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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 21, 1997
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CD RADIO INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-24710 52-1700207
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(Commission File Number) (IRS Employer Identification No.)
Sixth Floor, 1001 22nd Street, N.W.
Washington, D.C. 20037
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (202) 296-6192
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS
COMPLETION OF PRIVATE PLACEMENT
On April 21, 1997, the Company completed the second tranche of its
private placement of 5% Delayed Convertible Preferred Stock (the "5% Preferred
Stock"). The first tranche was completed on April 9, 1997 (the "First Closing")
and reported on Form 8-K, dated April 10, 1997. At the two closings, the Company
sold a total of 5,400,000 shares of the 5% Preferred Stock for an aggregate sale
price of $135 million. The Company had received commitments to purchase
approximately $200 million of its 5% Preferred Stock subject principally to the
Company being the winning bidder in an FCC auction for a national satellite
radio broadcast license. On April 2, 1997, the Company was the winning bidder in
such an auction with a bid price of $83,346,000. The Company has allowed the
remaining commitments of approximately $65 million to expire.
The Company has agreed to register for resale the common stock issuable
upon conversion of the 5% Preferred Stock.
DESCRIPTION OF SECURITIES
The Company's Certificate of Incorporation provides for authorized
capital of 60,000,000 shares, consisting of 50,000,000 shares of Common Stock,
par value $0.001 per share, and 10,000,000 shares of Preferred Stock, par value
$0.001 per share.
As of April 18, 1997, the Company had 10,313,391 shares of Common Stock
outstanding held of record by 101 persons, and had reserved for issuance
1,815,000 shares of Common Stock with respect to outstanding options and options
available for issuance pursuant to the Company's stock option plan.
COMMON STOCK
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
fully paid and non-assessable.
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
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without 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 defeat a proposed take-over 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.
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 April 21, 1997, the Company
had 5,400,000 shares of the 5% Preferred Stock outstanding held of record by 51
entities, and had agreed to grant a warrant to purchase an additional 486,000
shares at $25.00 per share.
Dividends. Each share of the 5% Preferred Stock is entitled to receive
dividends at the rate of $1.25 per annum, payable semi-annually on April 15 and
October 15 of each year, in preference to any payment made on any other shares
of capital stock of the Company. Any dividend payable on the 5% Preferred Stock
may be paid, at the option of the Company, either (i) in cash or (ii) by adding
the amount of such dividend to the Liquidation Preference (as defined below).
Each share of the 5% Preferred Stock is also entitled to a liquidation
preference of $25 per share, plus all accrued but unpaid dividends (the
"Liquidation Preference"), in preference to any other class or series of capital
stock of the Company. Other than the consent rights described below with respect
to certain corporate actions, and except as otherwise provided by applicable
law, holders of the 5% Preferred Stock have no voting rights.
Conversion. The 5% Preferred Stock is convertible into shares of Common
Stock at any time, provided that the Company is not obligated to honor any
request for conversion of the 5% Preferred Stock at any time certain
governmental approvals of the issuance of the Common Stock upon such conversion
have not been obtained. If such approvals (other than with respect to a holder
or group of holders holding more than 50% of the voting securities of the
Company) are not obtained by 360 days after the First Closing date, the Company
shall, at the request of any holder, repurchase the shares of the 5% Preferred
Stock held by such holder at a purchase price per share equal to the sum of the
Liquidation Preference plus any other cash payments due to such holder ("Cash
Payments"), divided by 72.125% (the "Maximum Price"). The number of shares of
Common Stock issuable upon conversion of the shares of the 5% Preferred Stock
will 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 the Applicable Percentage. At any date after November 15, 1997,
the Conversion Price is determined in accordance with a formula based on market
prices of the Common Stock between October 15, 1997 and November 15, 1997,
market prices of the Common Stock during the three consecutive trading days
immediately preceding the date of conversion or actual prices at which the
converting holder sold the Common Stock, in any case multiplied by 72.125%. The
Applicable Percentage is as follows:
<TABLE>
<CAPTION>
Conversion after the
Following Date Applicable Percentage
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<S> <C>
4/15/97 14.375%
5/15/97 18.125%
6/15/97 19.875%
7/15/97 21.625%
8/15/97 23.250%
9/15/97 24.875%
10/15/97 25.000%
11/15/97 27.875%
</TABLE>
The 5% Preferred Stock is at all times subject to adjustment for customary
anti-dilution events such as stock splits, stock dividends, reorganizations and
certain mergers affecting the Common Stock. Three years or more after the date
of
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original issuance of the 5% Preferred Stock, the Company may require the
holders of the 5% Preferred Stock to convert such shares into Common Stock at
the then applicable Conversion Price and all Cash Payments due on a date
specified in the notice of forced conversion. However, the conversion shall not
occur if the Company has commenced bankruptcy proceedings, ceased operations or
shall be in default for money borrowed in excess of $50 million.
Required Redemption. The Company must also reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the 5% Preferred Stock, at least such
number of its Common Stock that is the greater of (i) 10 million shares and (ii)
1.5 times the number as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the 5% Preferred Stock. The Company has
agreed to take such corporate action necessary to increase its number of
authorized shares of Common Stock to at least 100 million shares on or before
the 90th calendar day after the First Closing. If the Company does not have
sufficient shares of Common Stock reserved to effect such conversion and fails
to take such corporate action necessary to authorize or reserve sufficient
shares of Common Stock, then at any time at the request of any holder of shares
of the 5% Preferred Stock, the Company shall purchase from such holder the
number of shares of the 5% Preferred Stock equal to such holder's pro-rata share
of the number of shares of the 5% Preferred Stock that would not be able to be
converted due to an insufficient number of shares of Common Stock reserved for
such purpose at the Maximum Price. In addition, if prior to the earlier of April
21, 1998 or the closing of a Qualifying Offering (as defined below), the FCC
awards more than two licenses permitting the licensee to provide satellite
digital audio radio services and more than two licensees commence or announce an
intention to commence satellite digital audio radio services, then upon the
request of the holders of more than one-third of the outstanding shares of the
5% Preferred Stock, the Company shall purchase one-half of the shares of the 5%
Preferred Stock held by each requesting shareholder at a purchase price per
share equal to the sum of the Liquidation Preference plus any Cash Payments
divided by 1 minus the Applicable Percentage. If a reorganization occurs, each
holder of the 5% Preferred Stock may require the Company to redeem the 5%
Preferred Stock at the Maximum Price. A Reorganization is defined as any
reorganization or any reclassification of the Common Stock or other capital
stock of the Company or any consolidation or merger of the Company with or into
any other corporation or corporations or a sale of all or substantially all of
the assets of the Company. If the holder chooses not to require the Company to
redeem such holder's shares, the shares will be convertible into the number of
shares or other property to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of 5% Preferred Stock not so
redeemed would have been entitled upon the reorganization.
Redemption. The 5% Preferred Stock may be redeemed in whole but not in
part at the Maximum Price by the Company at any time beginning on the date that
is 10 months after the date of original issuance of the 5% Preferred Stock, plus
one day for each day during which (x) a registration statement has not been
declared effective with respect to the Common Stock issuable upon conversion of
the 5% Preferred Stock by the 90th calendar day after the original issuance of
the 5% Preferred Stock or (y) any such registration statement is suspended or
the related prospectus is not current, complete or otherwise usable. The Company
may not exercise its right of redemption unless (i) 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 shall equal or exceed $18 per
share (subject to adjustments) and (ii) the shares of Common Stock issuable upon
conversion of the 5% Preferred Stock are registered for resale by an effective
registration under the Securities Act of 1933, as amended. The Company also may
redeem the 5% Preferred Stock in whole but not in part at the Maximum Price if
the Company sells Common Stock for cash in an amount not less than $100 million
in a registered underwritten public offering prior to October 15, 1997
("Qualifying Offering").
Dilution of Common Stock. The exact number of shares issuable upon
conversion of all of the 5% Preferred Stock cannot currently be estimated but,
generally, such issuances of Common Stock will vary inversely with the market
price of the Common Stock. The holders of Common Stock ownership interest will
be materially diluted by conversion of the 5% Preferred Stock, which dilution
will depend on, among other things, the future market price of the Common Stock
and conversion elections made by holders of the 5% Preferred Stock. The terms of
the 5% Preferred Stock do not provide for any limit on the number of shares of
Common Stock which the Company may be required to issue in respect thereof.
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Cash Payments. The private placement agreement relating to the sale of
the 5% Preferred Stock specifies certain circumstances in which the Company must
make a cash payment to each holder of the 5% Preferred Stock (or underlying
securities issued or issuable upon conversion of the 5% Preferred Stock). The
Company must make a cash payment equal to 3% of the Liquidation Preference per
month to each holder if the Company fails: (i) within 90 days of the date of the
First Closing to increase the number of authorized shares of Common Stock to at
least 100 million shares; (ii) within 90 days of the date of the First Closing
to file and cause to be declared effective a registration statement under the
Securities Act of 1933 with respect to the resale of Common Stock issuable upon
conversion of the 5% Preferred Stock; (iii) within 90 days of the date of the
First Closing to obtain any governmental approvals necessary for the conversion
of the 5% Preferred Stock; (iv) to honor any request for conversion of the 5%
Preferred Stock except as permitted by the terms and conditions of the 5%
Preferred Stock; or (v) to maintain the listing of the Common Stock on Nasdaq,
the New York Stock Exchange or the American Stock Exchange. A similar cash
payment must be made if, after effecting a registration statement with respect
to the resale of Common Stock issuable upon conversion of the 5% Preferred
Stock, the use of the prospectus is suspended for more than 60 cumulative days
in the aggregate in any twelve month period. In addition, if the Company fails
at any time to reserve a sufficient number of shares of Common Stock for
issuance upon conversion of the 5% Preferred Stock, it must make a cash payment
equal to 3% of the Liquidation Preference (proportionately reduced by the amount
of shares that are so authorized and reserved) per month to the holders of the
5% Preferred Stock. The private placement agreement also provides that prior to
the completion of a Qualifying Offering, the Company may not undertake to
conduct any debt or equity financing that is not pari passu or junior to the 5%
Preferred Stock in seniority, structure and maturity.
Consent of the holders of a majority of the 5% Preferred Stock is
required before the Company may take certain corporate actions or pay dividends
on Common Stock and certain other corporate actions taken in connection with a
partial repurchase of 5% Preferred Stock require the consent of all holders of
5% Preferred Stock.
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 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 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
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favorable to the interests of stockholders. The Company's stockholders, by
adopting an amendment to the Certificate, may elect not to be governed by
Section 203 effective 12 months after such adoption. Neither the Certificate nor
the Bylaws exclude the Company from the restrictions imposed by Section 203.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock and the 5%
Preferred Stock is Continental Stock Transfer Company, New York, New York,
10004.
In connection with the private placement, the Company paid $10,125,000
in fees to its placement agent, Libra Investments, Inc. ("Libra"), and $2.7
million to Batchelder & Partners, Inc., a financial advisory firm. In addition,
the Company agreed to grant a warrant to Libra to purchase 486,000 shares of the
5% Preferred Stock with an exercise price of $25.00 per share. As a result of
the private placement, options to purchase 200,000 shares of Common Stock held
by Batchelder & Partners, Inc. vest and become exercisable for three years with
an exercise price of $6.25.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CD RADIO INC.
Date: May 2, 1997 By /s/ DAVID MARGOLESE
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David Margolese
Chairman of the Board and Chief Executive
Officer
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