Prospectus Summary.......................................................................................................... 7
Risk Factors................................................................................................................ 16
Use of Proceeds............................................................................................................. 27
Price Range of Common Stock................................................................................................. 29
Dividend Policy............................................................................................................. 29
Dilution.................................................................................................................... 30
Capitalization.............................................................................................................. 31
Selected Historical Financial Information................................................................................... 32
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 33
Business.................................................................................................................... 38
Management.................................................................................................................. 54
Principal Stockholders...................................................................................................... 62
Description of Certain Indebtedness......................................................................................... 66
Description of Units........................................................................................................ 70
Description of the Notes.................................................................................................... 70
Description of the Warrants................................................................................................. 96
Description of Capital Stock................................................................................................ 100
Shares Eligible for Future Sale............................................................................................. 108
Certain United States Tax Considerations.................................................................................... 109
Underwriting................................................................................................................ 113
Legal Matters............................................................................................................... 114
Independent Accountants..................................................................................................... 114
</TABLE>
$150,000,000
GROSS PROCEEDS
[LOGO]
UNITS CONSISTING OF
% SENIOR DISCOUNT NOTES DUE 2007
AND WARRANTS TO PURCHASE SHARES
OF COMMON STOCK
------------------
PROSPECTUS
------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
LIBRA INVESTMENTS, INC.
, 1997
_____________________________ _____________________________
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The cash expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting compensation, are as
follows:
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<S> <C>
Securities and Exchange Commission registration fee.......................................... $45,455
NASD filing fee.............................................................................. 15,500
Accounting fees and expenses................................................................. *
Legal fees and expenses...................................................................... *
Printing, engraving and delivery expenses.................................................... *
-------
Total.............................................................................. *
-------
-------
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* To be completed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a
corporation to indemnify its directors, officers, employees and agents against
certain liabilities they may incur in such capacities, including liabilities
under the Securities Act, provided they act in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation. The Company's Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws require the Company to indemnify its officers and
directors to the full extent permitted by Delaware law.
Section 102 of the Delaware General Corporation Law authorizes a
corporation to limit or eliminate its directors' liability to the corporation or
its stockholders for monetary damages for breaches of fiduciary duties, other
than for (i) breaches of the duty of loyalty, (ii) acts or omissions involving
bad faith, intentional misconduct or knowing violations of the law, (iii)
unlawful payments of dividends, stock purchases or redemptions, or (iv)
transactions from which a director derives an improper personal benefit. The
Company's Amended and Restated Certificate of Incorporation contains provisions
limiting the liability of the directors to the Company and to its shareholders
to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law authorizes a
corporation to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation against any
liability asserted against him and incurred by him or her in any such capacity,
or arising out of his or her status as such. The Company's Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws provide that the
Company may, to the full extent permitted by law, purchase and maintain
insurance on behalf of any director, officer, employee or agent of the Company
against any liability which may be asserted against him or her and the Company
currently maintains such insurance.
The Purchase Agreement between the Company and the Underwriters with
respect to the Units Offering registered hereunder will provide for
indemnification of the registrant and its officers and directors by the
Underwriters or agents, as the case may be, against certain liabilities
including liabilities under the Securities Act.
II-1
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
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EXHIBIT DESCRIPTION
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1.1** -- Purchase Agreement.
3.1 -- Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the
Company's Form 10-Q for the period ended March 31, 1996).
3.2 -- Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the Company's Form 10-Q for the
period ended March 31, 1996).
4.1** -- Form of Indenture.
4.2** -- Form of Note (included in Exhibit 4.1).
4.3** -- Form of Warrant Agreement.
4.4** -- Form of Warrant (included in Exhibit 4.3).
5.1** -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison (to be filed by amendment).
12.1** -- Statement Re Computation of Ratios.
21.1 -- List of the Company's Subsidiaries (incorporated by reference to Exhibit 21.1 to the Company's Form 10-Q
for the period ended March 31, 1997).
23.1* -- Consent of Coopers & Lybrand L.L.P.
23.2** -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (to be included in Exhibit 5.1).
24.1* -- Power of Attorney (included on signature page).
25.1** -- Statement of Eligibility of Trustee.
</TABLE>
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** To be filed by amendment
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) (1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-2
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on October 30, 1997.
CD RADIO INC.
By: /s/ DAVID MARGOLESE
.................................
DAVID MARGOLESE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
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SIGNATURE TITLE DATE
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<S> <C> <C>
/S/ DAVID MARGOLESE Chairman and Chief Executive Officer (Principal October 30, 1997
......................................... Executive Officer)
(DAVID MARGOLESE)
* Principal Financial and Accounting Officer October 30, 1997
.........................................
(ANDREW J. GREENEBAUM)
* Director October 30, 1997
.........................................
(ROBERT D. BRISKMAN)
* Director October 30, 1997
.........................................
(LAWRENCE F. GILBERTI)
* Director October 30, 1997
.........................................
(PETER K. PITSCH)
* Director October 30, 1997
.........................................
(JACK Z. RUBINSTEIN)
* Director October 30, 1997
.........................................
(RALPH V. WHITWORTH)
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By: /s/ DAVID MARGOLESE
...................
DAVID MARGOLESE
ATTORNEY-IN-FACT
II-3
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EXHIBITS
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EXHIBIT DESCRIPTION PAGE
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1.1** -- Purchase Agreement...............................................................................
3.1 -- Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to
the Company's Form 10-Q for the period ended March 31, 1996)......................................
3.2 -- Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the Company's Form 10-Q
for the period ended March 31, 1996)..............................................................
3.3** -- Certificate of Designations of 5% Delayed Convertible Preferred Stock............................
4.1** -- Form of Indenture................................................................................
4.2** -- Form of Note (included in Exhibit 4.1)...........................................................
4.3** -- Form of Warrant Agreement........................................................................
4.4** -- Form of Warrant (included in Exhibit 4.3)........................................................
5.1** -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison (to be filed by amendment)...................
12.1** -- Statement Re Computation of Ratios...............................................................
21.1 -- List of the Company's Subsidiaries (incorporated by reference to Exhibit 21.1 to the Company's
Form 10-Q for the period ended March 31, 1997)....................................................
23.1* -- Consent of Coopers & Lybrand L.L.P...............................................................
23.2** -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (to be included in Exhibit 5.1)..............
24.1* -- Power of Attorney (included on signature page)...................................................
25.1** -- Statement of Eligibility of Trustee..............................................................
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** To be filed by amendment
* Previously filed.
STATEMENT OF DIFFERENCES
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The degree symbol shall be expressed as .......................... [d]
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
CD Radio Inc. on Form S-3 (No. 333-34769) of our report dated March 27, 1997, on
our audits of the consolidated financial statements of CD Radio Inc. as of
December 31, 1995 and 1996, for the years ended December 31, 1994, 1995 and
1996, and for the period May 17, 1990 (date of inception) to December 31, 1996,
which report is included in CD Radio Inc.'s Annual Report on Form 10-K, as
amended by the Annual Report on Form 10-K/A, for the year ended December 31,
1996. We also consent to the references to our firm under the captions 'Summary
Consolidated Financial Data,' 'Selected Historical Financial Information' and
'Independent Accountants.'
Coopers & Lybrand L.L.P.
Washington, D.C.
October 27, 1997
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