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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-24710
CD RADIO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 52-1700207
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
SIXTH FLOOR, 1001 22ND STREET, N.W. WASHINGTON, 20037
D.C.
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (202) 296-6192
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the Registrant's Common Stock held by
non-affiliate as of March 12, 1997 was approximately $39,867,376. The number of
shares of the Registrant's Common Stock outstanding as of March 12, 1997, was
10,300,391.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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P A R T I
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. For example, the Company's service, CD Radio, is
in the planning and development stage and the descriptions set forth herein as
to how the Company plans to implement, market and operate the service are
forward-looking statements, and are subject to change based on future
developments, the Company's experience, and involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or developments in the Company's industry, to
differ materially from the anticipated results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to: risk of not receiving an FCC License in the scheduled
auction; potential risk of delay; increased costs of construction and launch of
necessary satellites; dependence on satellite construction and launch
contractors; risk of launch failure; unproven market acceptance of the Company's
services; the continuing losses of the Company; reliance on unproven technology;
need for substantial additional financing and other risks and uncertainties
described under "Business -- Risk Factors" in Part I of this Annual Report on
Form 10-K. Certain of the forward-looking statements contained in this Annual
Report are identified with cross references to this section and/or to specific
risks identified under "Business -- Risk Factors."
ITEM 1. BUSINESS
The Company is a pioneer in the emerging satellite-to-car broadcasting
industry ("satellite radio"). The Company is engaged in the development of a
subscription based satellite radio system for the nationwide broadcast of 30
channels of commercial-free, compact disc quality music programming and up to 20
channels of all-news, all-sports, and all-talk programming. The Company's
primary market is expected to be operators of cars and trucks throughout the
continental United States. Government statistics indicate that there will be
approximately 192 million registered vehicles in the United States in 1999,
rising to approximately 200 million vehicles by 2004. The Company plans to
broadcast its service, to be called CD Radio, via its own custom designed and
built satellite system utilizing technology developed by the Company.
CD Radio is designed to offer:
(i) A programming selection of finely focused formats. In most markets
radio broadcasters target their programming at broad audience segments, and
even in the largest metropolitan markets, station formats are limited.
(ii) Widespread signal coverage throughout the continental United
States. Terrestrial radio signal availability, in contrast, is generally
limited to distances of approximately 30 miles before fading and loss
occur.
(iii) Commercial-free music programming. Almost all radio stations are
advertiser supported and contain significant amounts of commercial
interruptions to programming.
(iv) CD quality stereo audio.
Upon commencing CD Radio service, the Company anticipates that it will
offer CD Radio to subscribers for a monthly subscription fee of $10 or less,
which would entitle the subscriber to receive all channels.
CD Radio is designed to be broadcast via satellites over a new radio band,
the S-band, which will augment the traditional AM/FM radio bands. In order to
receive CD Radio, subscribers will need satellite band radios which are not
currently commercially available. The Company anticipates that satellite radios
will be manufactured by existing manufacturers of consumer electronics and
automakers, and when manufactured in quantity will be somewhat more expensive
than today's car radios. See "Forward-Looking Statements." The Company expects
that satellite car radios will be similar in size and appearance to today's
AM/FM car radios, and will include the AM/FM bands, as well as the satellite
band. In addition, the Company expects these radios to include a digital display
capable of showing the CD Radio channel number, music format, song
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title, recording artist and album title. See "Forward-Looking Statements." Each
satellite radio will require a satellite dish antenna in order to receive the
satellite signal. The Company has developed what it believes is the world's
smallest satellite dish, which measures approximately 1/8 inch thick and 2
inches in diameter (approximately the size and shape of a silver dollar) and can
fit unobtrusively in a variety of locations on a vehicle. Although the Company
does not intend to manufacture or distribute satellite radios or dish antennas,
it intends to foster their development by communicating to such manufacturers
the specifications needed for the reception of CD Radio.
In order to provide CD Radio, the Company will need to build and launch
into geosynchronous orbit two fully dedicated satellites designed to operate at
special frequencies. The Company has entered into an agreement with Space
Systems/Loral, pursuant to which Space Systems/Loral has agreed to construct the
two satellites and, at the Company's option, a third spare satellite. The
Company has reserved launches with Arianespace for its two satellites during the
period extending from November 1, 1999 through April 30, 2000.
The Company has applied to the FCC for a license (the "FCC License") to
permit it to build, launch and operate its satellites to provide a satellite
radio service. The period for filing such applications expired in December 1992
and the Company is one of four remaining applicants. The FCC is scheduled to
auction two satellite radio licenses among the four applicants on April 1, 1997.
There can be no assurance that the Company will be a winning bidder in the
auction.
Since its formation in 1990, the Company has concentrated its activities on
pursuit of necessary regulatory approvals, strategic planning, technology
development and market research. The Company plans to continue these activities
and to work cooperatively with consumer electronics manufacturers and automakers
in order to foster the development of satellite radios. Once the Company obtains
its FCC License, it intends to begin construction of its satellites and
currently has targeted the second half of 1999 for launch of its two satellites
and commencement of operations. The Company's ability to meet that objective
will depend on several factors, including the timely receipt of necessary
governmental approvals, the successful financing, construction and launch into
orbit of two geosynchronous satellites, the rapid creation of an organization
and management of growth. See "Forward-Looking Statements."
THE RADIO MARKET
The potential market for CD Radio includes the owners of approximately 192
million motor vehicles expected to be registered in the United States in 1999,
rising to approximately 200 million vehicles by 2004. Other potential markets
include owners of portable, walkman, and home radios.
Broadcasting industry sources indicate that American adults listen to an
average of three hours of radio per day. In addition, such sources estimate that
automobile commuters spend 97% of their drivetime listening to the radio.
Music programming dominates the radio airwaves, with FM radio stations
exceeding AM stations in listenership. According to broadcasting industry
sources, in 1996, approximately 79% of total radio listening was to FM stations.
FM stations primarily concentrate on music programming, while AM stations have
an increased proportion of their programming devoted to talk and news.
CD Radio will be available in automobiles only to persons who install
satellite radios in their vehicles or purchase automobiles with factory
installed satellite radios. Accordingly, to assess potential initial demand for
CD Radio, the Company has examined data concerning consumer purchases of
aftermarket and new car autosound equipment and the commitment of consumers to
receiving high quality audio entertainment in their vehicles. According to
industry sources, U.S. consumers spend approximately $2.3 billion on aftermarket
autosound equipment for installation in their vehicles annually, which includes
approximately 5 million AM/FM radios. Additionally, automotive industry sources
report that over 14 million new cars and light trucks were sold in the United
States in 1996, almost all of which contained radios.
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THE CD RADIO SERVICE
The Company intends to offer 30 channels of commercial-free, all-music
programming and up to 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 specific format, intended to cater
to a finely segmented subscriber taste. It is anticipated that upon commencement
of CD Radio the monthly subscription fee for the receipt of all CD Radio
channels will be $10 or less.
CD Radio will offer (i) multichannel "narrowcast" programming formats; (ii)
widespread signal coverage; (iii) commercial-free music programming; and (iv)
compact disc quality stereo audio.
In most markets, radio broadcasters target their programming at broad
audience segments. The Company's multichannel narrowcast programming is designed
to provide focused formats generally available only in major metropolitan areas,
and in many cases, unavailable even in these areas.
Regardless of area, terrestrial radio reception is limited to short
distances of approximately 30 miles, after which reception fades and is lost.
Additionally, terrestrial radio reception is subject to a fluctuating, broad
range of quality.
The Company's preliminary market research indicates that the principal
complaint of commuters interviewed about radio is commercials. When in the car,
many listeners attempt to avoid commercial interruptions by switching stations
at the outset of a string of commercials. The amount of radio advertising varies
with the time of day, station format and market size, but a broadcasting
industry source indicates that, on average, every hour of music programming
during morning and evening commutes is interrupted by 10 to 12 minutes of
commercials.
While terrestrial radio stations currently do not broadcast compact disc
quality stereo sound, the Company believes that FM radio stations may be in a
position to do so before the time the Company's service becomes operational.
Consumers would be unable to receive these new broadcasts on existing radios and
would require new digital radios to do so. The Company does not believe that
such a sound upgrade to digital broadcasting would affect conventional
broadcasters' ability to address the other advantages of CD Radio.
Programming will be managed by the Company's staff, with guidance from
continuous market research. The Company intends to recruit program managers from
the recording, broadcasting and entertainment industries to manage the
development of daily programming for each channel. Music programming will be
produced from the Company's music library and will be sourced from compact
discs. It is contemplated that this music library will consist of an extremely
broad range of recorded music, and will be updated as new recordings are
released. See "Forward-Looking Statements" and "Risk Factors -- Music Royalty
Payments."
The Company believes that CD Radio represents an opportunity for the
recording industry to expose, research, 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's intends to work
with the recording industry and performing artists to develop programming of
mutual benefit.
The Company believes that compact discs and cassettes 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.
Compact discs and cassettes lack the convenience of radio, as well as the
spontaneity and freshness that characterizes radio programming. According to
Arbitron, commuters spend 97% of their drivetime listening to radio.
Accordingly, the Company does not view its service as directly competitive with
these media.
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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 narrowcast programming might be marketed. The Company intends to vary
channel formats from time-to-time to reflect changing subscriber tastes.
1. Symphonic
Music from the masters, Bach, Mozart and Handel. The world's greatest
classical composers broadcast in brilliant CD fidelity.
2. Chamber Music
Elegant music performed by small ensembles of solo instruments such as the
cello, violin and woodwind.
3. Opera
Experience the drama and speqctacle of the greats. Verdi, Puccini and
Wagner.
4. Today's Country
The down home sounds of today's country stars including Vince Gill, Alan
Jackson, Wynonna Judd and Garth Brooks.
5. Traditional Country
All of your favorite country & western legends are here. Stars like George
Strait, Loretta Lynn, Hank Williams, Jr. and George Jones.
6. Contemporary Jazz
The syncopated rhythms of today's jazz music. The cool sounds of Kenny G,
The Yellowjackets and David Sanborn.
7. Classical Jazz
Listen as musicians like Duke Ellington, Miles Davis and John Coltrane
experiment and expand the sounds of jazz.
8. Blues
The foundation of rock. B.B. King, Muddy Waters and Robert Cray.
9. Big Band/Swing
Relive the memories with the sounds of Tommy Dorsey, Glenn Miller and Artie
Shaw.
10. Top of the Charts
Today's hits from recording artists such as Whitney Houston, Mariah Carey
and Boyz II Men.
11. Classic Rock
The greatest hits from the 60's and 70's -- an entire generation of great
rock music. The Who, Rolling Stones and Eric Clapton.
12. 50's Oldies
Tune in and experience the 50's all over again with Chuck Berry, Little
Richard and Elvis Presley.
13. 60's Oldies
The great pop sounds of Motown, the British Invasion and Surfer Rock.
14. Folk Rock
Thoughtful, inspired melodies from performers like Joni Mitchell, James
Taylor and Joan Baez.
15. Latin Ballads
The romantic sounds of Latino vocalists. Julio Iglesias, Nino Bravo and
Roberto Carlos.
16. Latin Rhythms
Move to the music of Latino superstars such as Sergio Mendes, Juan Luis
Guerra and the legendary Tito Puente.
17. Reggae
Pulsating rhythm from the musically prolific island of Jamaica, from the
Skatelites through Bob Marley and Shabba Ranks.
18. Hip-Hop & Rap
The forefront of contemporary music. RUN-DMC, Cypress Hill and Dr. Dre.
19. Dance
Music by today's hottest artists, including Madonna, Janet Jackson and
George Michael.
20. Songs of Love
Romantic ballads and music from some of the world's most popular artists.
21. Singers & Strings
Legends like Frank Sinatra, Barbra Streisand and Nat King Cole.
22. Beautiful Instruments
Memorable melodies of contemporary music orchestrated with a full, lush and
easy sound.
23. Heavy Metal
Driving, hard charging rock-and-roll by bands such as Guns N' Roses,
Metallica and Danzig.
24. Album Rock
The best songs from today's top rock artists. Pearl Jam, U2 and John
Mellencamp.
25. Alternative Rock
Modern rock from such diverse bands as the Red Hot Chili Peppers, Midnight
Oil and Smashing Pumpkins.
26. New Age
Soft and soothing acoustics. Enjoy the relaxing music of Yanni, Kitaro and
Brian Eno.
27. Broadway's Best
Hits from the Great White Way. 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
Songs and storytelling at their most magical. Disney classics and Sesame
Street.
30. World Beat
The Beat goes on . . all over the world. Follow the sun with the music of
Lucky Dube, Mahotella Queens and Outback.
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MARKETING STRATEGY
The Company plans to engage in extensive marketing, advertising and
promotional activities to increase consumer awareness of satellite radio and CD
Radio programming, to promote the sale of satellite radios and to generate
subscriptions to CD Radio.
The Company's market research program will assist the Company in refining
the design of its service, programming formats and content, and advertising and
promotional programs. Initial market research efforts will focus on further
defining the attitudes of different categories of consumers toward the various
attributes of CD Radio.
The Company plans to work closely with radio manufacturers, radio
retailers, and automakers to market CD Radio. Upon satellite launch, the Company
intends to commence a nationwide media campaign to advertise and promote CD
Radio and to implement a cooperative media campaign with satellite radio
manufacturers.
Some of the Company's promotional plans include: (i) extensive use of radio
commercial advertising; (ii) print advertisements; (iii) outdoor billboards;
(iv) cooperative radio and print advertising; (v) CD Radio service in rental
cars equipped with satellite radios; (vi) tie-ins with the recording industry
targeting compact disc purchasers of niche music categories; (vii) demonstration
kiosks in retail locations; and (viii) training programs and sales literature
developed for retail personnel. See "Forward-Looking Statements" and "Risk
Factors -- Unavailability of Satellite Radios."
As was the case with cellular telephone service in its early years, the
Company believes that satellite radio service will be symbolized by its antenna.
The Company believes that the proliferation of satellite radio dishes on cars
will create a significant amount of consumer awareness of satellite radio.
THE CD RADIO DELIVERY SYSTEM
The Company has designed the CD Radio delivery system to transmit an
identical signal from two satellites to address the problem of signal blockage
caused by variations in terrain, buildings and other obstructions. The system is
designed to permit CD Radio to be received by motorists in nearly all outdoor
locations where the vehicle is on an unobstructed line-of-sight with one or both
of the Company's satellites. In certain areas with high concentrations of tall
buildings such as Manhattan, or in tunnels, signals from both satellites will be
blocked and reception will be adversely affected. In such cases, the Company may
implement terrestrial repeating transmitters. See "Risk Factors -- Reliance on
Unproven Technology."
The CD Radio delivery system will consist of three principal components:
(i) satellite radios; (ii) the satellites; and (iii) the national broadcast
studio.
SATELLITE RADIOS
In order to receive CD Radio, subscribers will need to obtain a new
generation of radios capable of receiving the satellite band. The Company
anticipates that these radios will initially be manufactured by existing radio
manufacturers and sold by consumer electronics outlets for automotive
aftermarket installation and later will be manufactured and installed in new
cars and trucks by automakers. See "Forward-Looking Statements." Although the
Company will not manufacture or distribute satellite band radios or their dish
antennas, it intends to communicate the required specifications to such
manufacturers and automakers. The availability and pricing of satellite radios
will be an important factor in determining the success of CD Radio. See "Risk
Factors -- Unavailability of Satellite Radios."
The Company anticipates that radios capable of receiving CD Radio will be
similar to conventional AM/FM radios in size and appearance, but will have the
added capability of receiving digital satellite transmissions as well as AM and
FM signals. In order to accommodate subscription satellite radio services, each
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
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satellite band operation. This feature will enable the Company to protect
against piracy of CD Radio and to discontinue the service to subscribers who are
delinquent in paying the monthly subscription fee. The Company expects that
these radios will include a digital display, which when tuned to the satellite
band, will indicate the channel and format the listener has selected, as well as
the title, recording artist and album title of the song being played. As is the
case currently, a number of these radios may also incorporate cassette or
compact disc players. See "Forward-Looking Statements."
Because less than 10% of the U.S. vehicle fleet turns over annually, the
Company expects aftermarket availability of satellite radios to be of prime
importance to the Company's market penetration for the first several years
following introduction of CD Radio. Representatives of the Company have held
discussions with a number of major radio manufacturers that have expressed an
interest in participating with the Company in planning and evaluating the
Company's further market research. The Company will endeavor to synchronize the
development of satellite radios with the Company's business planning so that
satellite radios will be available at the time the Company commences operations.
Failure of manufacturers to develop and market satellite radios at affordable
prices, or to develop and market such radios in advance of the date the Company
proposes to commence CD Radio service, would have a materially adverse effect on
the Company's business. The Company intends to license radio manufacturers to
use CD Radio design technology in their radios.
The Company also plans to work with automakers to support the development
of factory installed satellite radios in new cars. Representatives of the
Company have held discussions with a number of major automakers that have
expressed an interest in participating with the Company in planning and
evaluating the Company's further market research.
Each satellite radio will require a satellite dish antenna in order to
receive the satellite signal. The Company has developed what it believes is the
world's smallest satellite dish. The dish is approximately the size and shape of
a silver dollar, measuring 2" in diameter and 1/8" thick. The Company's dish
design is "non-directional" -- it does not need to be pointed directly at a
satellite in order to receive a satellite signal. All that is required is that
the dish be positioned upward on an unobstructed line-of-sight with the
Company's satellites. In the case of factory installed satellite radios in new
cars, the Company believes the dish can be integrated into the roof panel.
For aftermarket installations, the dish can be attached to a vehicle's rear
window in the same manner as a cellular antenna. In the event that a subscriber
already has a cellular antenna on the rear window of a car, the cellular antenna
could be unscrewed and the dish screwed on in its place. The dish then would
serve as both a cellular and satellite radio antenna so that only the dish on
the car is needed.
THE SATELLITES
The satellites to be used in the CD Radio system are scheduled to be built
by Space Systems/Loral, one of the largest satellite manufacturers in the world.
Although the satellites will be equipped with custom designed communications
equipment, the Company believes that the construction and development of its
satellites does not require the development of new technology.
Satellite control will be performed from the Company's national broadcast
studio. Uplink frequencies are currently planned to be located in X-band.
Downlink frequencies are planned to be in S-band. Each satellite will broadcast
a signal covering the entire continental United States from a single antenna in
a single beam. The expected life of each satellite is approximately 15 years.
Satellite Construction. The Company has entered into an agreement (the
"Construction Contract") with Space Systems/Loral pursuant to which Space
Systems/Loral has agreed to construct two satellites and, at the Company's
option, a third satellite in accordance with stipulated specifications.
Amendments to the Construction Contract are necessary to reflect technical
changes and other developments since the contract was originally entered into in
1993. The Company has extended the Construction Contract on a monthly basis
through April 30, 1997 while it negotiates with Space Systems/Loral to amend the
contract's technical specifications, pricing and delivery terms. The Company may
negotiate with Space Systems/Loral to extend
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the Construction Contract further or it may permit the contract to expire. The
Company believes it will be able to negotiate a favorable contract with Space
Systems/Loral for the construction of the satellites, although there can be no
assurance that the Company will be able to do so.
Under the Construction Contract, Space Systems/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 each satellite is to
pass to the Company at the time of launch. The Company has agreed to indemnify
Space Systems/Loral for all costs and losses resulting from claims based upon
Space System/Loral's alleged responsibility or liability for loss of, or damage
to, the satellites occurring after launch, regardless of the cause. In the event
of any delay in the construction of the satellites that is caused by the
Company, the Construction Contract provides that the terms of the contract will
be equitably adjusted.
Upon delivery of the satellites to the launch site, Space Systems/Loral is
required to perform inspection and verification testing to insure that no damage
occurred in shipment. After such inspection and testing, the Company will
provide final acceptance of the satellites. Following their launch, Space
Systems/Loral will conduct in-orbit checks of both satellites. In the event that
such testing shows that a satellite is operating less than satisfactorily, Space
Systems/Loral and the Company will negotiate a reasonable reduction in the
amount paid by the Company. See "Forward-Looking Statements."
Launch Services. The Company has reserved two launch slots with
Arianespace during the period extending from November 1, 1999 through April 30,
2000. If the Company's satellites are not available for launch during this
period, the Company will arrange to launch the satellites on the first launch
dates available after the satellites are completed. See "Forward-Looking
Statements." While the Company has been able to reschedule launch dates with
Arianespace in the past, there can be no assurance that it will be able to do so
in the future. In order to maintain its launch slots, the Company will need to
enter into a definitive agreement with Arianespace by May 31, 1997, providing
for the launch of its satellites. The final terms and conditions of any launch
agreement are subject to negotiations between the Company and Arianespace.
Satellite launches are subject to significant risks, including satellite
destruction or damage during launch or failure to achieve proper orbital
placement. According to industry sources, approximately 15% of insured
commercial satellite launches by all launch contractors since 1965 have resulted
in total loss. Launch failure rates vary from period to period and from
contractor to contractor. Arianespace is one of the world's leading commercial
satellite launch service companies. Arianespace has advised the Company that as
of March 18, 1997 it has successfully completed 81 of 86 launches (approximately
94%), since beginning commercial operations in 1984. See "Risk
Factors -- Dependence upon Satellites and Contractors; Risk of Launch Failure."
Risk Management and Insurance. Two custom-designed, fully dedicated
satellites are required to broadcast CD Radio. A single satellite is incapable
of delivering the service. 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 Company intends to obtain launch insurance for each launch vehicle from its
launch vehicle provider. The Construction Contract provides for the construction
of a spare satellite, to be used in the event of loss of one of its two
operational satellites. 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 and Contractors; Risk of Launch Failure."
Once properly deployed and operational, the historical risk of premature
total satellite failure has been less than one percent for U.S. geosynchronous
commercial satellites. Insurance against in-orbit failure is presently available
and is typically purchased after the satellite is checked out 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.
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
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multiple component failures occur as the satellite ages, and the supply of
redundant components is exhausted, the satellite generally will continue to
operate at reduced capacity. In that event, signal quality may be preserved by
reducing the number of channels broadcast until a replacement satellite could be
launched.
NATIONAL BROADCAST STUDIO
The Company intends to establish its national broadcast studio to provide
origination and transmission of programming; transmission of commands to
activate/deactivate service of subscriber radios; and tracking, telemetry, and
control of the in-orbit satellites. The facility will incorporate redundant
electronics and backup power generators.
TESTS AND DEMONSTRATIONS
The Company conducted a series of tests and demonstrations from May through
December 1994, involving the transmission of S-band signals to a prototype
satellite radio installed in a car to simulate certain transmission techniques
the Company intends to employ. Since there are currently no commercial
satellites in orbit capable of transmitting S-band frequencies to the United
States, the Company constructed a terrestrial emulation of its planned system.
For this purpose, the Company selected a test range covering several kilometers
in suburban 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 satellite transmissions to be used for its proposed service. The Company also
modified the standard factory installed sound system of a Lincoln Mark VIII
automobile to create a three-band radio covering AM, FM and S-band, and
integrated the Company's satellite dish into the car roof. The demonstrations
included the reception of 30 channels of CD quality stereo music by the
prototype radio while the car was driven throughout the range. The Company
believes that the results of these tests validated the technically significant
portions of the CD Radio system. Prior to testing with orbiting satellites and
satellite radios suitable for commercial production, however, there can be no
assurance that the CD Radio system will function as intended. See "Risk
Factors -- Reliance on Unproven Technology."
COMPETITION
The Company's satellite radio service will face competition from two
principal sources: (i) terrestrial AM/FM radio broadcasting, including, when
available, terrestrial digital radio broadcasting; and (ii) another satellite
radio broadcaster.
The AM/FM radio broadcasting industry is very competitive, and certain of
the Company's competitors in this industry 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" reception paid for by commercial advertising rather than 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, which the Company will be unable to offer. CD Radio will
compete with conventional radio stations on the basis of the variety and focus
of its programming, its commercial-free formats, signal coverage throughout the
continental United States, and digital CD stereo sound quality.
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, broadcasters may be in a position to implement
technology that permits simultaneous transmission of both analog and digital
signals on the AM and FM bands that will permit digital AM broadcasts to achieve
monaural FM sound quality, and digital FM broadcasts to approach compact disc
stereo sound quality. See "Forward-Looking Statements." In order to receive
these digital AM/FM broadcasts, listeners would need to purchase new digital
radios which are not currently commercially available. As a result, 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
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digital broadcasting as a positive force that would be likely to accelerate
radio replacement and thereby facilitate the proliferation of satellite radios.
Existing communications satellite operators are not capable of delivering
satellite radio for reception on tiny, non-directional automobile dishes.
Specially designed satellites operating at different frequencies are needed.
The Company expects to compete directly with one other satellite radio
broadcaster. Four applicants, including the Company, have applied for two FCC
licenses to operate a national satellite radio service. See
"Business -- Government Regulation." At least one of the applicants, a
subsidiary of American Mobile Satellite Corporation, which is principally owned
by the Hughes division of General Motors, has financial, management and
technical resources that greatly exceed those of the Company. In their license
applications to the FCC, two of the other applicants have stated an intention to
offer a satellite radio service based, at least in part, on subscription fees
and the remaining applicant intends to offer an advertiser supported "free"
service. The Company believes that at present its technical and business
planning is further advanced than the other applicants. There can be no
assurance, however, that this will permit the Company to initiate a satellite
radio service in advance of its competition. See "Risk Factors -- Competition."
The original satellite radio spectrum allocation internationally agreed
upon by the United States and other nations would have accommodated four
satellite radio licenses in the United States. The FCC subsequently allocated
only half of this spectrum specifically for satellite radio, thereby
accommodating only two licenses. The other half of the allocation is scheduled
to be auctioned on April 15, 1997 and may be used to provide a broad range of
services, including but not limited to satellite radio. The Company believes
this spectrum is unlikely to be used for satellite radio, although no assurance
can be made that this will be the case.
TECHNOLOGY, PATENTS AND TRADEMARKS
The Company has been granted certain U.S. patents on various types of
satellite radio technology. There can be no assurance, however, that any U.S.
patent issued to the Company 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. There can be
no assurance that foreign patents will be awarded by all of such countries to
the Company or, if any such patents are granted, that the laws of foreign
countries 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 Chief Technical Officer, and 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 to determine the scope of the proprietary rights of
others. Any such litigation could result in substantial cost to, and diversion
of effort by,
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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.
In May 1994, the Company received a letter claiming that the Company's logo
is confusingly similar to the registered trademark of a company engaged in the
sale of pre-recorded music, and that the Company's continued use of its logo may
constitute infringement of such mark. See "Business -- Legal Proceedings."
GOVERNMENT REGULATION
Communications Laws
As a proposed operator of a privately owned satellite system, the Company
is subject to the regulatory authority of the FCC under the Communications Act
of 1934 (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
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 the FCC License. This application was opposed by
the National Association of Broadcasters, an industry trade group that seeks to
promote the interests of the television and AM/FM broadcast industries.
In the fall of 1992, the FCC called for license applications from any
parties other than the Company who might be interested in being licensed to
provide a satellite radio service. The cutoff date for these applications was
December 15, 1992. Five other applicants filed applications by that deadline,
two of which have subsequently been withdrawn, leaving the Company and three
other applicants. Petitions have been filed on behalf of third parties to deny
the applications filed by the Company and the three other applicants.
On March 3, 1997, the FCC adopted satellite radio licensing rules (the
"Licensing Rules") and implemented a spectrum plan that will accommodate only
two national satellite radio licenses, both of which are scheduled to be
auctioned among the Company and the other three applicants on April 1, 1997.
There can be no assurance that the Company will be successful in obtaining one
of the two licenses or that the cost of obtaining it would not be material to
the Company's operations. See "Risk Factors -- Government Regulation; No
Assurance of FCC License."
Pursuant to the Licensing Rules, the auction is scheduled to be held among
the four existing applicants on April 1, 1997. Prior to the commencement of the
auction each applicant must deposit $3 million with the FCC. The minimum opening
bid for each FCC License is $8 million. The bidding will continue until only two
bidders remain. Within 10 business days following the announcement of winning
bidders, each auction winner must deposit with the FCC twenty percent of its
winning bid. The $3 million initial deposit will be applied toward the twenty
percent down payment. The winning bidders will also be required to supplement
their applications on file with the FCC within 30 days after the close of
bidding. After the FCC has confirmed receipt of each winning bidder's twenty
percent payment and acceptance of each winning bidder's application, the FCC
will accept petitions to deny the winning bidders' applications. There can be no
assurance that the FCC will dismiss these and previously filed petitions. If the
FCC dismisses these petitions and previously filed petitions, the winning
bidders will have 10 business days to submit payment of the balance of their
winning bids.
Pursuant to the Licensing Rules, the winning bidder that receives an FCC
License will be required to meet certain progress milestones. Licensees would be
required to begin satellite construction within one year; to launch and begin
operating their first satellite within four years; and to begin operating their
entire system within six years. Failure to meet those milestones could result in
revocation of the FCC License. On March 27, 1997, a third party requested
reconsideration of the Licensing Rules, seeking, among other things, that the
time period allotted for these milestones be shortened.
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On July 30, 1991, the Company filed a request for a Pioneer's Preference
and on January 23, 1992 and June 2, 1993, filed supplements to that request. A
Pioneer's Preference would have given the Company an exclusive right to an FCC
License without having to bid in an auction, although the Company would still
have had to pay for its license. In November 1996, an FCC appointed panel
recommended that no Pioneer's Preference be granted. The Company subsequently
withdrew its application for a Pioneer's Preference.
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 any difficulty in obtaining international registration, or renewing
or extending such registrations. See "Forward-Looking Statements." However,
there can be no assurance 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 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 Licensing Rules require that
the licensees complete detailed frequency coordination with existing operations
in Canada and Mexico. There can be no assurance that the United States, Canadian
and Mexican governments can coordinate the use of this spectrum or will 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 at
this time, if the Company obtains the FCC License, the Company would not expect
difficulties in obtaining a feeder link frequency and ground station approval in
the ordinary course.
The issuance by the Company of the Common Stock pursuant to the Company's
initial public offering, considered together with other transactions in the
stock of the Company since the cutoff date established by the FCC for satellite
radio service applications, could have resulted in the ownership of 50 percent
or more of the voting stock of the Company by parties who were not stockholders
on the cutoff date. Consequently, such stock issuance may have required the
filing of a "major amendment" to the Company's license application. As a result,
the Company requested and obtained from the FCC an exemption from the previously
established cutoff date, in order to avoid the assignment of a new file number
and the consequent loss of entitlement to processing concurrently with the other
three remaining applications that were filed on or before the cutoff date
("cut-off protection"). On June 8, 1994, the FCC released an order granting the
requested exemption conditioned on the current stockholders and officers of the
Company remaining in actual control of Satellite CD Radio, Inc. Additional
equity financings and sales of common stock by persons who were shareholders on
the cutoff date could require the Company to obtain an exemption from the FCC to
permit the Company's license application to be processed concurrently with those
of the other three applicants. If such an exemption were required and not
granted, the Company's application would not be considered concurrently with
those of the other three remaining applicants and could be dismissed.
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 Licensing Rules, the licensees will be
permitted to choose whether they wish to be classified as broadcasters, common
carriers or private carriers. 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. Further,
as a private carrier, the Company would be free to set its own prices and serve
customers according to its own business judgment, without economic regulation.
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 obtain its FCC License or
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the manner in which its 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 presently 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 December 31, 1996, the Company had three employees, of whom one was
involved in technology development, one in business development and one in
administration. In addition, the Company relies upon a number of consultants and
other advisors. After receipt of the FCC License, the Company expects to
increase the number of its employees to approximately twenty-five, of whom nine
are expected to be involved in technical development, ten in business
development and six in administration. See "Forward-Looking Statements." 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 are represented by a labor union, and the Company
believes that its relationship with its employees is good.
FINANCIAL CONSULTANTS
Pursuant to an agreement dated October 21, 1992 (the "Agreement"), the
Company retained the services of Batchelder & Partners, Inc., a financial
advisory firm ("Batchelder"), to provide certain financial consulting services
to the Company. The Agreement provides, among other things, for the payment in
cash to Batchelder of (i) $25,000 per month during the term of the Agreement and
(ii) fees equal to (A) two percent (2%) of the gross proceeds from each equity
financing (other than equity financings to existing shareholders of the Company
on the date of the Agreement and certain equity financings before December 15,
1992) and (B) one percent (1%) of the gross proceeds from each debt financing,
during the term of the Agreement and for a period of two years following
termination of the Agreement by the Company. During the three-month period
ending December 31, 1994, Batchelder agreed to waive all financial consulting
fees payable under the Agreement. In addition, pursuant to the Agreement, the
Company has granted an option to Batchelder to purchase 260,000 shares of Common
Stock at a price of $6.25 per share as follows: 60,000 shares upon execution of
the Agreement and four 50,000 share increments upon the successful completion of
equity and/or debt financings of certain specified amounts during the term of
the Agreement and for a period of two years following termination of the
Agreement by the Company. Each option expires three years from the date such
option becomes exercisable. The option to purchase 60,000 shares granted to
Batchelder upon execution of the Agreement expired unexercised on October 21,
1995. The Agreement is terminable by either the Company or Batchelder upon
notice to the other party. Since inception of the Agreement, Batchelder has
earned $1,178,063 in consulting fees. Additionally, Batchelder has earned equity
financing fees of $149,400 in connection with private placements of 1,494,000
shares of Common Stock of the Company at an aggregate offering price of
$7,470,000, fees of $129,194 in connection with the Company's public offering of
units in 1994 and fees of $92,261 in 1996 in connection with the exercise of
warrants to purchase the Company's Common Stock. No additional options to
purchase shares of Common Stock became exercisable by Batchelder on the closing
of the Company Offering. Batchelder purchased 200,000 shares in the Company's
initial public offering at the initial public offering price.
The foregoing is a summary of the principal terms of the agreement
described above and does not purport to be complete. Reference is made to the
copies of such agreement, which is filed as an exhibit hereto.
RISK FACTORS
Prospective investors should consider carefully the following factors, as
well as all of the other information set forth herein, in evaluating an
investment in the Company's Common Stock.
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Development Stage Company; Continuing Losses
The Company's proposed service, CD Radio, is in its initial stage of
development. Since its inception, the Company's activities have been
concentrated on applying for necessary licenses, technology development,
strategic planning, and market research. The Company has incurred aggregate net
losses of approximately $18,535,860, from its inception on May 17, 1990 through
December 31, 1996, including net losses of approximately $2,830,595 or $0.29 per
share, during the year ended December 31, 1996. The Company anticipates that it
will not achieve any revenue from operations until the second half of 1999 at
the earliest, and that revenue from operations, if and when achieved, will not
be sufficient to cover operating expenses until the second half of 2000 at the
earliest. The ability of the Company to begin to achieve profitability will
depend upon a number of factors, including timely receipt of all necessary FCC
authorizations, successful and timely construction and deployment of its
satellite system, the development and manufacture of satellite radios by
consumer electronics manufacturers and the successful marketing of CD Radio.
There can be no assurance that any of the foregoing will be accomplished, that
CD Radio will be placed in operation, that the Company will attain a
satisfactory market share or that the Company will achieve profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Need for Substantial Additional Financing
The FCC has scheduled an auction among the four existing applicants to
auction two FCC Licenses on April 1, 1997. The Company believes it has
sufficient working capital to fund its planned operations through the receipt of
the FCC License. From the date the FCC License is received, approximately $500
million or more will be required to complete the construction and launch of the
Company's satellite system and to fund its first full year of operations,
assuming the FCC License is received in the first half of 1997. See "Forward-
Looking Statements." The amount does not include the amount to be paid by the
Company for the FCC License in the auction. Additional funds, however, would be
required in the event of delay, cost overruns, launch failure or other adverse
developments. The Company anticipates funding its projected cash requirements
through the completion of additional public or private equity and debt
financings. The Company does not have financing commitments in place sufficient
to fund the implementation of CD Radio service, 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. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Failure to secure 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
in operation, could cause the Company to default on its commitments to its
satellite construction or launch contractors or others, could render the Company
unable to put CD Radio in operation and could force the Company to discontinue
operations or seek a purchaser. See "-- Risk of Delay; Effect of Delay on
Financing Requirements." The issuance by the Company of additional equity
securities could cause substantial dilution of the existing stockholders'
interest in the Company.
Risk of Delay; Effect of Delay on Financing Requirements
The Company is currently targeting the second half of 1999 for the
commencement of CD Radio. The Company's ability to meet that objective will
depend on several factors, including receipt of the FCC License by the first
half of 1997. There can be no assurance as to whether or at what date the FCC
License will be received. A significant delay in the timely development,
construction, launch and commencement of operation of CD Radio could have a
material adverse effect on the Company. Delay could result from a variety of
causes, including delays associated with FCC authorizations, inability to obtain
necessary financing in a timely manner, delays in 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 satellite radios, failure of the Company's vendors to
perform as anticipated or a delayed or unsuccessful satellite launch. 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 that could materially increase the
aggregate amount of funding required to complete the
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preparations necessary to permit the Company to commence operating CD Radio.
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 competitors who succeed in beginning operations
earlier than the Company, or prevent the Company from putting CD Radio into
service.
Government Regulation; No Assurance of FCC License
The receipt of an FCC License to construct, launch and operate its
satellites is a prerequisite to the Company's ability to offer CD Radio. The
Company must bid in an auction for the FCC License and there is no assurance
that the Company will be successful in the auction or that the cost of the FCC
License will not be material.
Changes in ownership of the Company's stock since the cutoff date for
satellite radio license applications, including the sale of the shares of Common
Stock in the Company's initial public offering, required the Company to obtain
an exemption from the FCC to permit the Company's license application to be
processed concurrently with those of the other three applicants. The Company
applied for such an exemption on February 2, 1994, and the FCC released a ruling
granting the request on June 8, 1994, conditioned on the current stockholders
and officers of the Company remaining in actual control of Satellite CD Radio,
Inc. Additional equity financings and sales of common stock by persons who were
shareholders on the cutoff date could also result in further changes in
ownership of the Company's stock and could require the Company to obtain an
exemption from the FCC to permit the Company's license application to be
processed concurrently with those of the other three applicants. If such an
exemption were required and not granted, the Company's application would not be
considered concurrently with those of the other three remaining applicants and
could be dismissed.
In addition to its general authority over satellite operations, the FCC
regulates two types of satellite communications activities: common carriage and
broadcasting. Common carriers offer their customers the ability to transmit
messages of the customer's own choosing and are subject to economic regulation
and alien ownership rules. Broadcasters are not subject to economic regulation,
but are subject to certain content, reporting and alien ownership rules.
Pursuant to the Licensing Rules, the licensees will be permitted to choose
whether they wish to be classified as broadcasters, common carriers or private
carriers. As a private carrier, the current provisions of the Communications Act
restricting ownership in the Company by non-U.S. private citizens or
organizations would not apply to the Company, and the Company would not be
subject to economic regulation.
Changes in law, FCC regulations or international agreements relating to
communications policy generally or to matters relating specifically to the
services proposed by the Company could affect the Company's ability to obtain
its FCC License or the manner in which its proposed service would be regulated.
See "Business -- Government Regulation."
Proposed 5% Delayed Convertible Preferred Stock
The Company's Board of Directors has authorized the sale of 5% Delayed
Convertible Preferred Stock ("5% Preferred Stock") and the Company has received
commitments to purchase a substantial amount of 5% Preferred Stock, subject to
certain conditions, including conditions involving the results of the auction
for the FCC license. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The terms of the 5% Preferred Stock
provide that it is convertible to Common Stock at discounts from future market
prices of the Common Stock, which could result in substantial dilution to
holders of Common Stock. The terms of issuance of the 5% Preferred Stock also
require payments in the amount of 3% of the aggregate liquidation preference per
month if the Company fails within certain prescribed periods, to increase the
number of authorized shares of Common Stock; to reserve a number of shares of
Common Stock for issuance upon conversion of the 5% Preferred Stock equal to 1.5
times the number of shares into which the 5% Preferred Stock is convertible from
time to time; to obtain any governmental approvals necessary for the conversion
of 5% Preferred Stock; or to maintain an effective registration statement under
the Securities Act of 1933 with respect to the resale of Common Stock issuable
upon conversion of the 5% Preferred Stock. The
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terms of the 5% Preferred Stock also require the Company to repurchase some or
all of the 5% Preferred Stock upon the occurrence of certain specified events.
If payment or repurchase obligations were to arise under the terms of the 5%
Preferred Stock, the Company's financial condition could be materially adversely
affected.
Reliance on Unproven Technology
The CD Radio system is designed to use two satellites in geosynchronous
orbit that transmit identical signals to a new generation of satellite radios in
cars and trucks. The Company has conducted satellite simulation testing and
demonstrations of CD Radio with a prototype satellite receiver installed in an
automobile. The satellite system and other aspects of the CD Radio service,
however, will use certain technology that has yet to be tested using orbiting
satellites or a satellite radio suitable for commercial production. While
management believes that the technology developed by the Company will allow the
service to operate as planned, there can be no assurance that the CD Radio
system will function as currently contemplated. See "Business -- Satellite
Radios" "Business -- The Satellites" and "Business -- Technology Trademarks and
Patents."
Dependence upon Satellites and Contractors; Risk of Launch Failure
The Company's business will depend upon the successful construction and
launch of its satellites which will be used to transmit CD Radio. The Company
will rely upon its satellite vendor, Space Systems/Loral, for the timely
delivery of its satellites. Failure of Space Systems/Loral to deliver
functioning satellites in a timely manner could materially adversely affect the
Company's business.
The Company is also dependent on its satellite launch vendor, Arianespace,
for the construction of launch vehicles and the successful launch of its
satellites. Satellite launches are subject to significant risks, including
satellite destruction or damage during launch or failure to achieve proper
orbital placement. According to an insurance industry source, approximately 15%
of insured commercial satellite launches by all launch contractors since 1965
have resulted in total loss. Launch failure rates vary from period to period and
from contractor to contractor. While past experience is not necessarily
indicative of future performance, Arianespace has advised the Company that as of
March 18, 1997 it has successfully completed 81 of 86 launches (approximately
94%) since beginning commercial operations in 1984. See "Business -- The
Satellites." Satellites also could be defective or could be damaged or fail in
orbit. As part of its risk management program, the Company plans to construct a
third (back-up) satellite and to obtain insurance covering failed launch vehicle
replacement. The launch of a replacement satellite would delay the commencement
or continuation of the Company's operations for not less than six months, which
could have an adverse effect on the demand for the Company's services, as well
as the Company's revenues and results of operations. The launch or in-orbit
failure of two of the Company's satellites could delay the commencement or
continuation of the Company's operations for three years or more, which would
have a material adverse effect on the Company.
Uncertain Market Acceptance
There are currently no satellite radio services such as CD Radio in
commercial operation in the United States. As a result, the extent of the
potential demand for such services 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
service to enable the Company to achieve profitable operations. The success of
CD Radio in gaining market acceptance will be affected by a number of factors
beyond the Company's control, including consumers' willingness to pay
subscription fees to obtain satellite radio broadcasts, the cost, availability
and consumer acceptance of satellite radios, marketing and pricing strategies of
competitors, development of alternative technologies and general economic
conditions. See "Business -- The Radio Market" and "Business -- Competition."
Unavailability of Satellite Radios
The Company's business strategy requires that subscribers to CD Radio
purchase satellite radios to receive the service. See "Business -- Satellite
Radios." Satellite radios are not currently commercially
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available and the Company is unaware of any manufacturer currently developing
such radios for commercial sale. The ultimate success of the Company's service
will therefore depend in significant part on the willingness of at least one
consumer electronics manufacturer to develop and manufacture these radios.
Although the Company intends to foster the development of commercially available
satellite radios, there can be no assurance that a manufacturer will develop
such radios in a timely manner or at all, or that if commercially developed such
radios will be affordable in price. The failure of one or more consumer
electronics manufacturers to develop satellite radios for commercial sale in a
timely manner would have a material adverse effect on the Company's business.
See "Business -- Satellite Radios" and "Business -- Technology Patents and
Trademarks".
Music Royalty Payments
In connection with its proposed music programming, the Company will be
required to negotiate and enter into royalty arrangements with copyright owners
of sound recordings and with performing rights societies, such as the American
Society of Composers, Authors and Publishers ("ASCAP"), Broadcast Music, Inc.
("BMI"), SESAC, Inc. ("SESAC"), and with recording owners under the Digital
Recordings Act of 1995. The amount of these royalties is yet to be negotiated
and there can be no assurance that any royalty arrangements negotiated by the
Company will be on terms favorable to the Company. See "Business -- The CD Radio
Service."
Development of Business and Management of Growth
The Company has not yet commenced CD Radio service. To operate
successfully, the Company must develop and implement systems for operational and
financial management, programming, marketing, subscriber registration and
management, billing and collection of subscriber fees and other functions, and
must hire and train personnel to perform these functions. The Company expects to
experience significant and rapid growth in the scope and complexity of its
business as it proceeds with the development of its satellite radio system and
the commencement of CD Radio service. Growth is likely to place a substantial
strain on the Company's management, operational, financial and accounting
resources. Failure to develop and implement effective systems 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 failure to
manage growth effectively, would have a material adverse effect on the Company's
business.
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 rely on subscription fees for their operations. Many
radio stations also offer information programming of a local nature such as
local news or traffic which the Company will be unable to offer. The Company
also expects to compete directly with one other satellite radio operator. See
"Forward-Looking Statements." A total of four proposed satellite radio
operators, including the Company, have applied to be licensed by the FCC. See
"Business -- Government Regulation." At least one of these prospective satellite
radio operators, American Mobile Satellite Corporation, which is principally
owned by the Hughes division of General Motors has financial, management and
technical resources which greatly exceed those of the Company. See
"Business -- Competition."
Dependence on Chief Executive Officer
The Company is highly dependent during its development phase 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 during the development stage of the Company could have
a material adverse effect upon the business and prospects of the Company. See
"Business -- Government Regulation" and "Directors and Executive Officers of the
Company."
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Proposed Business Dependent Upon Regulatory Approval
The Company has concentrated its efforts on the development and preparation
of its proposed service, CD Radio. The timely receipt of an FCC License to
construct, launch and operate its satellites is a prerequisite to the Company's
ability to offer CD Radio. If the Company is not a winning bidder in the
auction, the Company would be forced to identify an alternative business plan
and use for any remaining capital resources. Such an alternative plan could
involve a change in focus to a related or unrelated business activity, or
dissolution of the Company. No consideration has been given to any alternative
activity or use of funds. There can be no assurance that the Company would be
able to identify or effectively pursue any such alternative in a manner that
would benefit the Company or its stockholders.
Uncertain Patent Protection
The Company has been granted certain U.S. patents covering various types of
satellite radio technology. There can be no assurance, however, 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 to determine the scope and
validity of other parties' proprietary rights, and there can be no assurance of
success in any such litigation.
Although the Company believes that 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 against
infringement by others.
Limited Prior Public Market; Potential Volatility of Stock Price
The Company's Common Stock has been traded on the NASDAQ Small Cap Market
since September 13, 1994. There can be no assurance that an active public market
will continue for the Common Stock, or that the market price for the Common
Stock will not decline below its current price. 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. The trading price
of the Common Stock 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. 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.
Possible Delisting of Common Stock from NASDAQ; Possible Adverse Effect on
Trading Market
The Common Stock is quoted on the NASDAQ Small Cap Market. There are a
number of continuing requirements that must be met in order for the Common Stock
to remain eligible for quotation on the NASDAQ Small Cap Market. In order to
continue to be quoted on NASDAQ, a company must maintain $2 million in total
assets, a $200,000 market value of the public float and $1 million in total
capital and surplus. In addition, continued quotation requires two marketmakers
and a minimum bid price of $1.00 per share; provided, however, that if a company
falls below such a minimum bid, it will remain eligible for continued quotation
on NASDAQ if the market value of the public float is at least $3 million and the
company has $2 million in capital and surplus. The failure to meet these
maintenance criteria in the future could result in the delisting of the
Company's Common Stock from NASDAQ. In such event, trading, if any, in the
Common Stock may then continue to be conducted in the non-NASDAQ
over-the-counter market. As a result, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of, the
Company's Common Stock. In November 1996, NASDAQ approved changes to its
quantitative and qualitative standards for issuers listing on NASDAQ, subject to
public comment and approval by the Commission. Among the proposed changes are
the elimination of the alternative test for issuers failing to meet the minimum
bid price of $1.00, an increase in the quantitative standards for both the
NASDAQ National Market and the NASDAQ SmallCap Market, and the corporate
governance requirements applicable to the NASDAQ National Market would be
applicable to the NASDAQ SmallCap Market.
17
<PAGE> 19
In addition, if the Common Stock were delisted from trading on NASDAQ and
the trading price of the Common Stock were less than $5.00 per share, trading in
the Common Stock would also be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, which require additional
disclosure by broker dealers in connection with any trades involving a stock
defined as a penny stock (generally, any non-NASDAQ equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers may discourage
broker-dealers from effecting transactions in penny stocks, which could reduce
the liquidity of the shares of Common Stock and thereby have a material adverse
effect on the trading market for the securities.
Possible Adverse Effect of State Blue Sky Restrictions on Secondary Trading of
Common Shares
The Company believes that its Common Stock is eligible for sale on a
secondary market basis in most states based on various exemptions to state
qualification requirements. Limitations on, or the absence of those exemptions,
will under certain circumstances restrict the ability of a holder to transfer
the Common Stock to non-institutional buyers in some states. This could
adversely affect the liquidity of the Common Stock.
Anti-takeover Provisions
The Company's Board of Directors has the authority to issue up to
10,000,000 shares of 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. Any issuance of Preferred Stock with voting
and conversion rights may adversely affect the voting power of the holders of
Common Stock. The Company has received commitments to purchase convertible
preferred stock, convertible into shares of common stock. and such issuance
could have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. In addition, the
Company may become subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which 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. In addition, 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.
ITEM 2. PROPERTIES
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 October 31, 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
In May 1994, the Company received a letter claiming that the Company's logo
is confusingly similar to the registered trademark of a company engaged in the
sale of pre-recorded music, and that the Company's continued use of its logo may
constitute infringement of such mark. No claim of damages has been asserted and
the Company knows of no basis for the assertion of any damages with respect to
the use of its logo. At the present time, the Company does not have sufficient
information to assess the likelihood of success in any action that may arise in
connection with the claim. If the claim is adversely determined, the Company
does not believe that the loss of its logo would have a material adverse effect
on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK MATTERS
The Common Stock began trading on the NASDAQ SmallCap Market on September
13, 1994 under the symbol "CDRD" and has been trading there since that time. The
following table sets forth the high and low closing bid price for the Common
Stock, as reported by NASDAQ, 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>
Year Ended December 31, 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
Year Ended December 31, 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
Year Ended December 31, 1994
Third Quarter (commencing September 13, 1994).................... 4 1/2 3 3/4
Fourth Quarter................................................... 3 7/8 1 5/8
</TABLE>
On March 12, 1997, the closing bid price of the Company's Common Stock on
NASDAQ was $6.875 per share. At March 12, 1997, there were approximately 102
record holders of the Company's Common Stock. 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.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
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, included in Item 8
of this filing. 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 audited consolidated financial statements, which
are not included herein. The selected consolidated financial data should be read
in conjunction with the Consolidated Financial Statements and related notes
thereto included in Item 8 of this report and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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<PAGE> 21
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues............................. $ -- $ -- $ -- $ -- $ --
Net loss....................................... $(1,551) $(6,568) $(4,065) $(2,107) $(2,831)
Net loss per share............................. $ (.23) $ (.79) $ (.48) $ (.23) $ (.29)
Weighted average common shares and common share
equivalents outstanding...................... 6,715 8,284 8,398 9,224 9,642
</TABLE>
BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 1,883 $ 777 $ 3,400 $ 1,800 $ 4,584
Working capital (deficit).................. $ 1,399 $ (250) $ 2,908 $ 1,741 $ 4,442
Total assets............................... $ 2,292 $ 1,663 $ 3,971 $ 2,334 $ 5,065
Deficit accumulated during the
development stage........................ $(2,965) $(9,533) $(13,598) $(15,705) $(18,536)
Stockholders' equity (deficit)(1).......... $ 1,791 $ 505 $ 3,431 $ 1,991 $ 4,898
</TABLE>
- ---------------
(1) No cash dividends were declared or paid in any of the periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, initiation of discussions with radio
manufacturers and automakers, market research, design, development, contract
negotiations with satellite and launch vehicle contractors, technical efforts
with respect to standards and specifications, development of a mobile
demonstration program and securing adequate working capital. The Company has
been unprofitable to date and expects to continue to incur substantial losses
through at least the first full year of CD Radio service. Since its inception,
the Company has not derived any revenues from operations and does not expect to
generate any revenues from operations prior to the commencement of CD Radio,
which is not expected to occur before the second half of 1999 at the earliest.
In order to commence CD Radio service, the Company will require the FCC License
and substantial additional funds to finance construction of its satellite
system, to plan and implement its service, to provide working capital and to
sustain its operations until it generates positive cash flows from operations.
The FCC has scheduled an auction among the four existing applicants to
auction two FCC Licenses on April 1, 1997. The Company believes it has
sufficient working capital to fund its planned operations through the receipt of
the FCC License. Upon receipt of the FCC License in the auction, the Company
will require substantial additional financing in connection with the purchase
price of the FCC License and to complete the construction and launch of its
satellite system and to fund the first full year of CD Radio service.
RESULTS OF OPERATIONS
1996 Compared to 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.
20
<PAGE> 22
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.
1995 Compared to 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.
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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of approximately
$4,442,000, compared to $1,741,000 at December 31, 1995. The increase in working
capital was primarily the result of proceeds approximating $4.6 million received
from the exercise of common stock warrants in 1996. Should the Company receive
its FCC License, the Company will require substantial additional financing to
complete the construction and launch of its satellite system and to fund the
first full year of CD Radio service.
The Company estimates that upon receipt of the FCC License it will require
cash in the aggregate amount of at least $500 million, plus the cost of the FCC
License, to fund the construction and launch of the Company's satellites and the
commencement of CD Radio and to provide cash reserves for the first year of
service.
The Company believes that its working capital is sufficient to fund planned
operations through the auction for the FCC License. There can be no assurance,
however, that the Company's actual cash requirements will not exceed its
anticipated pre-auction cash requirements, that additional cash requirements
will not arise or that additional financing will not be required prior to the
receipt of the FCC License should the auction be delayed. Upon receipt of the
FCC License, the Company intends to seek additional financing through further
debt and equity financings. However, there can be no assurance that the Company
will be able to raise additional financing on favorable terms, if at all, or
that it will be able to do so on a timely basis. If such 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 commencement of its operations and
increased costs.
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<PAGE> 23
The Company's estimated cash requirements do not include any amounts that
the Company may be required to pay to receive an FCC License in the auction.
There can be no assurance that the Company will be a successful bidder in the
FCC auction, and the Company is unable to predict the amount that the Company
may be required to pay to receive an FCC License by being a successful bidder in
an auction. The winning bidders in the FCC Auction will be required to deposit
20 percent of the amount of the winning bid within ten business days after the
close of the auction, and to pay the balance of the winning bid after revised
license applications are finalized and assuming petitions to deny the License
are dismissed. See "Business -- Government Regulation." The Company has
submitted a deposit of $3 million to the FCC, which will be applied against the
20 percent deposit requirement if it is a winning bidder, and which will be
returned if it is not a winning bidder.
The Company's estimates of its cash requirements are forward looking
statements that involve a number of risks and uncertainties. Such estimates
assume that the FCC License is received by the first half of 1997, that
operation of CD Radio commences in the second half of 1999 and do not include
the price that the Company will have to pay for the FCC License in the auction.
The Company's actual future cash requirements will depend upon numerous factors,
including the costs associated with the construction and deployment of the
satellite system and the rate of growth of its business subsequent to commencing
service. 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, or to pay the cost of the FCC License in the auction.
The Company anticipates funding its projected cash requirements through the
completion of additional debt and equity financings. There can be no assurance
that the Company will be able to obtain financing on favorable terms, if at all,
or that it will be able to do so on a timely basis.
The Company's Board of Directors has authorized the sale pursuant to a
private placement of 5% Delayed Convertible Preferred Stock, convertible to
common stock at conversion prices based on discounts to future market prices.
The Company announced commitments to purchase $62.5 million in 5% Preferred
Stock in October 1996, and has received additional commitments since that time.
The purpose of the sale is to finance the payment of the purchase price for the
FCC License and for working capital prior to the completion of subsequent
financings if the Company is the winning bidder for the FCC License. There can
be no assurance that the amount of the commitment will be sufficient to permit
the Company to submit the winning bid for the FCC License. Closing the sale of
Preferred Stock is subject to a number of conditions, including conditions
relating to the Company's application for the FCC License, and the agreement
contains limitations on the Company's use of proceeds and other corporate
actions. There can be no assurance that the agreement for this transaction will
not be amended or terminated, or that any of the Preferred Stock will be sold
pursuant thereto. Failure to close the sale of the Preferred Stock could result
in a default by the Company of payment obligations relating to the FCC License.
The Company's Chairman and Chief Executive Officer and a principal
stockholder have from time to time advanced funds to the Company for use as
working capital and to enable the Company to satisfy cash requirements. As of
December 31, 1995, approximately $273,000, was owed to the Company's Chairman
and Chief Executive Officer for a loan made and accrued interest thereon. Such
loan was repaid in 1996.
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% Delayed Convertible Preferred Stock (the "5%
Preferred Stock"), and the Company has received substantial commitments from
investors to purchase the 5% Preferred Stock subject to the satisfaction of
certain conditions, but as of March 31, 1997, none has been issued or sold. Set
forth below is a brief description of the 5% Preferred Stock.
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
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<PAGE> 24
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
- -------------------- ---------------------
<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 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
23
<PAGE> 25
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.
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
24
<PAGE> 26
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.
25
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996.......................... F-3
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1996, and for the period May 17, 1990 (date of inception)
to December 31, 1996................................................................ F-4
Consolidated Statements of Stockholders' Equity for the period May 17, 1990 (date of
inception)
to December 31, 1996................................................................ F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1996 and for the period May 17, 1990 (date of inception)
to December 31, 1996................................................................ F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
CD Radio Inc.
We have audited the accompanying consolidated balance sheets of CD Radio
Inc. and Subsidiary (A Development Stage Enterprise) as of December 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996 and for the period May 17, 1990 (date of inception) to December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CD Radio Inc.
and Subsidiary as of December 31, 1995 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 and for the period May 17, 1990 (date of inception) to
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 26, 1997
F-2
<PAGE> 29
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 1,799,814 $ 4,583,562
Prepaid expense and other................................... 8,781 9,368
------------ ------------
Total current assets................................... 1,808,595 4,592,930
------------ ------------
Property and equipment, at cost:
Technical equipment......................................... 254,200 254,200
Office equipment and other.................................. 89,220 89,220
Demonstration equipment..................................... 38,664 38,664
------------ ------------
382,084 382,084
Less accumulated depreciation............................... (160,498) (213,344)
------------ ------------
221,586 168,740
Deposits......................................................... 303,793 303,793
------------ ------------
Total assets........................................... $ 2,333,974 $ 5,065,463
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....................... $ 46,521 $ 131,118
Other....................................................... 20,716 20,174
------------ ------------
Total current liabilities.............................. 67,237 151,292
Loan from officer................................................ 240,000 --
Deferred rent and other.......................................... 35,967 15,795
------------ ------------
Total liabilities...................................... 343,204 167,087
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares
authorized; 4,000,000 shares designated as 5% Delayed
Convertible Preferred Stock; none issued or outstanding... -- --
Common stock, $0.001 par value; 50,000,000 shares
authorized; 9,305,960 and 10,300,391 shares issued and
outstanding as of December 31, 1995 and 1996,
respectively.............................................. 9,306 10,300
Additional paid-in capital.................................. 18,006,729 23,423,936
Deficit accumulated during the development stage............ (15,705,265) (18,535,860)
Deferred compensation on stock options granted.............. (320,000) --
------------ ------------
Total stockholders' equity............................. 1,990,770 4,898,376
------------ ------------
Total liabilities and stockholders' equity............. $ 2,333,974 $ 5,065,463
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 30
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE FOR
THE PERIOD
MAY 16, 1986
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION)
----------------------------------------- TO DECEMBER 31,
1994 1995 1996 1996
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Revenue................................ $ -- $ -- $ -- $ --
Expenses:
Legal, consulting and regulatory
fees............................ 1,245,472 1,045,562 1,582,091 7,248,964
Other general and
administrative.................. 2,455,393 1,062,343 1,230,748 7,532,763
Research and development.......... 374,668 122,210 117,299 1,916,355
Write-off of investment in
Sky-Highway Radio Corp. ........ -- -- -- 2,000,000
----------- ----------- ----------- -------------
Total expenses............... 4,075,533 2,230,115 2,930,138 18,698,082
----------- ----------- ----------- -------------
Other income (expense)
Interest income................... 50,921 142,549 112,811 328,672
Interest expense.................. (40,155) (19,783) (13,268) (166,450)
----------- ----------- ----------- -------------
10,766 122,766 99,543 162,222
----------- ----------- ----------- -------------
Net loss............................... $(4,064,767) $(2,107,349) $(2,830,595) $ (18,535,860)
=========== =========== =========== =============
Net loss per common share.............. $ (0.48) $ (0.23) $ (0.29)
=========== =========== ===========
Weighted average common shares
outstanding.......................... 8,397,668 9,224,431 9,642,048
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 31
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STATE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Initial Sale of no par value common stock,
$5.00 per share, May 17, 1990.............. 11,080 $ 55,400 -- $ -- -- $ --
Initial issuance of common stock in
satisfaction of due to related party, $5.00
per share.................................. 28,920 144,600 -- -- -- --
Conversion of no par value common stock to
Class A and Class B no par value common
stock...................................... (40,000) (200,000) 2,000,000 169,492 360,000 30,580
Sale of Class B common stock, $0.4165 per
share...................................... -- -- -- -- 442,000 184,101
Issuance of Class B common stock in
satisfaction of due to related party,
$0.4165 per share.......................... -- -- -- -- 24,000 10,000
Net loss..................................... -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1990................... -- -- 2,000,000 169,492 826,000 224,609
Sale of Class B common stock, $0.50 per
share...................................... -- -- -- -- 610,000 305,000
Issuance of Class B common stock in
satisfaction of due to related party, $0.50
per share.................................. -- -- -- -- 300,000 150,000
Net Loss..................................... -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1991................... -- -- 2,000,000 169,492 1,736,000 679,609
Sale of Class B common stock, $0.50 per
share...................................... -- -- -- -- 200,000 100,000
Issuance of Class B common stock in
satisfaction of due to related party, $0.50
per share.................................. -- -- -- -- 209,580 104,790
Conversion of note payable to related party
to Class B common stock, $0.4165........... -- -- -- -- 303,440 126,380
Conversion of Class A and Class B common
stock to no par value common stock......... 4,449,020 1,180,271 (2,000,000) (169,492) (2,449,020) (1,010,779)
Sale of no par value common stock, $1.25 per
share...................................... 1,600,000 2,000,000 -- -- -- --
Conversion of no par value common stock to
$.001 par value common stock............... -- (3,174,222) -- -- -- --
Sale of $.001 par value common stock, $5.00
per share.................................. 315,000 315 -- -- -- --
Net loss..................................... -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1992................... 6,364,020 $ 6,364 -- $ -- -- $ --
<CAPTION>
DEFICIT
ACCUMULATED DEFERRED
ADDITIONAL DURING THE COMPENSATION
PAID-IN DEVELOPMENT ON STOCK
CAPITAL STAGE OPTIONS GRANTED TOTAL
------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Initial Sale of no par value common stock,
$5.00 per share, May 17, 1990.............. $ -- $ -- $ -- $ 55,400
Initial issuance of common stock in
satisfaction of due to related party, $5.00
per share.................................. -- -- -- 144,600
Conversion of no par value common stock to
Class A and Class B no par value common
stock...................................... -- -- -- --
Sale of Class B common stock, $0.4165 per
share...................................... -- -- -- 184,101
Issuance of Class B common stock in
satisfaction of due to related party,
$0.4165 per share.......................... -- -- -- 10,000
Net loss..................................... -- (838,911) -- (838,911)
------------ ------------ --------------- ---------------
Balance, December 31, 1990................... -- (838,911) -- (444,810)
Sale of Class B common stock, $0.50 per
share...................................... -- -- -- 305,000
Issuance of Class B common stock in
satisfaction of due to related party, $0.50
per share.................................. -- -- -- 150,000
Net Loss..................................... -- (574,963) -- (574,963)
------------ ------------ --------------- ---------------
Balance, December 31, 1991................... -- (1,413,874) -- (564,773)
Sale of Class B common stock, $0.50 per
share...................................... -- -- -- 100,000
Issuance of Class B common stock in
satisfaction of due to related party, $0.50
per share.................................. -- -- -- 104,790
Conversion of note payable to related party
to Class B common stock, $0.4165........... -- -- -- 126,380
Conversion of Class A and Class B common
stock to no par value common stock......... -- -- -- --
Sale of no par value common stock, $1.25 per
share...................................... -- -- -- 2,000,000
Conversion of no par value common stock to
$.001 par value common stock............... 3,174,222 -- -- --
Sale of $.001 par value common stock, $5.00
per share.................................. 1,574,685 -- -- 1,575,000
Net loss..................................... -- (1,550,802) -- (1,550,802)
------------ ------------ --------------- ---------------
Balance, December 31, 1992................... $ 4,748,907 $ (2,964,676) $ -- $ 1,790,595
</TABLE>
(table continues on following page)
The accompanying notes are an integral part of the consolidated statements.
F-5
<PAGE> 32
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STATE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sale of $.001 par value common stock, $5.00
per share, net of commissions.............. 1,029,000 $ 1,029 -- $ -- -- $ --
Compensation expense in connection with
issuance of stock options.................. -- -- -- -- -- --
Common stock issued in connection with
conversion of note payable at $5.00 per
share...................................... 60,000 60 -- -- -- --
Common stock issued in satisfaction of
commissions payable, $5.00 per share....... 4,000 4 -- -- -- --
Net loss..................................... -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1993................... 7,457,020 7,457 -- -- -- --
Sales of $.001 par value common stock, $5.00
per share, net of commissions.............. 250,000 250 -- -- -- --
Initial public offering of Units, consisting
of two shares of $.001 par value common
stock and one warrant, $10.00 per Unit, net
expenses................................... 1,491,940 1,492 -- -- -- --
Deferred compensation on stock options
granted.................................... -- -- -- -- -- --
Forfeiture of stock options by Company
officer.................................... -- -- -- -- -- --
Compensation expense in connection with
issuance of stock options.................. -- -- -- -- -- --
Amortization of deferred compensation........ -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1994................... 9,198,960 9,199 -- -- -- --
Common stock issued for services rendered,
between $3.028 and $3,916 per share........ 107,000 107 -- -- -- --
Amortization of deferred compensation........ -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1995................... 9,305,960 9,306 -- -- -- --
Exercise of stock warrants at $6.00 per
share...................................... 791,931 792 -- -- -- --
Exercise of stock options by Company
officers, between $1.00 and $5.00 per
share...................................... 135,000 135 -- -- -- --
Common stock issued for services rendered,
between $5.76 and $12.26 per share......... 67,500 67 -- -- -- --
Common stock options granted for services
rendered, to purchase 60,000 shares at
$4.50 a share.............................. -- -- -- -- -- --
Amortization of deferred compensation........ -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1996................... 10,300,391 $ 10,300 -- $ -- -- $ --
========== =========== ========== ========= ========== ===========
<CAPTION>
DEFICIT
ACCUMULATED DEFERRED
ADDITIONAL DURING THE COMPENSATION
PAID-IN DEVELOPMENT ON STOCK
CAPITAL STAGE OPTIONS GRANTED TOTAL
------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Sale of $.001 par value common stock, $5.00
per share, net of commissions.............. $ 4,882,163 $ -- $ -- $ 4,883,192
Compensation expense in connection with
issuance of stock options.................. 80,000 -- -- 80,000
Common stock issued in connection with
conversion of note payable at $5.00 per
share...................................... 299,940 -- -- 300,000
Common stock issued in satisfaction of
commissions payable, $5.00 per share....... 19,996 -- -- 20,000
Net loss..................................... -- (6,568,473) -- (6,568,473)
------------ ------------ ----------- -------------
Balance, December 31, 1993................... 10,031,006 (9,533,149) -- 505,314
Sales of $.001 par value common stock, $5.00
per share, net of commissions.............. 1,159,125 -- -- 1,159,375
Initial public offering of Units, consisting
of two shares of $.001 par value common
stock and one warrant, $10.00 per Unit, net
expenses................................... 4,833,922 -- -- 4,835,414
Deferred compensation on stock options
granted.................................... 1,730,000 -- (1,730,000) --
Forfeiture of stock options by Company
officer.................................... (207,000) -- 207,000 --
Compensation expense in connection with
issuance of stock options.................. 112,500 -- -- 112,500
Amortization of deferred compensation........ -- -- 883,000 883,000
Net loss..................................... -- (4,064,767) -- (4,064,767)
------------ ------------ ----------- -------------
Balance, December 31, 1994................... 17,659,553 (13,597,916) (640,000) 3,430,836
Common stock issued for services rendered,
between $3.028 and $3,916 per share........ 347,176 -- -- 347,283
Amortization of deferred compensation........ -- -- 320,000 320,000
Net loss..................................... -- (2,107,349) -- (2,107,349)
------------ ------------ ----------- -------------
Balance, December 31, 1995................... 18,006,729 (15,705,265) (320,000) 1,990,770
Exercise of stock warrants at $6.00 per
share...................................... 4,588,296 -- -- 4,589,088
Exercise of stock options by Company
officers, between $1.00 and $5.00 per
share...................................... 154,865 -- -- 155,000
Common stock issued for services rendered,
between $5.76 and $12.26 per share......... 554,226 -- -- 554,293
Common stock options granted for services
rendered, to purchase 60,000 shares at
$4.50 a share.............................. 119,820 -- -- 119,820
Amortization of deferred compensation........ -- -- 320,000 320,000
Net loss..................................... -- (2,830,595) -- (2,830,595)
------------ ------------ ----------- -------------
Balance, December 31, 1996................... $ 23,423,936 $(18,535,860) $ -- $ 4,898,376
============ ============ =========== =============
</TABLE>
The accompanying notes are an integral part of the consolidated statements.
F-6
<PAGE> 33
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE FOR
THE PERIOD
MAY 16, 1986
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION)
----------------------------------------- TO DECEMBER 31,
1994 1995 1996 1996
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Cash flows from development stage activities:
Deficit accumulated during the development
stage.......................................... $(4,064,767) $(2,107,349) $(2,830,595) $ (18,535,860)
Adjustments to reconcile deficit accumulated
during the development stage to net cash used
in development stage activities:
Depreciation expense........................... 48,847 57,593 52,846 224,043
Write off of investment in Sky-Highway Radio
Corp. ....................................... -- -- -- 2,000,000
Compensation expense in connection with
issuance of stock options.................... 995,500 320,000 320,000 1,715,500
Common stock issued for services rendered...... -- 347,283 554,293 901,576
Common stock options granted for services
rendered..................................... -- -- 119,820 119,820
Increase (decrease) in cash and cash equivalents
resulting from changes in assets and
liabilities:
Prepaid expense and other...................... 56,806 (7,465) (587) (9,368)
Due to related party........................... -- -- -- 350,531
Deposits....................................... 41,456 -- -- (303,793)
Accounts payable and accrued expenses.......... (13,773) (189,755) 84,597 206,357
Accrued executive compensation................. (378,000) -- -- --
Other liabilities.............................. (266,203) (6,930) (20,714) 35,969
----------- ----------- ----------- -------------
Net cash used in development stage
activities................................. (3,580,134) (1,586,623) (1,720,340) (13,295,225)
----------- ----------- ----------- -------------
Cash flows from investing activities:
Capital expenditures............................. (22,228) (13,824) -- (392,783)
Acquisition of Sky-Highway Radio Corp............ -- -- -- (2,000,000)
----------- ----------- ----------- -------------
Net cash used in investing activities........ (22,228) (13,824) -- (2,392,783)
----------- ----------- ----------- -------------
Cash flows from financing activities:
Proceeds from issuance of Units and common stock,
net............................................ 5,434,789 -- -- 14,557,482
Proceeds from exercise of stock options by
company officers............................... -- -- 155,000 155,000
Proceeds from exercise of stock warrants......... -- -- 4,589,088 4,589,088
Proceeds from issuance of promissory note........ 200,000 -- -- 200,000
Proceeds from issuance of promissory notes to
related parties................................ 560,000 -- -- 2,965,000
Repayment of promissory note..................... (200,000) -- -- (200,000)
Repayment of promissory notes to related
parties........................................ (200,000) -- (240,000) (2,435,000)
Loan from officer................................ 240,000 -- -- 440,000
Deferred offering costs.......................... 190,776 -- -- --
----------- ----------- ----------- -------------
Net cash provided by financing activities.... 6,225,565 -- 4,504,088 20,271,570
----------- ----------- ----------- -------------
Net increase (decrease) in cash and cash
equivalents...................................... 2,623,203 (1,600,447) 2,783,748 4,583,562
Cash and cash equivalents at the beginning of
period........................................... 777,058 3,400,261 1,799,814 --
----------- ----------- ----------- -------------
Cash and cash equivalents at the end of period..... $ 3,400,261 $ 1,799,814 $ 4,583,562 $ 4,583,562
=========== =========== =========== =============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest......... $ 2,559 $ -- $ 42,666 $ 82,729
=========== =========== =========== =============
Supplemental disclosure of non-cash financing
activities:
Common stock issued in satisfaction of notes
payable to related parties, including accrued
interest....................................... $ 572,072 $ -- $ -- $ 998,452
=========== =========== =========== =============
Common stock issued in satisfaction of due to
related parties including accrued interest..... $ -- $ -- $ -- $ 409,390
=========== =========== =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 34
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND FINANCING
Business
CD Radio Inc. (the "Company") was originally incorporated in the State of
Delaware on May 17, 1990, under the name Satellite CD Radio, Inc. On December 7,
1992, the Company changed its name to CD Radio Inc. The Company shortly
thereafter formed a wholly-owned subsidiary, Satellite CD Radio, Inc. (SCDR)
which is capitalized with nominal assets. On April 29, 1993, the Company
acquired all of the outstanding shares of stock of Sky-Highway Radio Corp., a
Colorado corporation ("SHRC"), and on December 23, 1994, SHRC was liquidated and
dissolved. SCDR and SHRC were formed primarily to apply for certain Federal
Communications Commission ("FCC") licenses. CD Radio Inc., SCDR, and SHRC are
hereinafter collectively referred to as the "Company."
The Company is a pioneer in the development of a service for broadcasting
compact-disc-quality music programming via satellites to subscribers' motor
vehicle radios, as well as to portable and home receivers. The Company intends
to focus exclusively on providing a consumer service, and anticipates that the
equipment required to receive its broadcasting will be manufactured by consumer
electronics manufacturers and automakers.
In October 1992, in response to a request from the Company, the FCC voted
unanimously to propose the establishment of satellite digital audio radio
service ("satellite radio"). At that time, the FCC established a December 15,
1992 cutoff date for FCC License applications. The Company has filed an
application to utilize a portion of the frequency spectrum that was allocated
for satellite radio by the FCC in January 1995. Subsequent to its acquisition of
SHRC, the Company caused SHRC to withdraw its pending application. The Company
is currently one of four remaining applicants which have the right to
participate in the auction for spectrum scheduled for April 1, 1997.
Auction of Spectrum
On March 3, 1997, the FCC adopted satellite radio licensing rules (the
"Licensing Rules") and implemented a spectrum plan that will accommodate only
two national satellite radio licenses, both of which are scheduled to be
auctioned to the Company and the other three applicants on April 1, 1997. There
can be no assurance that the Company will be successful in obtaining one of the
two licenses or that the cost of obtaining it would not be material to the
Company's operations.
Pursuant to the Licensing Rules, the auction is scheduled to be held among
the four existing applicants on April 1, 1997. Prior to the commencement of the
auction each applicant must deposit $3 million with the FCC. The minimum opening
bid for each FCC License is $8 million. The bidding will continue until only two
bidders remain. Within 10 business days following the announcement of winning
bidders, each auction winner must deposit with the FCC twenty percent of its
winning bid. The $3 million initial deposit is applied toward the twenty percent
down payment. The winning bidders will also be required to supplement their
applications on file with the FCC within 30 days after the close of bidding.
After the FCC has confirmed receipt of each winning bidder's twenty percent
payment and acceptance of each winning bidder's application, the FCC will accept
petitions to deny the winning bidders' applications. If the FCC dismisses the
petitions, the winning bidders will have 10 business days to submit the balance
of their winning bids.
Pursuant to the Licensing Rules, certain progress milestones would be
required. Licensees would be required to begin satellite construction within one
year; and to launch and begin operating their first satellite within four years
and begin operating their entire system within six years. Failure to meet those
milestones could result in revocation of the FCC License.
F-8
<PAGE> 35
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. BUSINESS AND FINANCING -- (CONTINUED)
The Company is in the process of obtaining monetary commitments to allow it
to be, in the opinion of management, competitive in the auction process. These
commitments include subscriptions to purchase 5% Delayed Convertible Preferred
Stock contingent upon the Company's success in the auction.
Financing requirements
In order to commence CD Radio service, the Company will require, among
other things, an FCC License to construct, launch and operate its satellites
(the "FCC License") and substantial funds, approximately $500 million or more,
to finance construction of its satellite system, to plan and implement its
service, to provide working capital and to sustain its operations until it
generates positive cash flows from operations. The Company will participate in
the auction for spectrum scheduled for April 1, 1997. As noted above, the
minimum opening bid for each license will be $8 million. The Company has not
commenced construction of its satellites and will require substantial additional
financing before it is able to do so. Failure to obtain an FCC License and/or
inability to attract the required long-term financing will prevent the Company
from realizing its objective of providing satellite-delivered radio programming
to vehicular radios. Management's plan to fund operations and capital expansion
includes the additional sale of debt and equity securities through public and
private sources. In absence of the FCC License, the Company believes that its
working capital at December 31, 1996 is sufficient to fund planned operations
through the first quarter of 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting
The consolidated financial statements include the accounts of CD Radio Inc.
and its wholly-owned subsidiaries, SCDR and SHRC (through the date of SHRC's
dissolution, December 23, 1994). Intercompany transactions are eliminated in
consolidation. The Company's activities to date principally have been planning
and organization, the process of obtaining an FCC License, initiating research
and development programs, conducting market research and securing adequate
equity capital for the development of its proposed service. Accordingly, the
Company's financial statements are presented as those of a development stage
enterprise, as prescribed by Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting by Development Stage Enterprises".
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of expenses during the
reported period. The estimates involve judgments with respect to, among other
things, various future factors which are difficult to predict and are beyond the
control of the Company. Therefore, actual amounts could differ from these
estimates.
Depreciation
Depreciation of office equipment is computed on the straight-line method
over three to five years based upon estimated useful lives. Depreciation of
technical equipment, primarily satellite communications equipment, is computed
on the straight-line method based on an estimated useful life of ten years.
Depreciation of demonstration equipment, primarily an automobile used in a
prototype system, is computed on the straight-line method based on an estimated
useful life of four years.
F-9
<PAGE> 36
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Cash equivalents
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Concentration of credit risk
The Company has invested its excess cash in a money market fund with a
major bank. These investments are collateralized by the underlying assets of the
fund. The fund invests in government securities or short-term interest or
dividend-bearing investment-grade securities. The Company has not experienced
any losses on its investments.
Income taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the sum of tax payable for the period and the change
during the period in deferred tax assets and liabilities.
Net loss per share
Net loss per common share is based on the weighted average number of common
shares and dilutive common share equivalents outstanding during the periods.
Options and warrants granted by the Company have not been included in the
calculation of net loss per share because such items were anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128) to
improve the EPS information provided in financial statements. FAS 128 simplifies
the existing computational guidelines of Accounting Principles Board Opinion No.
15, "Earnings Per Share," revises the disclosure requirements, and increases the
comparability of earnings per share (EPS) data on an international basis. To
simplify the EPS computations, the presentation of primary EPS is eliminated and
replaced with basic EPS, with the principal difference being that common stock
equivalents are not considered in computing basic EPS. In addition, FAS 128
requires dual presentation of basic and diluted EPS regardless of whether they
are same. FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997. As long as the Company continues to experience
net losses, there will be no impact to its net loss per share computation since
its common stock equivalents are anti-dilutive and are already not considered in
computing loss per share, as noted above.
3. CAPITAL STOCK
Preferred stock
The Board of Directors has the authority to issue shares of preferred stock
and fix the terms thereof, without any further vote or action by the
stockholders of the Company. In October 1996, in connection with the execution
of the Preferred Stock Investment Agreement, the Board of Directors authorized
the designation of 5% Delayed Convertible Preferred Stock (the "5% Preferred").
The rights and performance of the 5% Preferred include: (a) cumulative dividends
at the rate of $1.25 per share per annum, payable semi-annually, when and as
declared by the Board of Directors; (b) liquidation preference equal to issuance
price
F-10
<PAGE> 37
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CAPITAL STOCK -- (CONTINUED)
plus any accrued but unpaid dividends; (c) certain redemption and lock-up rights
granted to the Company; and (d) certain conversion and registration rights
granted to the holders of 5% Preferred.
Warrants
In connection with the Company's initial public offering and the partial
exercise of the underwriters' over-allotment option, the Company issued warrants
to purchase 745,970 shares of the Company's Common Stock. Additionally, the
Company issued to the underwriters as consideration warrants to purchase 123,560
shares of the Company's Common Stock. Each warrant originally entitled the
holder to purchase one share of Common Stock at a purchase price of $5.00 per
share until March 20, 1995 and at a purchase price of $6.00 per share during the
six-month period thereafter. In September 1995, the Company extended the
expiration date of the warrants to March 20, 1996, at a purchase price of $6.00
per share. Then, in March 1996, the Company extended the expiration date of
these warrants to September 20, 1996 at a purchase price of $6.00 per share. In
September 1996 the Company received proceeds of $4,589,088 relating to the
exercise of 864,848 warrants. The remaining 4,682 warrants expired unexercised.
Of the warrants exercised, 764,848 shares of common stock were issued in
exchange for cash and 27,083 shares of common stock were issued in a cashless
exercise of 100,000 warrants held by the underwriters.
Stock options and bonuses
Under an amended and restated employment agreement effective June 2, 1992,
the Company, on July 30, 1993, granted an officer options to purchase 20,000
shares of the Company's Common Stock at $1.00 per share, exercisable for 7 years
from date of grant. This officer also transferred to the Company, for nominal
consideration, his rights in connection with certain patent applications.
Additionally, on December 23, 1994, in accordance with this agreement, the
Company granted this officer options to purchase 112,500 shares of its Common
Stock under the terms of the 1994 Stock Option Plan at an exercise price of
$1.00 per share, as a result of the completion of a certain specified milestone.
The Company has recorded salary expense and additional paid-in-capital in the
amount of $112,500, reflecting the difference between the fair market value per
share of Common Stock at the measurement date and the exercise price. These
options were immediately vested and exercisable. In 1996 this officer was
granted options to purchase an additional 60,000 shares of Common Stock under
the terms of the 1994 Stock Option Plan at an exercise price of $8.5625. The
options granted in 1996 vest based on certain milestones which were not met as
of December 31, 1996. If this officer is terminated for any reason other than
cause, as defined in the agreement, the Company is obligated to pay to this
officer an amount equal to 50% of his annual salary and, at this officer's
option, to repurchase all of his shares of Common Stock at a price of $1.25 per
share. In 1996, this officer exercised options to purchase 80,000 shares of the
Company's Common Stock.
During 1996, options to purchase 400,000 shares of common stock at $8.5625
per share were granted to the Company's Chairman and Chief Executive Officer.
These options vest based on a certain milestone which was not met as of December
31, 1996.
In October 1992, the Company entered into a financial consulting services
agreement with a financial advisory firm. Pursuant to this agreement, the
Company has granted the investment advisory firm an option to purchase 260,000
shares of the Company's Common Stock at $6.25 per share as follows -- 60,000
shares upon execution of the agreement and four 50,000 share increments upon the
successful completion of equity and/or debt financing of certain specified
amounts during the term of the agreement and for a period of two years following
termination of the agreement by the Company. Each option expires three years
from the date such option becomes exercisable. As of December 31, 1996 under
this agreement, 60,000 options for shares had expired unexercised and none of
the remaining options were exercisable. Additionally, the agreement provides,
F-11
<PAGE> 38
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CAPITAL STOCK -- (CONTINUED)
among other things, for the payment in cash to this firm of fees equal to (i)
two percent (2%) of the gross proceeds from each equity financing after December
15, 1992 and (ii) one percent (1%) of the gross proceeds from each debt
financing, during the term of the agreement and for a period of two years
following termination of the agreement by the Company.
In 1995, the Company adopted the 1995 Stock Compensation Plan
("Compensation Plan") from which up to 175,000 shares of the Company's Common
Stock could be issued in lieu of cash compensation to employees and or
consultants. During 1995 and 1996, respectively, 95,000 and 67,500 shares of the
Company's Common Stock were issued pursuant to this Compensation Plan.
Stock option plans
In February 1994, the Company adopted its 1994 Stock Option Plan (the "1994
Plan") and its 1994 Directors' Nonqualified Stock Option Plan (the "Directors'
Plan"). Options granted under the 1994 Plan generally vest over a four-year
period and generally are exercisable for a period of ten years from the date of
grant. In 1996, the Board of Directors voted to increase the number of shares of
Common Stock available for issuance pursuant to the 1994 Plan and the Directors'
Plan by 350,000 shares. As of December 31, 1996 there are an aggregate of
1,600,000 shares of Common Stock authorized for issuance.
A summary of option activity under the 1994 Plan, the Directors' Plan, and
of all other option activity follows:
<TABLE>
<CAPTION>
1994 PLAN DIRECTORS' PLAN OTHER
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTION PRICE PER OPTION PRICE PER OPTION PRICE PER
SHARES SHARE SHARES SHARE SHARES SHARE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 1994........... -- -- 410,000 $4.33
--------- --------- ---------
Granted................................ 707,500 $3.81 15,000 $ 5.00 --
Exercised.............................. -- --
Cancelled.............................. (90,000) $5.00 -- --
--------- --------- ---------
Outstanding at December 31, 1994......... 617,500 $3.63 15,000 $ 5.00 410,000 $4.33
--------- --------- ---------
Granted................................ -- 110,000 $ 3.11 --
Exercised.............................. -- -- --
Cancelled.............................. -- -- (60,000) $6.25
--------- --------- ---------
Outstanding at December 31, 1995......... 617,500 $3.63 125,000 $ 3.34 350,000 $4.00
--------- --------- ---------
Granted................................ 545,000 $8.10 40,000 $ 6.875 --
Exercised.............................. (80,000) $1.00 -- (55,000) $1.36
Cancelled.............................. -- -- --
--------- --------- ---------
Outstanding at December 31, 1996......... 1,082,500 $6.08 165,000 $ 4.20 295,000 $4.56
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1994 PLAN DIRECTORS' PLAN OTHER
-------------- --------------- ------------
<S> <C> <C> <C>
As of December 31, 1996:
Range of exercise prices........................ $1.00-$8.5625 $2.125-$6.875 $1.00-$6.25
Weighted average remaining contractual life for
options outstanding (years).................. 8.45 8.67 5.71
</TABLE>
The weighted average fair value of options granted during 1995 and 1996 was
$1.383 and $4.366, respectively.
F-12
<PAGE> 39
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CAPITAL STOCK -- (CONTINUED)
An aggregate of 272,500 shares of Common Stock remain available for grant
pursuant to either the 1994 Plan or the Directors' Plan. The Company has
reserved a total of 1,815,000 shares of Common Stock issuable upon the exercise
of outstanding options and options available for issuance pursuant to the
Company's stock option plans. As of December 31, 1996, 857,500 options were
vested and exercisable.
As a result of certain option grants in 1994 at exercise prices below fair
market value, the Company recorded deferred compensation, which is reflected as
a component of stockholders' equity on the balance sheets. Deferred compensation
is being amortized over the vesting period of the related options. Deferred
compensation related to options that were forfeited has been charged to
additional paid-in capital. As of December 31, 1996 all deferred compensation
relating to the 1994 issuance of stock options had been amortized.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (FAS 123) as they pertain to financial
statement recognition of compensation expense attributable to option grants. If
the Company had elected to recognize compensation cost for the option grants
consistent with FAS 123, the Company's net loss and net loss per share on a
pro-forma basis would have been.
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net loss -- as reported............................ $(2,107,349) $(2,830,595)
Net loss -- pro-forma.............................. $(2,259,434) $(4,428,995)
Net loss per share -- as reported.................. $ (0.23) $ (0.29)
Net loss per share -- pro-forma.................... $ (0.24) $ (0.46)
</TABLE>
The pro-forma expense related to the stock options is recognized over the
vesting period, generally four years. The fair value of each option grant was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions for each year:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Risk-free interest rate...................................... 5.81% 6.00%
Expected life of options -- years............................ 2.77 2.79
Expected stock price volatility.............................. 75% 75%
Expected dividend yield...................................... N/A N/A
</TABLE>
F-13
<PAGE> 40
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. RELATED PARTIES
Since inception, the Company has relied upon related parties for certain
consulting, legal and management services. Total expenses incurred in
transactions with related parties are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED MAY 17, 1990
DECEMBER 31, (DATE OF INCEPTION)
-------------------------------- TO DECEMBER 31,
1994 1995 1996 1996
-------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Consulting fees............... $ 47,772 $ 34,575 $187,820 $ 713,210
Legal fees.................... 171,523 74,761 70,582 727,550
Management fees............... -- -- -- 361,800
Interest expense.............. 25,361 19,783 13,268 113,474
Office space.................. -- -- -- 40,500
Patent and FCC fees........... -- -- -- 56,600
Other......................... -- -- -- 26,750
-------- -------- -------- -----------
$244,656 $129,119 $271,670 $ 2,039,884
======== ======== ======== ===========
</TABLE>
Of the $187,820 in consulting fee expenses for the year ended December 31,
1996, $119,820 relate to issuance of common stock options to a related party for
consulting services performed for the Company.
During the period May 17, 1990 (date of inception) to December 31, 1996,
the Company issued Common Stock in lieu of cash in settlement of certain
liabilities and expenses as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED MAY 17, 1990
DECEMBER 31, (DATE OF INCEPTION)
-------------------------------- TO DECEMBER 31,
1994 1995 1996 1996
-------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Consulting fees............... $ -- $ 36,330 $ 32,550 $ 168,880
Legal fees.................... -- 310,953 521,743 1,028,227
Management fees............... -- -- -- 60,000
Interest expense.............. -- -- -- 14,259
Patent and FCC fees........... -- -- -- 39,600
-------- -------- -------- -----------
$ -- $347,283 $554,293 $ 1,310,966
======== ======== ======== ===========
</TABLE>
Liabilities settled through the issuance of Common Stock in lieu of cash
are reflected in the statements of stockholders' equity.
In April 1994, an officer loaned the Company $240,000 payable on April 1,
1995 and accruing simple interest at the rate of 8% per annum. This loan and
accrued interest was repaid in 1996. If this officer is terminated for any
reason other than cause, as defined in his amended employment and noncompetition
agreement dated June 8, 1994, the Company is obligated to pay this officer
$300,000 plus any and all amounts then owed to him by the Company. This officer
waived his compensation for the fourth quarter of 1994.
During the second quarter of 1994, a principal stockholder of the Company
loaned the Company $560,000 payable on demand and accruing simple interest at
the rate of 8% per annum. The principal balance
F-14
<PAGE> 41
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. RELATED PARTIES -- (CONTINUED)
of this note and accrued interest thereon, totaling $572,000, was exchanged for
57,200 Units in connection with the Company's public offering.
5. INCOME TAXES
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax assets and deferred tax liability and are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Capitalized start-up costs......................... $ 4,312,000 $ 5,377,000
Net operating loss carryforwards................... 1,517,500 1,511,300
Deferred compensation.............................. 509,800 542,300
Accrual to cash adjustments........................ 38,400 60,500
----------- -----------
6,377,700 7,491,100
Valuation allowance................................ (6,377,700) (7,491,100)
----------- -----------
Net deferred tax asset............................. $ -- $ --
=========== ===========
</TABLE>
Realization of the net deferred tax asset at the balance sheet date is
dependent upon future earnings which are uncertain. Accordingly, a full
valuation allowance was recorded against the asset.
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $3,713,800 for federal and state income tax purposes available to
offset future taxable income. The net operating loss carryforwards expire at
various dates beginning 2005. There may be limitations on the annual utilization
of these net operating losses as a result of certain changes in ownership that
have occurred since the Company's inception. In addition, a significant portion
of costs incurred have been capitalized for tax purposes as a result of the
Company's status as a start-up enterprise. Once the Company begins it active
trade or business, these capitalized costs will be amortized over 60 months. The
total capitalized start-up costs of $5,546,000 include $169,000 which when
realized would not affect financial statement income but will be recorded
directly to shareholders' equity.
6. COMMITMENTS AND CONTINGENCIES
Lease commitment
In October 1992, the Company entered into a lease with an unaffiliated
property management company for the office space that the Company previously
subleased from a company controlled by a former director and executive officer
of the Company. The lease term extends through October 1998. The lease provided
for the abatement of rental payments for the first three months of each of the
first two years of the lease term. Also, in addition to the base rental
payments, the Company will pay a monthly allocation of the building's operating
expenses. Minimum annual rental commitments under this lease are as follows for
the year ended December 31:
<TABLE>
<S> <C>
1997.............................................................. $219,000
1998.............................................................. 176,000
--------
$395,000
========
</TABLE>
F-15
<PAGE> 42
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Total rent expense for the years ended December 31, 1994, 1995 and 1996 and
the period May 17, 1990 (date of inception) to December 31, 1996 was $325,798,
$274,653, $301,765 and $1,205,008, respectively.
Satellite construction
The Company has entered into an agreement (the "Construction Contract")
with Space Systems/Loral pursuant to which Space Systems/Loral has agreed to
construct two satellites and, at the Company's option, a third satellite in
accordance with stipulated specifications. The Company has extended the
Construction Contract on a monthly basis through April 30, 1997 while it
negotiates with Space Systems/Loral to amend the contract's technical
specifications, pricing and delivery terms. The Company may negotiate with Space
Systems/Loral to extend the Construction Contract further or it may permit the
contract to expire. The Company believes it will be able to negotiate a
favorable contract with Space Systems/Loral for the construction of the
satellites, although there can be no assurance that the Company will be able to
do so. An initial payment of $100,000 was made by the Company at the time the
contract was signed, which is included in Deposits on the balance sheets as of
December 31, 1995 and 1996.
Launch services
The Company has reserved two launch slots with Arianespace during the
period extending from November 1, 1999 through April 30, 2000. If the Company's
satellites are not available for launch during this period, the Company will
arrange to launch the satellites on the first launch dates available after the
satellites are completed. In order to maintain its launch slots, the Company
will need to enter into a definitive agreement with Arianespace by May 31, 1997,
providing for the launch of its satellites. The final terms and conditions of
any launch agreement are subject to negotiations between the Company and
Arianespace. Satellite launches are subject to significant risks, including
satellite destruction or damage during launch or failure to achieve proper
orbital placement. In connection with this agreement, the Company paid a non-
refundable launch date reservation fee of $100,000. This amount, which is
included in Deposits on the balance sheets as of December 31, 1995 and 1996 will
be credited against the cost of the launch services.
F-16
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as to the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------- --- -----------------------------------------------------
<S> <C> <C>
David Margolese................. 39 Chairman, Chief Executive Officer and Director
Robert D. Briskman.............. 64 Vice President, Chief Technical Officer and Director
Lawrence F. Gilberti............ 46 Director and Secretary
Peter K. Pitsch................. 45 Director
Jack Z. Rubinstein.............. 48 Director
Ralph V. Whitworth.............. 41 Director
</TABLE>
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers are elected by the
Board of Directors and serve at the discretion of the Board.
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. Prior to his involvement with the Company, Mr.
Margolese was a founder of Cantel Inc., Canada's national cellular telephone
company, and of Canadian Telecom Inc., a radio paging company, serving as that
company's President until its sale in 1987. From 1987 until August 1991, Mr.
Margolese was a private investor. In 1991, Mr. Margolese founded a consortium
with AT&T and Hutchison Telecommunications Ltd. to bid for Israel's national
cellular telephone license and served as Chairman of this consortium until June
1993.
ROBERT D. BRISKMAN. Mr. Briskman has served as a director, Vice President
and Chief Technical Officer 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 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 Corp.,
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"), where he was employed for over 20 years. Prior to joining COMSAT,
Mr. Briskman was a communications specialist with IBM and NASA. Mr. Briskman
holds a bachelors degree in engineering from Princeton and a masters degree in
electrical engineering from the University of Maryland. He has published over 40
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.
LAWRENCE F. GILBERTI. Mr. Gilberti was elected Secretary of the Company in
November 1992 and has served as a director since September 1993. In addition,
since December 1992, he has been the Secretary and sole director of, and from
December 1992 to September 1994 the President of, Satellite CD Radio, Inc. From
1985 to August 1994, Mr. Gilberti was an attorney with the law firm of Goodman
Phillips & Vineberg. Mr. Gilberti is a partner in the law firm of Fischbein
Badillo Wagner Harding and has provided legal services to the Company since
1992. He holds a bachelors degree from Princeton University and a law degree
from New York University.
26
<PAGE> 44
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. Mr. Pitsch holds a bachelor's degree from the University of
Chicago and a law degree from Georgetown University.
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, a Hartsdale, N.Y. based hedge fund. From September 1988 to
October 1990, Mr. Rubinstein was a consultant to institutional clients at Morgan
Stanley & Co. From February 1978 to September 1988, he was an Associate Director
at Bear Stearns, Inc., responsible for corporate insider portfolio management.
From December 1971 to November 1977, he was a securities analyst with Shearson
Haydon Stone, Inc. covering the business services industry. Mr. Rubinstein holds
a bachelor's degree from Cornell University and a Masters of Business
Administration from New York University.
RALPH V. WHITWORTH. Mr. Whitworth became a director of the Company in
March 1994. Since 1988, he has been President of Whitworth and Associates, a
Washington, D.C. based consulting firm. In January 1997, Mr. Whitworth became a
partner of Batchelder & Partners, Inc., a financial advisory firm. Mr. Whitworth
was President of United 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. Mr. Whitworth holds a bachelor's
degree from the University of Nevada and a law degree from Georgetown
University.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of
the Securities Exchange Act of 1934, as amended, requires the Company's
officers, directors and 10 percent shareholders to file reports of ownership and
changes in ownership with the SEC. Officers, directors and 10 percent
shareholders are required by SEC regulations to furnish the Company with all
Section 16(a) reports they file.
Based on the Company's review of such reports the Company received and
written representations from the Company's officers and directors, the Company
believes that all required reports were timely filed in fiscal 1996.
27
<PAGE> 45
ITEM 11. EXECUTIVE COMPENSATION
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
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
OTHER SECURITIES
FISCAL 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 1995 $100,000 $ -- $ -- --
and Chief Executive Officer 1994 $122,000(1) $ -- $ 26,052(2) 300,000
Robert D. Briskman................... 1996 $106,249 $20,000 $190,938 60,000
Vice President and 1995 $100,000 $ -- $ 1,340 --
Chief Technical Officer 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.
COMPENSATION OF 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 forego 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
"Management -- 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 Pitsch Communications, Peter K.
Pitsch, is a director of the Company.
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 Messrs. Margolese
and Briskman.
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
28
<PAGE> 46
$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. Under the agreement, the Company granted to Mr. Margolese an option to
purchase 300,000 shares of Common Stock at $5.00 per share, all of which are
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 $300,000. 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 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 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 the agreement the Company granted to Mr. Briskman an option to purchase
80,000 shares of Common Stock at $1.00 per share, all of which are fully vested
and exercisable. The 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 were fully vested and
exercisable. In January 1996, Mr. Briskman exercised options to purchase 80,000
shares of the Company's Common Stock. 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 annual salary and, at
Mr. Briskman's option, to repurchase all of the shares of Common Stock then
owned by Mr. Briskman at a price of $1.25 per share. The Company has also
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.
EMPLOYEE AND DIRECTOR STOCK OPTIONS AND STOCK GRANTS
In February 1994, the Company adopted its 1994 Stock Option Plan (the "1994
Plan") and its Directors' 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 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 10 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. 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
29
<PAGE> 47
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 fair market of the Company's Common Stock on
the date of grant value. Options granted under the Directors' Plan vest
immediately upon grant. Options granted under the Directors' Plan are
exercisable for a period of 10 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 more
readily comply with the new rules under Section 16 of the Securities Act of
1933, as amended, 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 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.
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 December 31,
1996, options to purchase an aggregate of 1,327,500 shares of Common Stock have
been granted pursuant to the 1994 Plan and the Directors' Plan and there remains
an aggregate of 272,500 shares of Common Stock available for grant pursuant to
the 1994 Plan and the Directors 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.
30
<PAGE> 48
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 is
exercisable upon the FCC's grant of a license to the Company. 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 has granted a license to the Company and if Mr. Briskman is still
employed by the Company.
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
NUMBER TOTAL APPRECIATION FOR STOCK
OF OPTIONS GRANTED EXERCISE OR TERM
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR PER 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).
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT FISCAL YEAR END AT FISCAL YEAR END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/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
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.
31
<PAGE> 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 12, 1997 of (i) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each director of the Company, (iii) each
executive officer of the Company and (iv) all directors and officers as a group.
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAMES AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Darlene Friedland................................ 2,834,500 27.5%
110 Wolseley Road
Point Piper 2027
Sydney, Australia
David Margolese (2).............................. 1,900,000 17.9%
c/o CD Radio Inc.
Sixth Floor
1001 22nd Street, N.W.
Washington, D.C. 20037
Robert D. Briskman (3)........................... 132,500 1.3%
Jack Z. Rubinstein (4)........................... 227,000 2.2%
Peter K. Pitsch (5).............................. 70,000 *
Lawrence F. Gilberti (6)......................... 35,000 *
Ralph V. Whitworth (7)........................... 35,000 *
All Executive Officers and Directors as a Group
(6 persons) (8)................................ 2,399,500 21.7%
</TABLE>
- ---------------
* Less than 1%
(1) This table is based upon information supplied by Directors, officers and
principal stockholders. Percentage of ownership is based on 10,300,391
shares of Common Stock outstanding on March 12, 1997. Unless otherwise
indicated, the address of the Beneficial Owner is the Company.
(2) 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 of such
date.
(3) Includes 132,500 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days. Does not include 60,000 shares issuable pursuant
to stock options that are not exercisable within 60 days of such date.
(4) 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 40,000 shares held by DICA Partners of which Mr.
Rubinstein is the General Partner.
(5) Includes 35,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(6) Includes 35,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(7) Includes 35,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(8) Includes 732,500 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days. Does not include 460,000 shares issuable
pursuant to options that are not exercisable within 60 days of such date.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 27, 1995, the Company granted to Peter K. Pitsch pursuant to the
1994 Plan a stock option to purchase 25,000 shares of Common Stock at an
exercise price of $2.875 per share in consideration of legal
32
<PAGE> 50
services rendered to the Company. These options are exercisable for a period of
10 years from the date of grant and terminate 18 months after the termination
for any reason of Mr. Pitsch's service as a consultant to the Company. In 1996,
the Company granted to Mr. Pitsch pursuant to the 1994 Plan a stock option to
purchase 25,000 shares of Common Stock at an exercise price of $8.25 which would
have vested upon a certain milestone. The milestone was not met and consequently
this option did not vest.
In March 1996, the Company granted to Mr. Rubinstein pursuant to the 1994
Plan a stock option to purchase 60,000 shares of Common Stock at an exercise
price or $4.50. The option is exercisable for a period of 10 years from the date
of grant and terminates 18 months after the termination for any reason of Mr.
Rubinstein's service as a consultant to the Company.
Pursuant to an agreement dated October 21, 1992 (the "Batchelder
Agreement"), the Company retained the services of Batchelder & Partners, Inc., a
financial advisory firm ("Batchelder"), to provide the Company with certain
financial consulting services. On September 13, 1995, Batchelder entered into a
separate agreement with Whitworth and Associates (the "Whitworth Agreement"), of
which Ralph V. Whitworth is President, pursuant to which Whitworth is to provide
consulting services to Batchelder for a fee equal to a percentage of the fee
received by Batchelder from the Company under the Batchelder Agreement. In the
fiscal year ended December 31, 1996, Whitworth and Associates received $60,000
from the Whitworth agreement. In January 1997, Mr. Whitworth became a partner in
Batchelder, and the Whitworth Agreement was terminated.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
a) The following documents are filed as a part of this report:
1) Consolidated Financial Statements and Report of Independent
Accountants are included under Item 8, in Part II.
2) Consolidated Financial Statement Schedules and Report of Independent
Public Accountants on those schedules are included as follows:
None.
3) Exhibits: The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated By-Laws.
4.1 Description of Capital Stock contained in the Amended and Restated Certificate
of Incorporation (see Exhibit 3.1).
4.2 Description of Rights of Security Holders contained in the Amended and Restated
Bylaws (see Exhibit 3.2.).
4.3 Form of Certificate for Shares of Common Stock.
4.4 Form of Common Stock Purchase Warrant Agreement between the Company and
Continental Stock Transfer and Trust Company.
4.5 Form of Common Stock Purchase Warrant Certificate.
4.6 Form of Representatives' Warrant Agreement among the Company, Yorkton Securities
Inc., First Marathon (U.S.A.) Inc., First Marathon Securities Limited and
Continental Stock Transfer and Trust Company.
4.7 Form of Representatives' Warrant Certificate.
10.1 Option Agreement, dated January 23, 1992, between the Company and New World Sky
Media.
</TABLE>
33
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------
<C> <S>
10.2 Lease Agreement, dated October 20, 1992, between 22nd & K Street Office Building
Limited Partnership and the Company.
10.3 Letter Agreement, dated November 18, 1992, between the Company and Batchelder &
Partners, Inc.
10.4.1 Proprietary Information and Non-Competition Agreement, dated February 9, 1993,
for Robert Briskman.
10.4.2 Amendment No. 1 to Proprietary Information and Non-Competition Agreement between
the Company and Robert Briskman.
+10.5.1 Satellite Construction Agreement, dated March 2, 1993, between Space
Systems/Loral and the Company.
+10.5.2 Amendment No. 1 to Satellite Construction Agreement, effective December 28,
1993, between Space Systems/Loral and the Company.
+10.5.3 Amendment No. 2 to Satellite Construction Agreement, effective March 8, 1994,
between the Space Systems/Loral and the Company.
10.5.4 Amendment No. 3 to Satellite Construction Agreement, effective February 12,
1996, between the Space Systems/Loral, Inc. and the Company.
10.5.5 Amendment No. 4 to Satellite Construction Agreement, effective June 18, 1996,
between the Space Systems/Loral, Inc. and the Company. (Incorporated by
reference to Exhibit 10.8.5 to the Company's Form 10-Q for the period ended
September 30, 1996.)
10.5.6 Amendment No. 5 to Satellite Construction Agreement, effective August 26, 1996,
between the Space Systems/Loral, Inc. and the Company. (Incorporated by
reference to Exhibit 10.8.6 to the Company's Form 10-Q for the period ended
September 30, 1996.)
10.5.7 Amendment No. 6 to Satellite Construction Agreement, effective August 26, 1996,
between the Space Systems/Loral, Inc. and the Company.
10.5.8 Amendment No. 8 to Satellite Construction Agreement, effective January 29, 1997,
between the Space Systems/Loral, Inc. and the Company.
10.5.9 Amendment No. 9 to Satellite Construction Agreement, effective February 26,
1997, between the Space Systems/Loral, Inc. and the Company.
10.5.10 Amendment No. 11 to Satellite Construction Agreement, effective March 24, 1997,
between the Space Systems/Loral, Inc. and the Company.
10.6 Assignment of Technology Agreement, dated April 15, 1993, between Robert
Briskman and the Company.
10.7 Demand Note and Grant of Warrant to Robert Friedland, dated April 28, 1993.
*10.8 Amended and Restated Option Agreement between the Company and Robert Briskman.
10.9 Demand Note and Grant of Warrant to Robert Friedland, dated October 13, 1993.
10.10.1 Launch Reservation Agreement, dated September 20, 1993, between the Company and
Arianespace.
10.10.2 Modification of Launch Reservation Agreement, dated April 1, 1994, between the
Company and Arianespace.
10.10.3 Second Modification of Launch Reservation Agreement, dated August 10, 1994,
between the Company and Arianespace.
10.10.4 Third Modification of Launch Reservation Agreement, dated November 8, 1995,
between the Company and Arianespace (Incorporated by reference to Exhibit 14.4
to the Company's Form 10-Q for the period ended September 30, 1996).
10.10.5 Fourth Modification of Launch Reservation Agreement, dated August 30, 1996,
between the Company and Arianespace (Incorporated by reference to Exhibit 14.5
to the Company's Form 10-Q for the period ended September 30, 1995).
10.10.6 Fifth Modification of Launch Reservation Agreement, dated December 10, 1996,
between the Company and Arianespace.
*10.11.1 Employment and Noncompetition Agreement between the Company and David Margolese.
*10.11.2 First Amendment to Employment Agreement between the Company and David Margolese.
</TABLE>
34
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------
<C> <S>
*10.12.1 Employment and Noncompetition Agreement between the Company and Robert Briskman.
*10.12.2 First Amendment to Employment Agreement between the Company and Robert Briskman.
*10.12.3 Second Amendment to Employment Agreement between the Company and Robert
Briskman.
10.13 Registration Agreement, dated January 2, 1994, between the Company and M.A.
Rothblatt and B.A. Rothblatt.
*10.14 1994 Stock Option Plan.
*10.15 Amended and Restated 1994 Directors' Nonqualified Stock Option Plan.
10.16 Form of Lock-Up Agreement executed by certain holders of the Company's Common
Stock.
10.17 Option Agreement, dated as of October 21, 1992, between the Company and
Batchelder & Partners, Inc.
10.18 Settlement Agreement, dated as of April 1, 1994, among the Company, M.A.
Rothblatt, B.A. Rothblatt and Marcor, Inc.
10.19.1 Demand Note, dated April 19, 1994, in favor of David Margolese.
10.19.2 Note, dated June 30, 1994, in favor of David Margolese.
10.20 Demand Note, dated April 19, 1994, between the Company and D. Friedland.
10.21 Form of Underwriting Agreement (Incorporated by reference from Exhibit 1.1 to
the
Registrant's Registration Statement on Form S-1, Commission file No. 33-74782)
10.22 Letter Agreement dated January 13, 1995, between the Company and Brenner
Securities.
*10.23 1995 Stock Compensation Plan
**10.24 Form of Preferred Stock Investment Agreement dated October 23, 1996 between the
Company and certain investors.
**10.24.1 Form of First Amendment to Preferred Stock Investment Agreement dated March 7,
1997 between the Company and certain investors.
**10.24.2 Form of Second Amendment to Preferred Stock Investment Agreement dated March 14,
1997 between the Company and certain investors.
11.1 Statement Re Computation of Historical Net Loss Per Share.
21.1 List of the Company's Subsidiaries.
**23.1 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
</TABLE>
- ---------------
* This document has been identified as a management contract or compensatory
plan or arrangement.
** Replaces previously filed exhibit.
+ Portions of these exhibits, which are incorporated by reference to
Registration No. 33-74782, have been omitted pursuant to an Application for
Confidential Treatment filed by the Company with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
b) Reports on Form 8-K
A report on Form 8-K was filed on October 2, 1996 with the Securities
and Exchange Commission relating to the exercise of the Company's
warrants.
A report on Form 8-K was filed on October 16, 1996 with the Securities
and Exchange Commission relating to the Company's Pioneer's Preference
application.
A report on Form 8-K was filed on October 30, 1996 with the Securities
and Exchange Commission relating to the private placement agreement for
the issuance of the 5% Delayed Convertible Preferred Stock.
35
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: May 8, 1997 CD RADIO INC.
/s/ DAVID MARGOLESE
--------------------------------------
David Margolese
Chairman and Chief Executive Officer
36
<PAGE> 54
CD RADIO INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- --------- ---------------------------------------------------------------------- ----------
<C> <S> <C>
*3.1 Amended and Restated Certificate of Incorporation.
*3.2 Amended and Restated By-Laws.
*4.1 Description of Capital Stock contained in the Amended and Restated
Certificate of Incorporation (see Exhibit 3.1).
*4.2 Description of Rights of Security Holders contained in the Amended and
Restated Bylaws (see Exhibit 3.2.).
*4.3 Form of Certificate for Shares of Common Stock.
*4.4 Form of Common Stock Purchase Warrant Agreement between the Company
and Continental Stock Transfer and Trust Company.
*4.5 Form of Common Stock Purchase Warrant Certificate.
*4.6 Form of Representatives' Warrant Agreement among the Company, Yorkton
Securities Inc., First Marathon (U.S.A.) Inc., First Marathon
Securities Limited and Continental Stock Transfer and Trust Company.
*4.7 Form of Representatives' Warrant Certificate.
*10.1 Option Agreement, dated January 23, 1992, between the Company and New
World Sky Media.
10.2 Lease Agreement, dated October 20, 1992, between 22nd & K Street
Office Building Limited Partnership and the Company (Incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement on
Form S-1 (File No. 33-74782) (the "Registration Statement").
10.3 Letter Agreement, dated November 18, 1992, between the Company and
Batchelder & Partners, Inc. (Incorporated by reference to Exhibit
10.4 to the Registration Statement)
10.4.1 Proprietary Information and Non-Competition Agreement, dated February
9, 1993, for Robert Briskman (Incorporated by reference to Exhibit
10.8.1 to the Registration Statement).
10.4.2 Amendment No. 1 to Proprietary Information and Non-Competition
Agreement between the Company and Robert Briskman (Incorporated by
reference to Exhibit 10.8.2 to the Registration Statement).
+10.5.1 Satellite Construction Agreement, dated March 2, 1993, between Space
Systems/Loral and the Company (Incorporated by reference to Exhibit
10.9.1 to the Registration Statement).
+10.5.2 Amendment No. 1 to Satellite Construction Agreement, effective
December 28, 1993, between Space Systems/Loral and the Company
(Incorporated by reference to Exhibit 10.9.2 to the Registration
Statement).
+10.5.3 Amendment No. 2 to Satellite Construction Agreement, effective March
8, 1994, between the Space Systems/Loral and the Company
(Incorporated by reference to Exhibit 10.9.3 to the Registration
Statement).
10.5.4 Amendment No. 3 to Satellite Construction Agreement, effective
February 12, 1996, between the Space Systems/Loral, Inc. and the
Company (Incorporated by reference to Exhibit 10.9.4 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995 (the "1995 Form 10-K"))
10.5.5 Amendment No. 4 to Satellite Construction Agreement, effective June
18, 1996, between the Space Systems/Loral, Inc. and the Company.
(Incorporated by reference to Exhibit 10.8.5 to the Company's Form
10-Q for the period ended September 30, 1996.)
10.5.6 Amendment No. 5 to Satellite Construction Agreement, effective August
26, 1996, between the Space Systems/Loral, Inc. and the Company.
(Incorporated by reference to Exhibit 10.8.6 to the Company's Form
10-Q for the period ended September 30, 1996.)
10.5.7 Amendment No. 6 to Satellite Construction Agreement, effective August
26, 1996, between the Space Systems/Loral, Inc. and the Company.
</TABLE>
37
<PAGE> 55
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- --------- ---------------------------------------------------------------------- ----------
<C> <S> <C>
10.5.8 Amendment No. 8 to Satellite Construction Agreement, effective January
29, 1997, between the Space Systems/Loral, Inc. and the Company.
10.5.9 Amendment No. 9 to Satellite Construction Agreement, effective
February 26, 1997, between the Space Systems/Loral, Inc. and the
Company.
10.5.10 Amendment No. 11 to Satellite Construction Agreement, effective March
24, 1997, between the Space Systems/Loral, Inc. and the Company.
10.6 Assignment of Technology Agreement, dated April 15, 1993, between
Robert Briskman and the Company (Incorporated by reference to
Exhibit 10.10 to the Registration Statement).
10.7 Demand Note and Grant of Warrant to Robert Friedland, dated April 28,
1993 (Incorporated by reference to Exhibit 10.12 to the Registration
Statement).
10.8 Amended and Restated Option Agreement between the Company and Robert
Briskman (Incorporated by reference to Exhibit 10.13 to the
Registration Statement).
10.9 Demand Note and Grant of Warrant to Robert Friedland, dated October
13, 1993 (Incorporated by reference to Exhibit 10.14 to the
Registration Statement).
10.10.1 Launch Reservation Agreement, dated September 20, 1993, between the
Company and Arianespace (Incorporated by reference to Exhibit
10.15.1 to the Registration Statement).
10.10.2 Modification of Launch Reservation Agreement, dated April 1, 1994,
between the Company and Arianespace (Incorporated by reference to
Exhibit 10.15.2 to the Registration Statement).
10.10.3 Second Modification of Launch Reservation Agreement, dated August 10,
1994, between the Company and Arianespace (Incorporated by reference
to Exhibit 10.15.3 to the Registration Statement).
10.10.4 Third Modification of Launch Reservation Agreement, dated November 8,
1995, between the Company and Arianespace (Incorporated by reference
to Exhibit 10.14.4 to the Company's Form 10-Q for the period ended
September 30, 1996).
10.10.5 Fourth Modification of Launch Reservation Agreement, dated August 30,
1996, between the Company and Arianespace (Incorporated by reference
to Exhibit 10.14.5 to the Company's Form 10-Q for the period ended
September 30, 1995).
10.10.6 Fifth Modification of Launch Reservation Agreement, dated December 10,
1996, between the Company and Arianespace.
10.11.1 Employment and Noncompetition Agreement between the Company and David
Margolese (Incorporated by reference to Exhibit 10.18.1 to the
Registration Statement).
10.11.2 First Amendment to Employment Agreement between the Company and David
Margolese (Incorporated by reference to Exhibit 10.18.2 to the
Registration Statement).
10.12.1 Employment and Noncompetition Agreement between the Company and Robert
Briskman (Incorporated by reference to Exhibit 10.19.1 to the
Registration Statement).
10.12.2 First Amendment to Employment Agreement between the Company and Robert
Briskman (Incorporated by reference to Exhibit 10.19.2 to the
Registration Statement).
10.12.3 Second Amendment to Employment Agreement between the Company and
Robert Briskman.
10.13 Registration Agreement, dated January 2, 1994, between the Company and
M.A. Rothblatt and B.A. Rothblatt (Incorporated by reference to
Exhibit 10.20 to the Registration Statement).
10.14 1994 Stock Option Plan (Incorporated by reference to Exhibit 10.21 to
the Registration Statement).
</TABLE>
38
<PAGE> 56
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- --------- ---------------------------------------------------------------------- ----------
<C> <S> <C>
10.15 Amended and Restated 1994 Directors' Nonqualified Stock Option Plan
(Incorporated by reference to Exhibit 10.22 to the 1995 Form 10-K).
10.16 Form of Lock-Up Agreement executed by certain holders of the Company's
Common Stock (Incorporated by reference to Exhibit 10.23 to the
Registration Statement).
10.17 Option Agreement, dated as of October 21, 1992, between the Company
and Batchelder & Partners, Inc. (Incorporated by reference to
Exhibit 10.24 to the Registration Statement).
10.18 Settlement Agreement, dated as of April 1, 1994, among the Company,
M.A. Rothblatt, B.A. Rothblatt and Marcor, Inc. (Incorporated by
reference to Exhibit 10.27 to the Registration Statement).
10.19.1 Demand Note, dated April 19, 1994, in favor of David Margolese
(Incorporated by reference to Exhibit 10.28.1 to the Registration
Statement).
10.19.2 Note, dated June 30, 1994, in favor of David Margolese (Incorporated
by reference to Exhibit 10.28.2 to the Registration Statement).
10.20 Demand Note, dated April 19, 1994, between the Company and D.
Friedland (Incorporated by reference to Exhibit 10.29 to the
Registration Statement).
10.21 Form of Underwriting Agreement (Incorporated by reference from Exhibit
1.1 to the Registration Statement)
10.22 Letter Agreement dated January 13, 1995, between the Company and
Brenner Securities (Incorporated by reference to Exhibit 10.36 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1994 (the "1994 Form 10-K").
10.23 1995 Stock Compensation Plan (Incorporated by reference to Exhibit
10.37 to the 1995 Form 10-K).
**10.24 Form of Preferred Stock Investment Agreement dated October 23, 1996
between the Company and certain investors.
**10.24.1 Form of First Amendment to Preferred Stock Investment Agreement dated
March 7, 1997 between the Company and certain investors.
**10.24.2 Form of Second Amendment to Preferred Stock Investment Agreement dated
March 14, 1997 between the Company and certain investors.
11.1 Statement Re Computation of Historical Net Loss Per Share.
21.1 List of the Company's Subsidiaries (Incorporated by reference to
Exhibit 21.1 to the 1994 Form 10-K).
**23.1 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to the same exhibit number of the Company
Registration Statement on Form S-1, Commission File No. 33-74782.
** Replaces previously filed exhibit.
+ Portions of these exhibits, which are incorporated by reference to
Registration No. 33-74782, have been omitted pursuant to an Application for
Confidential Treatment filed by the Company with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
39
<PAGE> 1
EXHIBIT 10.5.7
AMENDMENT NO. 6
TO
CONTRACT NO. SS/L-TP93002-01
AND
SPACE SYSTEMS/LORAL
FOR
DELIVERY OF CD RADIO DARS SYSTEM
THIS CONTRACT AMENDMENT NO. 6 (the "Amendment") is entered into
effective as of the 26th day of August 1996, between CD RADIO INC. (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No.
SS/L-TP93002- 01 dated March 2, 1993, as amended by the parties thereto, most
recently pursuant to Contract Amendment No. 5 dated August 26, 1996 (as so
amended, the "Contract").
WHEREAS, Contractor and Purchaser desire to amend the Contract,
NOW, THEREFORE, in consideration of the mutual covenants and
conditions in this Amendment and in the Agreement, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. The page from the Contract, attached to this Amendment as
Exhibit A and incorporated herein by reference, are hereby substituted for
existing pages in the Contract, in their entirety, as follows:
Existing Page (Remove) Replacement Page (Attached)
71 71
2. All capitalized terms in this Amendment, not otherwise defined
herein, shall have the meanings ascribed to them in the Contract.
3. The Contract, as modified by the express terms of this
Amendment, is hereby ratified and affirmed by Purchaser and Contractor, and
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
effective as of the date first above written.
<TABLE>
<S> <C>
CONTRACTOR: PURCHASER:
SPACE SYSTEMS/LORAL, INC. CD RADIO INC.
By: /s/ R.A. Haley By: /s/ R.D. Briskman
-------------------------------------- -------------------------------------------------
Name: R.A. Haley Name: R.D. Briskman
--------------------------------------
-------------------------------------------------
Title: Vice President & CFO Title: President
-------------------------------------- -------------------------------------------------
CD Radio Systems
</TABLE>
<PAGE> 2
EXHIBIT A - AMENDMENT 6
ARTICLE 44 AGREEMENT EXPIRATION
It is agreed between the Parties that if CD Radio Inc. has not been granted a
license and construction permit from the Federal Communication Commission by
January 31, 1997, then the provisions of this Contract shall become null and
void, and the Parties shall have no further obligation whatsoever to each other,
and no financial obligation shall exist by either Party to the other Party.
71
<PAGE> 1
EXHIBIT 10.5.8
AMENDMENT NO. 8
TO
CONTRACT NO. SS/L-TP93002-01
AND
SPACE SYSTEMS/LORAL
FOR
DELIVERY OF CD RADIO DARS SYSTEM
THIS CONTRACT AMENDMENT NO. 8 (the "Amendment") is entered into
effective as of the 29th day of January 1997, between CD Radio Inc. (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor")
WHEREAS, Contractor and Purchaser are parties to Contract No.
SS/L-TP93002-01 dated March 2, 1993, as amended by the parties thereto, most
recently pursuant to Contract Amendment No. 6 dated August 26, 1996 (as so
amended, the "Contract").
WHEREAS, Contractor and Purchaser desire to amend the Contract,
NOW, THEREFORE, in consideration of the mutual covenants and
conditions in this Amendment and in the Agreement, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. The page from the Contract, attached to this Amendment as
Exhibit A and incorporated herein by reference, are hereby substituted for
existing pages in the Contract, in their entirety, as follows:
Existing Page (Remove) Replacement Page (Attached)
71 71
2. All capitalized terms in this Amendment, not otherwise defined
herein, shall have the meanings ascribed to them in the Contract.
3. The Contract, as modified by the express terms of this
Amendment, is hereby ratified and affirmed by Purchaser and Contractor, and
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
effective as of the date first above written.
<TABLE>
<S> <C>
CONTRACTOR: PURCHASER:
SPACE SYSTEMS/LORAL, INC. CD RADIO INC.
By: /s/ R.A. Haley By: /s/ R.D. Briskman
-------------------------------------- -------------------------------------------------
Name: R.A. Haley Name: R.D. Briskman
-------------------------------------- -------------------------------------------------
Title: Vice President & CFO Title: President
-------------------------------------- -------------------------------------------------
CD Radio Systems
</TABLE>
<PAGE> 2
EXHIBIT A - AMENDMENT 8
ARTICLE 44 AGREEMENT EXPIRATION
It is agreed between the Parties that if CD Radio Inc. has not been granted a
license and construction permit from the Federal Communications Commission by
the end of February 28, 1997, then the provisions of this Contract shall become
null and void, and the Parties shall have no further obligation whatsoever to
each other, and no financial obligation shall exist by either Party to the other
Party.
<PAGE> 1
EXHIBIT 10.5.9
AMENDMENT NO. 9
TO
CONTRACT NO. SS/L-TP93002-01
AND
SPACE SYSTEMS/LORAL
FOR
DELIVERY OF CD RADIO DARS SYSTEM
THIS CONTRACT AMENDMENT NO. 9 (the "Amendment") is entered into
effective as of the 26th day of February 1997, between CD Radio Inc. (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No.
SS/L-TP93002-01 dated March 2, 1993, as amended by the parties thereto, most
recently pursuant to Contract Amendment No. 8 dated 29 January 1997 (as so
amended, the "Contract").
WHEREAS, Contractor and Purchaser desire to amend the Contract,
NOW, THEREFORE in consideration of the mutual covenants and
conditions in this Amendment and in the Agreement, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. The page from the Contract, attached to this Amendment as
Exhibit A and incorporated herein by reference, are hereby substituted
for existing pages in the Contract, in their entirety, as follows:
Existing Page (Remove) Replacement Page (Attached)
71 71
2. All capitalized terms in this Amendment, not otherwise defined
herein, shall have the meanings ascribed to them in the Contract.
3. The Contract, as modified by the express terms of this
Amendment, is hereby ratified and affirmed by Purchaser and Contractor, and
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
effective as of the date first above written.
<TABLE>
<S> <C>
CONTRACTOR: PURCHASER:
SPACE SYSTEMS/LORAL, INC. CD RADIO INC.
By: /s/ R.A. Haley By: /s/ R.D. Briskman
-------------------------------------- -------------------------------------------------
Name: R.A. Haley Name: R.D. Briskman
-------------------------------------- -------------------------------------------------
Title: Vice President & CFO Title: President
-------------------------------------- -------------------------------------------------
</TABLE>
<PAGE> 2
EXHIBIT A - AMENDMENT 9
ARTICLE 44 AGREEMENT EXPIRATION
It is agreed between the Parties that if CD Radio Inc. has not been granted a
license and construction permit from the Federal Communications Commission by
the end of March 31, 1997, then the provisions of this Contract shall become
null and void, and the Parties shall have no further obligation whatsoever to
each other, and no financial obligation shall exist by either Party to the other
Party.
71
<PAGE> 1
EXHIBIT 10.5.10
AMENDMENT NO. 11
TO
CONTRACT NO. SS/L-TP93002-01
AND
SPACE SYSTEMS/LORAL
FOR
DELIVERY OF CD RADIO DARS SYSTEM
THIS CONTRACT AMENDMENT NO. 11 (the "Amendment") is entered into
effective as of the 24th day of March 1997, between CD RADIO INC. (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No.
SS/L-TP93002- 01 dated March 2, 1993,
WHEREAS, Contractor and Purchaser desire to amend the Contract to
(a) allow Contractor to commence long lead material procurement
activities, and (b) to extend the term of the contract.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions in this Amendment and in the Agreement, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
A. Replace "RESERVED" at Article 16 with the following new
article:
ARTICLE 16. EARLY START FOR LONG LEAD MATERIAL PROCUREMENT
A contract amendment between the parties is contemplated which
will change the configuration of the satellites to the
configuration described in the draft Amendment #10 dated 21 March
1997. In anticipation of the Parties' execution of such an
amendment, upon Contractor's receipt of $6.5 million, the
Contractor shall commence to perform the work associated with the
first five months of the program schedule, which consists
primarily of long lead material procurement activity.
B. Change ARTICLE 44 AGREEMENT EXPIRATION to the following:
It is agreed between the Parties that if CD Radio Inc. has not
been granted license and construction permit from the Federal
Communication Commission by the end of April 30, 1997, then the
provisions of this Contract shall become null and void, and the
Parties shall have no further obligation whatsoever to each
other, and no financial obligation shall exist by either Party to
the other Party.
<PAGE> 2
AMENDMENT NO. 11
TO
CONTRACT NO. SS/L-TP93002-01
C. All capitalized terms in this Amendment, not otherwise defined
herein, shall have the meanings ascribed to them in the Contract.
D. The Contract, as modified by the express terms of this
Agreement, is hereby ratified and affirmed by Purchaser and
Contractor, and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
effective as of the date first above written.
<TABLE>
<S> <C>
CONTRACTOR: PURCHASER:
SPACE SYSTEMS/LORAL, INC. CD RADIO INC.
By: /s/ R.A. Haley By: /s/ R.D. Briskman
-------------------------------------- -------------------------------------------------
Name: R.A. Haley Name: R.D. Briskman
-------------------------------------- -------------------------------------------------
Title: Vice President & CFO Title: President
-------------------------------------- -------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.10.6
[ARIANESPACE LOGO]
Mr. Robert D. Briskman
President, Systems Group
SENIOR VICE-PRESIDENT CD RADIO INC.
MARKETING-CUSTOMER'S SERVICE 1001 22nd Street, NW
AND INTERNATIONAL AFFIARS Washington, DC 20037
USA
Evry, December 10, 1996
DGC/RJ/cpL96361
Subject: Launch Opportunity Reservation Agreement 95.5.921 between
Arianespace and CD Radio ((( the LORA )))
Dear Mr. Briskman,
As discussed, we are pleased to revise certain terms of the LORA as follows:
- The Launch Period reserved for CD Radio under Article 1 of the LORA
is hereby changed to. 1 November 1999 up to and including 30
April 2000.
- Notwithstanding the terms of Article 6 of the LORA, the reservation
for the Launch Period referred to hereabove shall be valid until 31
May 1997.
- The above amendments to the LORA are made notwithstanding the
provisions of Article 5 of the LORA and all other terms thereof
remain unchanged.
Could you kindly confirm your approval of the above terms by returning an
executed copy of this letter.
Best Regards,
CD RADIO INC.
/s/ R.W. Jaeger
---------------------------
Ralph-Werner Jaeger
/s/ Robert D. Briskman Dec. 13, 1996
- -------------------------- ---------------
MR. ROBERT D. BRISKMAN Date
President, Systems Group
ARIANESPACE - BOULEVARD DE L'EUROPE - B.P. 177 - 91006 EVRY CEDEX / FRANCE -
Tel. (33/1) 60 87 60 00 + - Telex ARESP 602 392
S.A. au capital de 270.000.000 F - R.C.S. CORBEIL-ESSONNES B318516457
<PAGE> 1
EXHIBIT 10.12.3
[CD RADIO LETTERHEAD]
January 28, 1997
Mr. Robert D. Briskman
CD Radio Inc.
1001 22nd Street, N.W.
Washington, D.C. 20037
Re: Extension of Employment Agreement
Dear Rob:
By this letter CD Radio Inc. (the "Company") hereby confirms to you its
extension of the term of your Employment and Noncompetition Agreement dated as
of February 2, 1994 (the "Agreement") for an additional one (1) year period,
with the term of the Agreement now to end as of January 1, 1998. It is
understood that the terms and conditions of your employment will in all other
respect continue to be controlled by the Agreement with the exception that all
provisions of the Agreement (including any nondisclosure and noncompetition
provisions included in therein or dependent thereon) are hereby deemed to be
amended in any relevant respect as may be required to reflect that the end of
your term of employment thereunder will now expire as of January 1, 1998.
Kindly confirm and acknowledge your agreement to the foregoing and your
willingness to continue in the Company's employ on the terms and conditions of
the Agreement as hereby amended by signing and returning to the Company the
attached copy of this Letter.
Sincerely,
/s/ DAVID MARGOLESE
David Margolese
Chairman and Chief
Executive Officer
Confirmed and Acknowledged:
/s/ ROBERT D. BRISKMAN 1/30/97
- ---------------------------
Robert D. Briskman
<PAGE> 1
EXHIBIT 10.24
CD RADIO INC.
PREFERRED STOCK INVESTMENT AGREEMENT
PREFERRED STOCK INVESTMENT AGREEMENT ("AGREEMENT") dated as of
October 23, 1996 between CD Radio Inc., a Delaware corporation ("CDRD"), and
each entity listed as an investor on Schedule I attached to this Agreement
(each individually an "INVESTOR" and collectively the "INVESTORS").
W I T N E S S E T H:
WHEREAS, CDRD desires to sell and issue to the Investors, and
the Investors wish to purchase from CDRD, up to an aggregate of 2,500,000
shares of CDRD's 5% Delayed Convertible Preferred Stock having the rights,
designations and preferences set forth in the Certificate of Designations of
CDRD (the "CERTIFICATE OF DESIGNATIONS") in the identical form and substance of
Exhibit 1 attached to this Agreement (the "PREFERRED SHARES"), on the terms and
conditions set forth in this Agreement;
WHEREAS, CDRD initially desires to sell to the Investors up to
1,250,000 of the Preferred Shares ("FIRST CLOSING SHARES") in the event that
it, or its subsidiary, receives notice with respect to the authority to provide
satellite digital audio radio services ("SATELLITE DARS LICENSE") that either:
(i) the Federal Communications Commission ("FCC") has issued an order stating
that CDRD has been chosen to receive a Satellite DARS License by virtue of its
having been designated a pioneer and will not need to participate in
competitive bidding for such license (the "PIONEER'S PREFERENCE ORDER"); or
(ii) it is the winning bidder for a Satellite DARS License at the conclusion of
an auction for Satellite DARS Licenses (a "WINNING BID"), all on the terms and
conditions set forth in this Agreement;
WHEREAS, CDRD will have the option to sell to the Investors a
number of Preferred Shares equal to the number of First Closing Shares ("SECOND
CLOSING SHARES") after the First Closing Shares have been sold, subject to the
terms and conditions set forth in this Agreement;
WHEREAS, the Preferred Shares will be convertible into shares
of common stock, par value $.001, of CDRD ("COMMON SHARES") and the Investors
will have registration rights with respect to such Common Shares issuable upon
conversion, and the Preferred Shares will be subject to certain rights of
redemption of CDRD;
NOW, THEREFORE, in consideration of the foregoing premises and
the covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE> 2
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
Section 1.1 Purchase and Sale of Preferred Shares. Upon
the following terms and conditions, CDRD shall issue and sell to each Investor
severally, and each Investor severally shall purchase from CDRD, the number of
First Closing Shares and Second Closing Shares indicated next to such
Investor's name on Schedule I attached hereto.
Section 1.2 Purchase Price. The purchase price for the
Preferred Shares (the "PURCHASE PRICE") shall be $25 per share; provided,
however, that if any Warrants (as defined below) are issued pursuant to Section
3.2, the Purchase Price shall be allocated between the Preferred Shares and the
Warrants such that the Warrants (or fraction thereof) issuable to Investors for
each Preferred Share shall be deemed to have a purchase price of $0.05.
Section 1.3 The First Closing. (a) The closing of the
purchase and sale of the First Closing Shares (the "FIRST CLOSING"), shall take
place at the offices of the Investors' counsel:
(i) at 10:00 am., local time on the latest of:
(A) the earlier of the date: (1) five
business days after the Investors receive
notice from CDRD that the FCC has adopted the
Pioneer's Preference Order or (2) on which
the funds placed in the Escrow Account (as
defined below) are released in accordance
with the terms and conditions of the Escrow
Agreement (as defined below) in connection
with a Winning Bid; and
(B) the date on which the last to be
fulfilled or waived of the conditions set
forth in Article IV hereof and applicable to
the First Closing shall be fulfilled or
waived in accordance herewith; or
(ii) at such other time and place and/or on such
other date as all of the Investors and CDRD may agree.
The date on which the First Closing occurs is referred to herein as the "FIRST
CLOSING DATE."
(b) On the First Closing Date, CDRD shall deliver
to each Investor certificates (with the number of and denomination of such
certificates designated by such Investor) representing the First Closing Shares
and, if Warrants are then issuable pursuant to Section 3.2, such Warrants,
purchased by such Investor under this Agreement registered in the name of such
Investor (or its nominee) or deposit such First Closing Shares and Warrants, if
any, into accounts designated by such Investor, and such Investor shall
deliver, or cause to be delivered, to CDRD the Purchase Price for the number of
First Closing Shares and, if Warrants are then issuable pursuant to Section
3.2, such Warrants, purchased by such Investor under this
2
<PAGE> 3
Agreement, by wire transfer in immediately available funds, to such account as
CDRD designates in writing to the Investors not later than 2 business days
prior to the First Closing Date; provided that if the FCC shall not have
adopted the Pioneer's Preference Order, such Purchase Price shall be paid into
an escrow account ("ESCROW ACCOUNT") not later than the later of (x) 5 business
days prior to the announced date, as specified in a written notice from CDRD to
the Investors delivered not later than 2 business days prior to the date such
payment is to be made, of the FCC auction of Satellite DARS Licenses and (y)
the date on which the last to be fulfilled or waived of the conditions set
forth in Section 4.2(a), (b), (c), (d), (f)(i), (g) and (j)(i) through (vii)
hereof and applicable to the First Closing Date shall be fulfilled or waived in
accordance herewith in each case (the "ESCROW DATE"), pursuant to the terms of
that certain Escrow Agreement between CDRD and the escrow agent named therein
("ESCROW AGENT") substantially in the form of Exhibit 2 ("ESCROW AGREEMENT");
provided further that if the Purchase Price is required to be paid into the
Escrow Account as specified in the immediately preceding proviso, CDRD shall
deliver to the Investors copies of all documents and certificates required to
be delivered to the Escrow Agent at least 2 business days prior to release of
funds held in escrow as a condition to release of funds held in escrow in
accordance with the Escrow Agreement. The Escrow Account shall be maintained
at a financial institution reasonably acceptable to the Investors and shall be
an interest bearing account, and the Escrow Agent shall be reasonably
acceptable to the Investors.
(c) On the First Closing Date, CDRD shall pay the
following fees:
(i) the fees of the Escrow Agent; and
(ii) a funding fee to each Investor in the
amount of 2% of the aggregate amount of the
Purchase Price paid or payable by such
Investor for the First Closing Shares and
Warrants, if any, which funding fee shall be
paid directly or from amounts held under the
Escrow Agreement in accordance with the terms
and conditions of the Escrow Agreement.
Section 1.4 The Second Closing. (a) The closing of the
purchase and sale of the Second Closing Shares (the "SECOND CLOSING"), shall
take place at the offices of the Investors' counsel, at 10:00 am., local time
on:
(i) the latest of:
(A) ten days after written notice from CDRD
electing to sell the Second Closing Shares to
Investors ("SECOND CLOSING NOTICE"), which
Second Closing Notice shall be delivered to
the Investors not earlier than the First
Closing Date and not later than fifteen days
after the First Closing Date; and
(B) the date on which the last to be
fulfilled or waived of the conditions set
forth in Article IV hereof and applicable to
the Second Closing shall be fulfilled or
waived in accordance herewith,
3
<PAGE> 4
provided such date is not later than 35 days
after the First Closing Date; or
(ii) such other time and place and/or on such other
date as the Investors and CDRD may agree.
The date on which the Second Closing occurs is referred to herein as the
"SECOND CLOSING DATE."
(b) On the Second Closing Date, if any, CDRD
shall deliver to each Investor certificates (with the number of and
denomination of such certificates designated by such Investor) representing the
Second Closing Shares and, if Warrants are then issuable pursuant to Section
3.2, such Warrants, purchased by such Investor under this Agreement registered
in the name of such Investor (or its nominee) or deposit such Second Closing
Shares and Warrants, if any, into accounts designated by such Investor, and
such Investor shall deliver to CDRD the Purchase Price for the number of Second
Closing Shares and Warrants, if any, purchased by such Investor under this
Agreement by wire transfer in immediately available funds to such account as
CDRD designates in writing to the Investors not later than two business days
prior to the Second Closing Date.
Section 1.5 Covenant to Register.
(a) For purposes of this Agreement, unless the
context otherwise requires, the following definitions shall apply:
(i) The terms "REGISTER," "REGISTERED," and
"REGISTRATION" refer to a registration under the Securities Act of 1933, as
amended (the "ACT"), effected by preparing and filing a registration statement
or similar document in compliance with the Act, and the declaration or ordering
of effectiveness of such registration statement, document or amendment thereto.
(ii) The term "REGISTRABLE SECURITIES" means
the securities issuable upon conversion of the Preferred Shares sold to
Investors by CDRD (other than Preferred Shares issuable upon exercise of the
Libra Warrant (as defined in Section 7.1)), or otherwise issuable pursuant to
the Certificate of Designations, and any securities of CDRD or securities of
any successor corporation issued as, or issuable upon the conversion or
exercise of any warrant, right or other security that is issued as a dividend
or other distribution with respect to, or in exchange for, or in replacement
of, the Preferred Shares sold to Investors by CDRD, which are held by a holder
of Registrable Securities and which (i) have not been resold pursuant to an
effective registration statement or pursuant to Rule 144 under the Act or (ii)
are ineligible for resale pursuant to Rule 144(k) under the Act. For purposes
of this Agreement, securities will be considered ineligible for resale pursuant
to Rule 144(k) under the Act unless CDRD's transfer agent has accepted an
instruction from CDRD specifying that such securities are eligible for sale
pursuant to Rule 144(k).
(iii) The term "HOLDER OF REGISTRABLE
SECURITIES" means any Investor, and any subsequent holder of Preferred Shares
or Registrable Securities that purchases
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in the aggregate, including purchases by funds or entities affiliated with such
holder or managed by the same manager or advised by the same advisor as such
holder, at least the lesser of (1) 10,000 of the Preferred Shares (or
Underlying Shares (as defined below) issued upon the conversion of at least
10,000 Preferred Shares) sold to Investors by CDRD, (2) an amount equal to all
of the Preferred Shares sold to an Investor by CDRD (or Underlying Shares
issued upon conversion of all such Preferred Shares), and (3) all Preferred
Shares (or Underlying Shares issued upon conversion of all such Preferred
Shares) then held by an Investor.
(b) (i) CDRD shall, as expeditiously as possible
following the First Closing, file a "shelf" registration statement with the SEC
pursuant to Rule 415 of the Act on Form S-3, or if Form S-3 is not then
available, another appropriate form, covering all the Registrable Securities
(the "INITIAL REGISTRATION"), and shall use its best efforts to cause such
"shelf" registration statement to become effective by the later of (A) the 90th
calendar day after the First Closing Date and (B) February 15, 1997 (the
"INITIAL REGISTRATION DEADLINE"). CDRD shall provide holders of Registrable
Securities reasonable opportunity to review any such registration statement or
amendment or supplement thereto prior to the filing thereof, but in no event
shall such period exceed seven days, and CDRD shall not file any such
registration statement, amendment or supplement to which any holder of
Registrable Securities shall reasonably have objected. If the Registrable
Securities are registered initially on a form other than Form S-3, CDRD shall
use its best efforts to register the Registrable Securities on Form S-3 as soon
as use of such form is permissible.
(ii) Subject to Section 1.5(b)(iii) below,
CDRD may suspend the effectiveness of the registration statement or the use of
any prospectus used in connection with any such registration effected pursuant
to this Subsection (b) only in the event, and for such period of time as, CDRD
concludes in its reasonable judgment is required by applicable securities laws
or the rules and regulations of the Securities and Exchange Commission ("SEC").
CDRD will use its best efforts to cause such suspension to terminate at the
earliest possible date; provided that CDRD shall be permitted to maintain such
suspension if, and only for so long as, the Board of Directors of CDRD shall,
in good faith, determine that the failure to maintain such suspension is
reasonably likely to be seriously detrimental (excluding detriment resulting
from the price of the Common Stock or conversion of the Preferred Shares) to
CDRD or would interfere with a material transaction CDRD is then contemplating.
(iii) If (A) the registration statement
covering all Registrable Securities is not effective by the later of (1) the
90th calendar day after the First Closing Date and (2) February 15, 1997, (B)
at any time after the later of (1) the 90th calendar day after the First
Closing Date and (2) February 15, 1997, (x) CDRD fails to have a sufficient
number of shares of Common Shares authorized or reserved to permit conversion
of all of the then-outstanding Preferred Shares, (y) CDRD fails, for any
reason, to honor any request for conversion of Preferred Shares except as
permitted by the terms and conditions of Section 4 of the Certificate of
Designations, or (z) the Common Shares fail to continue to be listed on the
NASDAQ Small Capitalization Market, the NASDAQ National Market, the New York
Stock Exchange or the American Stock Exchange, or (C) at any time after the
registration statement has been declared effective, the SEC suspends the
effectiveness of the registration statement or CDRD suspends the
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use of the prospectus used in connection with such registration statement for
more than 60 cumulative days (the "CUMULATIVE SUSPENSION") in the aggregate in
any twelve-month period (taking into account all such suspensions) then CDRD
shall (in addition to any other remedies available to such holders at law or
equity, including pursuant to the provisions of Section 7.2(a)) pay to each (in
the case of (B) above) holder of Preferred Shares and (in the case of (A) or
(C) above) holder of Registrable Securities (other than, in the case of (A)
above, any holder all of whose shares of Registrable Securities were included
in a registration statement declared effective by the date therein specified) a
cash payment (the "REGISTRATION PAYMENT AMOUNT") in an amount per share equal
to 3% of the Liquidation Preference (as defined in the Certificate of
Designations) for all Preferred Shares or the equivalent in securities issued
or issuable upon conversion (the "UNDERLYING SHARES") then held by such holder
for each cumulative 30-day period thereafter until such registration statement
is effective or such failure is rectified, or during which the effectiveness of
the registration statement or use of the prospectus shall be suspended (taking
into account all such suspensions); provided, however, that if (A) the
registration statement with respect to the Qualifying Offering (as defined in
the Certificate of Designations) is not declared effective on or before the
fifth business day following the expected effective date specified in the
Effective Date Notice (as defined in the Certificate of Designations), and (B)
the Lock-up Request (as defined in the Certificate of Designations) requests
that the Lock-up is to become effective prior to the effective date of the
registration statement, then the number of days comprising the Cumulative
Suspension Days shall be reduced by one day for each day that holders of
Registrable Securities are subject to the Lock-up (as defined in the
Certificate of Designations). Such cash payments shall accrue at the rate of
1/30th of Registration Payment Amount per day during which such event occurs.
Any cash payment required to be made pursuant to this subsection (iii) shall be
due and payable within 10 days of the end of any month in which any such event
occurs.
(c) Whenever required under this Section to
effect the registration of any Registrable Securities, including without
limitation, the Initial Registration, CDRD shall, as expeditiously as
reasonably possible:
(i) Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration to become effective as provided in
Section 1.5(b)(i), and upon the request of any holder of Registrable Securities
keep such registration statement effective for so long as any holder of
Registrable Securities desires to dispose of the securities covered by such
registration statement, or, if earlier, until such Registrable Securities may
be sold under Rule 144(k) (provided that CDRD's transfer agent has accepted an
instruction from CDRD to such effect).
(ii) Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement and notify the holders of
Registrable Securities of the filing and effectiveness of such registration
statement and any amendments or supplements; provided that CDRD shall not be
obligated to file more than two
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such supplements in any 30-day period to the extent they relate solely to a
transfer by a holder of Registrable Securities.
(iii) Furnish to each holder of Registrable
Securities such numbers of copies of a current prospectus conforming with the
requirements of the Act, copies of the registration statement, any amendment or
supplement thereto and any documents incorporated by reference therein and such
other documents as such holder of Registrable Securities may reasonably require
in order to facilitate the disposition of Registrable Securities owned by such
holder of Registrable Securities; provided that CDRD shall not be obligated to
furnish more than two such supplements in any 30-day period to the extent they
relate solely to a transfer by a holder of Registrable Securities.
(iv) Use its best efforts to register and
qualify the securities covered by such registration statement under such other
securities or "Blue Sky" laws of such jurisdictions as shall be reasonably
requested by the holder of Registrable Securities, provided that CDRD shall not
be required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(v) Notify each holder of Registrable
Securities immediately of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing, and use its best efforts, subject
to Section 1.5(b)(ii), promptly to update and/or correct such prospectus.
(vi) In connection with an underwritten
offering, furnish, at the request of any holder of Registrable Securities, (1)
an opinion of counsel of CDRD, dated the closing date of such offering, in form
and substance reasonably satisfactory to such holder and its counsel and
covering, without limitation, such matters as the due authorization and
issuance of the securities being registered and compliance with securities laws
by CDRD in connection with the authorization, issuance and registration
thereof, and (2) a letter or letters of CDRD's independent public accountants
in form and substance reasonably satisfactory to the holder, such holder's lead
underwriter and their respective counsel, in each case, covering such matters
as would customarily be covered in an underwritten public offering.
(vii) Use its best efforts to list the
Registrable Securities covered by such registration statement with any
securities exchange or market on which the Common Shares are then listed.
(viii) Make available for inspection by the
holder of Registrable Securities, upon request, all SEC Documents (as defined
below) filed subsequent to the First Closing and require CDRD's officers,
directors and employees to supply all information reasonably requested by any
holder of Registrable Securities in connection with such registration
statement.
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(ix) Subject to any Lock-up in effect,
permit any offering to be underwritten by an underwriter of recognized national
standing that is (A) selected by holders of a majority in interest of Preferred
Shares and Registrable Securities the holders of which have requested to be
included in a registration of CDRD securities and (B) reasonably acceptable to
CDRD, and enter into such agreements with such underwriter (including
agreements to indemnify) and cause delivery of such legal opinions and letters
of independent public accountants as is customary in underwritten public
offerings in accordance with clause (vi), in each case, at CDRD's expense;
provided that any such request may not be made prior to the earlier of (Y)
completion of the Qualifying Offering and (Z) October 16, 1997.
(d) Each holder of Registrable Securities will
furnish to CDRD in connection with any registration under this Section such
information regarding itself, the Registrable Securities and other securities
of CDRD held by it, and the intended method of disposition of such securities
as shall be reasonably required to effect the registration of the Registrable
Securities held by such holder of Registrable Securities. Each Investor shall
provide such data promptly upon request made by CDRD after the First Closing.
The intended method of disposition (Plan of Distribution) of such securities as
so provided by any Investor shall be included without alteration in the
registration statement covering the Registrable Securities and shall not be
changed without the written consent of such Investor.
(e) (i) CDRD shall indemnify, defend and hold
harmless each holder of Registrable Securities that is included in a
registration statement pursuant to the provisions of Subsection (b) (each, a
"SELLING SHAREHOLDER") and each of its officers, directors, employees, agents,
partners or controlling persons (within the meaning of the Act) (each, a
"HOLDER INDEMNIFIED PARTY") from and against, and shall reimburse such Holder
Indemnified Party with respect to, any and all claims, suits, demands, causes
of action, losses, damages, liabilities, costs or expenses ("LIABILITIES") to
which such Holder Indemnified Party may become subject under the Act or
otherwise, arising from or relating to (A) any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any preliminary, final or summary prospectus contained therein or any amendment
or supplement thereto, or (B) the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; provided, however, that CDRD shall not be liable with respect to
any Selling Shareholder in any such case to the extent that any such liability
arises out of or is based upon an untrue statement or omission so made in such
registration statement, preliminary, final or summary prospectus or amendment
or supplement thereto in reliance upon and in strict conformity with written
information furnished in an instrument duly executed by such Selling
Shareholder specifically for use in the registration statement; provided
further, that CDRD shall not be liable with respect to any Selling Shareholder
in any such case to the extent that any such Liability arises out of or is
based upon an untrue statement or omission made in any preliminary prospectus
if (A) such Selling Shareholder under an obligation to send or deliver a copy
of the prospectus with or prior to the delivery of written confirmation of the
sale of Registrable Securities to the person asserting such Liability who
purchased such Registrable Securities that are the subject thereof from such
Selling Shareholder failed to do so and (B) the prospectus would have
completely corrected such untrue statement or omission and if, having
previously
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been furnished by or on behalf of CDRD with copies of the prospectus so
correcting such untrue statement or omission, and if having been obligated to
deliver such prospectus such Selling Shareholder thereafter failed to deliver
such prospectus prior to or concurrently with the sale of Registrable
Securities to the person asserting such Liability who purchased such
Registrable Securities that are the subject thereof from such Selling
Shareholder; and provided further, that CDRD shall not be liable with respect
to any Selling Shareholder in any such case to the extent that any Liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission in the prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission is completely corrected
in an amendment or supplement to the prospectus and if, having previously been
furnished by or on behalf of CDRD with copies of the prospectuses so amended or
supplemented, having been advised by or on behalf of CDRD of such correction,
and having been obligated to deliver such prospectuses, such Selling
Shareholder thereafter failed to deliver such prospectus as so amended or
supplemented, prior to or concurrently with the sale of Registrable Securities
to the person asserting such Liability who purchased such Registrable
Securities that are the subject thereof from such Selling Shareholder.
(ii) In the event of any registration under
the Act of Registrable Securities pursuant to Subsection (b), each holder of
such Registrable Securities hereby severally agrees to indemnify, defend and
hold harmless CDRD, and its officers, directors, employees, agents, partners or
controlling persons (within the meaning of the Act) (each, a "CDRD INDEMNIFIED
PARTY") from and against, and shall reimburse such CDRD Indemnified Party with
respect to, any and all Liabilities to which such CDRD Indemnified Party may
become subject under the Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, any preliminary, final or summary prospectus
contained therein or any amendment or supplement thereto, or (B) the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, that such
holders will be liable in any such case to the extent, and only to the extent,
that any such liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in such
registration statement, preliminary, final or summary prospectus or amendment
or supplement thereto in reliance upon and in strict conformity with written
information furnished in an instrument duly executed by such holder
specifically for use in the preparation thereof; provided further that in no
case shall any such holder be liable in any such case in an amount in excess of
the net proceeds received by such holder upon the sale of Registrable
Securities pursuant to such registration statement, prospectus or amendment or
supplement thereto.
(iii) (A) Promptly after receipt by any
Holder Indemnified Party of notice of the commencement of any action, such
Holder Indemnified Party shall, if a claim in respect thereof is to be made
against CDRD hereunder, notify CDRD in writing thereof but the omission so to
notify CDRD shall not relieve CDRD from any Liability that it may have to the
Holder Indemnified Party other than under this section and shall only relieve
it from any Liability that it may have to the Holder Indemnified Party under
this section if and to the extent CDRD is actually prejudiced by such omission.
In case any such action shall be brought against any Holder Indemnified Party
and such Holder Indemnified Party shall notify CDRD of the
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commencement thereof, CDRD shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
reasonably satisfactory to such Holder Indemnified Party, and, after notice
from CDRD to the Holder Indemnified Party of its election so to assume and
undertake the defense thereof CDRD shall not be liable to the Holder
Indemnified Party under this section for any legal expenses subsequently
incurred by the Holder Indemnified Party in connection with the defense thereof
other than reasonable costs of investigation and of liaison with counsel so
selected; provided, however, that if the defendants in any such action include
both CDRD and such Holder Indemnified Party and the Holder Indemnified Party
shall have reasonably concluded that there may be reasonable defenses available
to it that are different from or additional to those available to CDRD or if
the interests of the Holder Indemnified Party reasonably may be deemed to
conflict with the interests of CDRD, the Holder Indemnified Party shall have
the right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other reasonable expenses
related to such participation to be reimbursed by CDRD as incurred. In
clarification of the foregoing, CDRD shall pay the reasonable expenses and fees
of one separate counsel whose selection is approved by the largest group of
similarly situated Holder Indemnified Parties as measured by the aggregate par
value or principal amount of such Registrable Securities owned by such group.
Any Holder Indemnified Party who chooses not to be represented by the foregoing
separate counsel shall be entitled, at its own expense, to be represented by
counsel of its own selection.
(B) Promptly after receipt by any CDRD
Indemnified Party of notice of the commencement of any action, such CDRD
Indemnified Party shall, if a claim in respect thereof is to be made against
any holder of Registrable Securities hereunder, notify such holder of
Registrable Securities in writing thereof but the omission so to notify such
holder of Registrable Securities shall not relieve such holder of Registrable
Securities from any Liability that it may have to the CDRD Indemnified Party
other than under this section and shall only relieve it from any Liability that
it may have to the CDRD Indemnified Party under this section if and to the
extent such holder of Registrable Securities is actually prejudiced by such
omission. In case any such action shall be brought against any CDRD
Indemnified Party and such CDRD Indemnified Party shall notify such holder of
Registrable Securities of the commencement thereof, such holder of Registrable
Securities shall be entitled to participate in and, to the extent it shall
wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such CDRD Indemnified Party, and, after notice from such holder
of Registrable Securities to the CDRD Indemnified Party of its election so to
assume and undertake the defense such holder of Registrable Securities shall
not be liable to the CDRD Indemnified Party under this section for any legal
expenses subsequently incurred by the CDRD Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected; provided, however, that if the defendants in any such
action include both the holders of Registrable Securities and such CDRD
Indemnified Party and the CDRD Indemnified Party shall have reasonably
concluded that there may be reasonable defenses available to it that are
different from or additional to those available to the holders of Registrable
Securities or if the interests of the CDRD Indemnified Party reasonably may be
deemed to conflict with the interests of the holders of Registrable Securities,
the CDRD Indemnified Party together with all other defendant CDRD Indemnified
Parties shall have the right to select one separate counsel and to
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assume such legal defenses and otherwise to participate in the defense of such
action, with the reasonable expenses and fees of such separate counsel and
other reasonable expenses related to such participation to be reimbursed by
such holders of Registrable Securities as incurred.
(f) (i) With respect to the inclusion of
Registrable Securities in a registration statement pursuant to Subsection (b),
all fees, costs and expenses of and incidental to such registration, inclusion
and public offering shall be borne by CDRD; provided, however, that any
securityholders participating in such registration shall bear their pro-rata
share of the underwriting discounts and commissions, if any, incurred by them
in connection with such registration.
(ii) The fees, costs and expenses of
registration to be borne by CDRD as provided in this Subsection (f) shall
include, without limitation, all registration, filing and NASD fees, listing
fees, printing expenses, fees and disbursements of counsel and accountants for
CDRD, and all legal fees and disbursements and other expenses of complying with
state securities or Blue Sky laws of any jurisdiction or jurisdictions in which
securities to be offered are to be registered and qualified. Subject to
appropriate agreements as to confidentiality, CDRD shall make available to
counsel for the holders of Registrable Securities its documents and personnel
for due diligence purposes. Except as otherwise provided herein, fees and
disbursements of counsel and accountants for the selling securityholders shall
be borne by the respective selling securityholders.
(g) From and after the date of this Agreement,
CDRD shall not, nor shall it agree to allow the holders of any securities of
CDRD to, include any of their respective securities in any registration
statement filed by CDRD pursuant to Subsection (b) unless such inclusion will
not reduce the amount of the Registrable Securities included therein or in any
underwriting thereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of CDRD. CDRD
hereby makes the following representations and warranties to each of the
Investors:
(a) Organization and Qualification. CDRD and
each of its subsidiaries is a corporation duly incorporated and existing in
good standing under the laws of the state of its jurisdiction of incorporation
and has the requisite corporate power to own its properties and to carry on its
business as now being and contemplated to be conducted. CDRD does not have any
subsidiaries other than Satellite CD Radio, Inc., which is wholly-owned by
CDRD. CDRD and each of its subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary other than those in which the failure so to qualify
would not have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any
adverse effect
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on (i) the business, operations, properties, prospects or financial condition
of the entity with respect to which such term is used and which is material to
such entity and other entities controlling or controlled by such entity taken
as a whole, or (ii) the ability of CDRD to perform its obligations hereunder or
under any of the Certificate of Designations, the Escrow Agreement and the
Warrants, if any (collectively, the "OPERATIVE AGREEMENTS).
(b) Authorization; Enforcement. (i) CDRD has
the requisite corporate power and authority to enter into and perform this
Agreement and the other Operative Agreements, to issue the Preferred Shares in
accordance with the terms of this Agreement, and to file the Certificate of
Designations, (ii) the execution and delivery of this Agreement and the other
Operative Agreements by CDRD and the consummation by it of the transactions
contemplated hereby and thereby , including the issuance of the Preferred
Shares and the filing of the Certificate of Designations, have been duly
authorized by all necessary corporate action, and no further consent or
authorization of CDRD or its Board of Directors or stockholders is required,
(iii) this Agreement has been, and, to the extent required to be executed and
delivered pursuant to the terms of this Agreement, the other Operating
Agreements have been or will be, duly executed and delivered by CDRD, and (iv)
this Agreement constitutes and, to the extent required to be executed and
delivered pursuant to the terms of this Agreement, the other Operating
Agreements constitute or will constitute, a valid and binding obligation of
CDRD enforceable against CDRD in accordance with their respective terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock
of CDRD consists of no less than 50,000,000 Common Shares and no less than
10,000,000 shares of preferred stock; as of October 11, 1996, there are
10,184,748 Common Shares issued and outstanding (CDRD has also given an
instruction to the transfer agent for the Common Shares for the issuance of an
additional 50,643 Common Shares), all of which are listed on the NASDAQ Small
Capitalization Market, and no shares of preferred stock issued and outstanding.
All of the outstanding Common Shares have been validly issued and are fully
paid and non-assessable. No Common Shares are entitled to preemptive rights.
As of October 11, 1996, except as set forth on Schedule 2.1(c) attached to this
Agreement, no Common Shares are entitled to registration rights and there are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of CDRD, or contracts,
commitments, understandings or arrangements by which CDRD is or may become
bound to issue additional shares of capital stock of CDRD or options, warrants,
scrip, rights to subscribe to, or commitments to purchase or acquire, any
shares, or securities or rights convertible into shares, of capital stock of
CDRD. CDRD has furnished or made available to the Investors true and correct
copies of CDRD's by-laws as in effect on the date of this Agreement (the
"BY-LAWS") and certificate of incorporation as in effect on the date of this
Agreement (the "CERTIFICATE OF INCORPORATION").
(d) Issuance of Preferred Shares. The issuance
of the Preferred Shares has been duly authorized and, when paid for and issued
in accordance with the terms hereof, the
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Preferred Shares shall be validly issued, fully paid and non-assessable, free
and clear of any liens, claims or encumbrances, and entitled to the rights and
preferences set forth in the Certificate of Designations. The Common Shares
issuable upon conversion of the Preferred Shares or exercise of the Warrants,
if any, are duly authorized and reserved for issuance and, upon issuance in
accordance with the Certificate of Designations or Warrants, as applicable,
will be listed on the NASDAQ Small Capitalization Market, the NASDAQ National
Market, the New York Stock Exchange or the American Stock Exchange, and will be
validly issued, fully paid and non-assessable, free and clear of all liens,
claims, encumbrances and preemptive rights, and the holders shall be entitled
to all rights and preferences accorded to a holder of Common Shares.
(e) No Conflicts. The execution, delivery and
performance of this Agreement by CDRD and the consummation by CDRD of the
transactions contemplated hereby do not and will not (i) result in a violation
of the Certificate of Designations, the Certificate of Incorporation or the
By-Laws or the charter or bylaws of any subsidiary of CDRD, or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in or create
a lien under, any agreement, indenture or instrument to which CDRD or any of
its subsidiaries is a party, or result in a violation of any Federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
Federal and state securities laws and regulations) applicable to CDRD or any of
its subsidiaries or by which any property or asset of CDRD or any of its
subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect);
provided that, for purposes of such representation as to Federal, state, local
or foreign law, rule or regulation, no representation is made herein with
respect to any of the same applicable solely to the Investors and not to CDRD.
CDRD is not required under any Federal, state or local law, rule or regulation
to obtain any consent, authorization or order of, or make any filing (except
for informational filings necessary to maintain the continuing accuracy of
CDRD's application before the FCC), or registration (other than SEC
registrations required pursuant to this Agreement or any approvals that may be
required by the FCC in connection with the conversion of the Preferred Shares
or the exercise of the Warrants) with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Preferred Shares, the Warrants, if any, and the
Common Shares in accordance with the terms of this Agreement, provided that,
for purposes of the representation made in this sentence, CDRD is assuming and
relying upon the accuracy of the relevant representations and agreements of the
Investors herein.
(f) SEC Documents; Financial Statements. The
Common Shares of CDRD are registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and CDRD has
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d), in
addition to one or more registration statements and amendments thereto
heretofore filed by CDRD with the SEC (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "SEC
DOCUMENTS"). CDRD has delivered or made available to the Investors true
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and complete copies of all SEC Documents (including, without limitation, proxy
information and solicitation materials and registration statements) filed with
the SEC since December 31, 1995 and all annual SEC Documents filed with the SEC
since December 31, 1994. CDRD has not provided to the Investor any information
that, according to applicable law, rule or regulation, is required to have been
disclosed publicly by CDRD but that has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder and other Federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of CDRD included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect to such requirements. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of CDRD and its subsidiaries as of the dates thereof and
their consolidated results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) No Material Adverse Change. Since June 30,
1996, the date through which the most recent quarterly report of CDRD on Form
10-Q has been prepared and filed with the SEC, a copy of which is included in
the SEC Documents, no Material Adverse Effect has occurred or exists with
respect to CDRD or its subsidiaries, except as otherwise disclosed or reflected
in other SEC Documents prepared through or as of a date subsequent to June 30,
1996. Notwithstanding the foregoing, no event described in Section 4.2(j)(i)
through (vii) has occurred and is continuing.
(h) Legal Proceedings. There are no actions,
suits, proceedings, arbitrations or investigations by any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States or any state, county, city or other political subdivision
pending or, to the knowledge of CDRD, threatened against, relating to or
affecting CDRD or any of its subsidiaries which could reasonably be expected,
individually or in the aggregate with other such actions or proceedings, to
have a Material Adverse Effect; provided that except as otherwise provided in
this Agreement, it is expressly recognized that CDRD is involved in proceedings
with the FCC related to obtaining a Satellite DARS License, and the results of
such proceedings, whether favorable or not, shall be deemed to not have a
Material Adverse Effect for purposes of this Section 2.1(h).
(i) Compliance With Laws and Orders. The
business of CDRD and its subsidiaries is not being conducted in violation of
any law, ordinance or regulations of any governmental entity, or any order of
any governmental or regulatory authority except for
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violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect.
(j) No Undisclosed Liabilities. CDRD and its
subsidiaries have no liabilities or obligations not disclosed in the SEC
Documents, other than those incurred in the ordinary course of CDRD's or its
subsidiaries' respective businesses since June 30, 1996, or which, individually
or in the aggregate, do not or would not have a Material Adverse Effect on CDRD
or its subsidiaries.
(k) No Undisclosed Events or Circumstances. No
event or circumstance has occurred or exists with respect to CDRD or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, that, under applicable law, rule or regulation,
requires public disclosure or announcement by CDRD but that has not been so
publicly announced or disclosed.
(l) No General Solicitation. Neither CDRD, nor
any of its affiliates, or, to its knowledge, any person acting on its or their
behalf (including Libra Investments, Inc. (the "PLACEMENT AGENT")), has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the Act) in connection with the offer or sale of the
Preferred Shares and Warrants, if any.
(m) No Integrated Offering. Neither CDRD, nor
any of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Preferred Shares under the Act.
(n) Brokers. CDRD has taken no action that would
give rise to any claim by any person for brokerage commissions, finder's fees
or similar payments by any or all of the Investors relating to this Agreement
or the transactions contemplated hereby, except for amounts owing to the
Placement Agent and Batchelder & Partners ("B&P"), which amounts shall be paid
by CDRD.
(o) Intellectual Property. CDRD does not know of
any patents, copyrights or trademarks ("INTELLECTUAL PROPERTY") that CDRD
(and/or its wholly-owned subsidiaries) does not own or have a license to use or
that it (and/or they) will be unable to acquire on reasonable terms, that are
necessary to conduct the business of CDRD and its subsidiaries as it is now
being conducted or as proposed to be conducted. To the best of CDRD's
knowledge, except as described in the SEC Documents, such Intellectual Property
is (or will be) valid and enforceable and the use of such Intellectual Property
by CDRD and/or its subsidiaries does not (or will not) infringe upon or
conflict with any rights of any third party and neither CDRD nor any of its
subsidiaries has received notice of any such infringement or conflict, and
neither CDRD nor any of its subsidiaries has any knowledge of any infringement
of its respective Intellectual Property by any third party.
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(p) FCC Representations. CDRD and its
subsidiaries do not and, after consummation of the transactions contemplated by
this Agreement, will not violate, or otherwise fail to comply with, any FCC
rules or regulations that could prevent CDRD or such subsidiaries from
obtaining a Pioneer's Preference Order or otherwise becoming the owner of a
Satellite DARS License. No holder of Preferred Shares is required or will be
required to obtain any approval, consent, authorization or order of, or make
any filing or registration with, the FCC in order to acquire Preferred Shares
or to exercise any of its rights under this Agreement or the Preferred Shares
or Warrants (if any), except in connection with a conversion of Preferred
Shares or exercise of any Warrants resulting in such holder, or a group of
persons who have an agreement or understanding to act in concert of which such
holder is a member, holding 50% or more of the voting securities of CDRD (such
approval being referred to in this Agreement as "ACQUISITION OF CONTROL
APPROVAL").
Section 2.2 Representations and Warranties of the
Investors. Each of the Investors, severally and not jointly, hereby makes the
following representations and warranties to CDRD:
(a) Authorization; Enforcement. (i) Such
Investor has the requisite power and authority to enter into and perform this
Agreement and to purchase the Preferred Shares and Warrants, if any, being sold
to it hereunder, (ii) the execution and delivery of this Agreement by such
Investor and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate, partnership or limited
liability company action, and (iii) this Agreement constitutes a valid and
binding obligation of such Investor enforceable against such Investor in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies or by other equitable principles of general application.
(b) No Conflicts. The execution, delivery and
performance of this Agreement and the consummation by such Investor of the
transactions contemplated hereby do not and will not (i) result in a violation
of such Investor's organizational documents, or (ii) conflict with any
agreement, indenture or instrument to which such Investor is a party, or (iii)
result in a violation of any law, rule or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Investor. Such
Investor is not required to obtain any consent or authorization of any
governmental agency in order for it to perform its obligations under this
Agreement.
(c) Investment Representation. Such Investor is
purchasing the Preferred Shares for its own account and not with a view to
distribution in violation of any securities laws. Such Investor has no present
intention to sell the Preferred Shares and such Investor has no present
arrangement (whether or not legally binding) to sell the Preferred Shares to or
through any person or entity; provided, however, that by making the
representations herein, such Investor does not agree to hold the Preferred
Shares for any minimum or other specific term and reserves the right to dispose
of the Preferred Shares at any time in accordance with Federal and state
securities laws applicable to such disposition.
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(d) Accredited Investor. Such Investor is an
"accredited investor" as defined in Rule 501 promulgated under the Act. Such
Investor has such knowledge and experience in financial and business matters in
general and investments in particular, so that such Investor is able to
evaluate the merits and risks of an investment in the Preferred Shares and to
protect its own interests in connection with such investment. In addition (but
without limiting the effect of CDRD's representations and warranties contained
herein), such Investor has received such information as it considers necessary
or appropriate for deciding whether to purchase the Preferred Shares pursuant
hereto. Such Investor acknowledges that no representation or warranty is made
by the Placement Agent or any persons representing the Placement Agent with
respect to CDRD or the sale of the Preferred Shares.
(e) Rule 144. Such Investor understands that
there is no public trading market for the Preferred Shares, that none is
expected to develop, and that the Preferred Shares must be held indefinitely
unless such Preferred Shares are converted into Common Shares or registered
under the Act or an exemption from registration is available. Such Investor
has been advised or is aware of the provisions of Rule 144 promulgated under
the Act.
(f) Brokers. Such Investor has taken no action
that would give rise to any claim by any person for brokerage commissions,
finder's fees or similar payments by CDRD relating to this Agreement or the
transactions contemplated hereby, except for amounts owing to the Placement
Agent and B&P, which amounts shall be paid by CDRD.
(g) Reliance by CDRD. Such Investor understands
that the Preferred Shares are being offered and sold in reliance on a
transactional exemption from the registration requirements of Federal and state
securities laws and that CDRD is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Investor set forth herein in order to determine the applicability of such
exemptions and the suitability of such Investor to acquire the Preferred
Shares.
ARTICLE III
COVENANTS
Section 3.1 Registration and Listing. (a) Until the
later of (i) three (3) years after all Preferred Shares have been exchanged
into Common Shares and (ii) if any Warrants have been issued pursuant to
Section 3.2, four (4) years after all Warrants have been exercised, CDRD will
cause the Common Shares to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, to comply in all respects with its reporting and
filing obligations under the Exchange Act and to not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or
suspend CDRD's reporting and filing obligations under said act. Until the
later of (i) three (3) years after all Preferred Shares have been exchanged
into Common Shares and (ii) if any Warrants have been issued pursuant to
Section 3.2, four (4) years after all Warrants have been exercised, CDRD will
take all action within its power to continue the listing or trading of the
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Common Shares on the NASDAQ Small Capitalization Market, the NASDAQ National
Market, the New York Stock Exchange or the American Stock Exchange, and comply
in all respects with CDRD's reporting, filing and other obligations under the
bylaws or rules of the NASD and NASDAQ and any exchange where the Common Shares
are traded. CDRD will not become a NASDAQ National Market or New York Stock
Exchange or American Stock Exchange listed company unless CDRD has first
obtained requisite shareholder approval concerning the issuance of Common
Shares upon conversion of the Preferred Shares in accordance with any
obligations of CDRD under any applicable agreements with the NASD or NASDAQ.
(b) CDRD shall notify the SEC and NASD,
in accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Preferred Shares and Common Shares issuable upon
conversion thereof to any Investor or subsequent holder.
Section 3.2 Warrants. In the event CDRD or its
subsidiary obtains the right to purchase a Satellite DARS License (by grant of
the Pioneer's Preference Order from the FCC or by submission of a Winning Bid)
and the purchase price payable by CDRD for such license exceeds $225,000,000,
CDRD promptly shall issue to the Investors warrants in the form of Exhibit 3
(the "WARRANTS") to purchase a number of Common Shares, at an exercise price of
$10 per share, in an amount equal to 8,333.33 multiplied by the quotient of (i)
the number of First Closing Shares divided by (ii) 40,000, for each $50,000,000
increment (or portion thereof) by which such purchase price exceeds
$225,000,000. The Warrants shall be allocated among the Investors pro rata
based on the number of Preferred Shares specified on Schedule I for each
Investor.
Section 3.3 Increase in Authorized Shares. CDRD shall
cause its number of authorized Common Shares to be increased to at least
100,000,000 on or before the later of (a) February 15, 1997 and (b) the 90th
calendar day after the First Closing Date. CDRD shall at all times reserve and
keep out of its authorized but unissued Common Shares, solely for the purpose
of effecting the conversion of the Preferred Shares and exercise of the
Warrants, if any, at least such number ("MINIMUM RESERVE NUMBER") that is the
greater of (x) 10,000,000 Common Shares (subject to appropriate adjustment for
stock splits, stock dividends and similar events) and (y) 1.5 times the number
of its Common Shares as shall from time to time be sufficient to effect the
conversion of all outstanding Preferred Shares and exercise of all outstanding
Warrants, if any. If (i) the number of authorized Common Shares is not so
increased by such date, or (ii) the number of Common Shares is not so reserved
at any time, then CDRD shall, in addition to any other remedies available to
such holders at law or equity, pay each holder of Preferred Shares a cash
payment in an amount per share equal to (1) the Securities Deficiency
Percentage (as defined herein) multiplied by (2) 3% of the Liquidation
Preference for all Preferred Shares (or the equivalent in Underlying Shares)
then held by such holder for each 30-day period thereafter until such number of
Common Shares authorized is so increased or so reserved; provided that such
cash payment shall not apply to the extent CDRD is required to make cash
payments pursuant to Section 1.5(b)(iii)(x). Such cash payment shall be
pro-rated as to a period of less than 30 days. Any cash payment required to be
made pursuant to this subsection 3.3 shall be due
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and payable within 10 days of the end of any month in which such event occurs.
In the event there is a Deficiency (as defined in the Certificate of
Designations), CDRD shall comply with its obligations pursuant to Section 4(i)
of the Certificate of Designations to purchase Preferred Shares as and to the
extent required by the Certificate of Designations. For purposes of this
Section 3.3, the "SECURITIES DEFICIENCY PERCENTAGE" shall be equal to (1) the
Minimum Reserve Number minus the number of shares of Common Stock authorized
and reserved by CDRD at the time of determination divided by (2) the Minimum
Reserve Number.
Section 3.4 Replacement Certificates. The certificate(s)
representing the Preferred Shares held by any Investor (or then holder) may be
exchanged by such Investor (or such holder) at any time and from time to time
for certificates with different denominations representing an equal aggregate
number of Preferred Shares, as requested by such Investor (or such holder) upon
surrendering the same. No service charge will be made for such registration of
transfer or exchange.
Section 3.5 Receipt of FCC Order. If the First Closing
occurs, CDRD or its wholly-owned subsidiary shall immediately take such actions
as required and when required, and otherwise use its best efforts, to acquire
the Satellite DARS License on the terms and conditions set forth in the
Pioneer's Preference Order or the Winning Bid, as applicable.
Section 3.6 Limitation on Conversion Rights.
Notwithstanding anything to the contrary contained in this Agreement, at any
time prior to the giving of a Redemption Notice (as defined in the Certificate
of Designations), no Preferred Share may be converted by an Investor to the
extent that, following conversion of such Preferred Share such Investor and its
affiliates (within the meaning of the Exchange Act) shall be the beneficial
owners (as defined in Rule 13d-3 under the Exchange Act) of more than the
percentage of the Common Shares indicated by the Investor by marking the
applicable box below the name of such Investor on the signature pages of this
Agreement; provided that each Investor shall have the right to waive this
restriction upon 61 days prior notice to CDRD (or such lesser number of days
prior notice as shall be indicated by such Investor on its signature page
hereto). A transferee of Preferred Shares shall not be bound by this provision
unless it expressly agrees to be so bound.
Section 3.7 Transfer of License and Subsidiary. In the
event that CDRD or its subsidiary obtains a Satellite DARS License, neither
CDRD nor any of its subsidiaries shall, prior to a Qualifying Offering (as such
term is defined in the Certificate of Designations), transfer or assign such
Satellite DARS License or any interest therein or the subsidiary (or any
interest therein) of CDRD that holds such license, or any material assets used
in connection with the employment of such license, to any third party.
Section 3.8 Additional Financings. Prior to a Qualifying
Offering (as such term is defined in the Certificate of Designations), CDRD
shall not undertake to conduct any debt or equity financing that is not either
pari passu or junior, in seniority, structure and maturity, to the Preferred
Shares. Prior to a final determination of whether the Pioneer's Preference
Order will be granted to CDRD, in addition to the limitations imposed by the
prior sentence, CDRD shall
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not issue or commit to issue any securities or evidences of indebtedness, other
than any issuance of Common Shares or the sale of the Preferred Shares pursuant
to this Agreement.
Section 3.9 Wire Transfers. All payments required to be
made by CDRD under this Agreement or the Certificate of Designations, shall,
upon the written request of any such payee, be made by wire transfer to the
account designated by such payee.
Section 3.10 Like Treatment of Holders. Neither CDRD nor
any of its affiliates shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any holder
of Registrable Securities or holder of Preferred Shares for or as an inducement
to any consent, waiver or amendment of any terms or provisions of the
Registrable Securities or Preferred Shares, this Agreement or the Escrow
Agreement (if any), unless such consideration is offered to be paid or agreed
to be paid to all holders of Registrable Securities and holders of Preferred
Shares which so consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or agreement. Neither
CDRD nor any of its affiliates shall, directly or indirectly, redeem or
repurchase any Registrable Securities or Preferred Shares unless such offer of
redemption or repurchase is made pro rata to all holders of Registrable
Securities and holders of Preferred Shares on identical terms.
Section 3.11 FCC Approval. CDRD shall, with the
reasonable cooperation of the holders of the Preferred Shares, promptly and
expeditiously after the First Closing apply for, and use its best efforts to
obtain, any and all approvals, consents, authorizations or orders of, or make
any filings or registrations with, the FCC (other than Acquisition of Control
Approval) necessary to permit the conversion of all Preferred Shares in
accordance with the Certificate of Designations and the exercise of all
Warrants (if any) (the "FCC APPROVAL"). If the FCC Approval is not obtained by
the later of (1) the 90th calendar day after the First Closing Date and (2)
February 15, 1997, CDRD shall, in addition to any other remedies available to
such holders at law or equity (including pursuant to the provisions of Section
7.2(a)), pay each holder of Preferred Shares a cash payment in an amount per
share equal to 3% of the Liquidation Preference for all Preferred Shares (or
the equivalent in Underlying Shares) then held by such holder for each 30-day
period thereafter until such FCC Approval is obtained. Such cash payment shall
be pro-rated as to a period of less than 30 days. Any cash payment required to
be made pursuant to this subsection 3.3 shall be due and payable within 10 days
of the end of any month in which such event occurs. If the FCC Approval is not
obtained by a date that is 270 days after the Initial Registration Deadline,
then CDRD shall comply with its obligations as and to the extent required by
Section 4(a) of the Certificate of Designations.
Section 3.12 Release of Escrowed Property to Investors.
If any of the events itemized in Section 3(b)(i) or (ii) of the Escrow Agreement
occur, then CDRD shall execute and deliver the certificate required by Section
4(b)(ii) of the Escrow Agreement.
Section 3.13 Additional Satellite DARS Licenses. If (a)
the Second Closing has occurred, and (b) at any time within the earlier of
twelve months after the Second Closing or the closing of a Qualified Offering,
(i) more than two licenses (including the license awarded to CDRD) have been
awarded by the FCC that permit the recipients thereof to provide Satellite
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DARS services, and (ii) more than two recipients of such licenses (including
CDRD) commence or announce an intention to commence Satellite DARS services
using their license, then CDRD shall comply with its obligations as and to the
extent required by Section 4(l) of the Certificate of Designations.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of
CDRD to Sell the Preferred Shares. The obligation under this Agreement of CDRD
to issue and/or sell the First Closing Shares or the Second Closing Shares to
the Investors is subject to the satisfaction, at or before the First Closing
Date or the Second Closing Date, as applicable, of each of the conditions set
forth below; provided that CDRD shall be under no obligation to issue and/or
sell the Second Closing Shares unless and until it shall have given the Second
Closing Notice. These conditions are for CDRD's sole benefit and may be waived
by CDRD in whole or in part at any time in its sole discretion.
(a) Accuracy of the Investors' Representations
and Warranties. The representations and warranties of each Investor shall be
true and correct in all material respects as of the date when made and as of
the First Closing Date or the Second Closing Date, as applicable, as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Investors. Each Investor
shall have performed all agreements and satisfied all conditions required to be
performed or satisfied by such Investor at or prior to the First Closing.
(c) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the
Investors to Purchase the Preferred Shares. The obligation under this
Agreement of each Investor to acquire and pay for the First Closing Shares or
the Second Closing Shares is subject to the satisfaction, at or before the
First Closing Date or the Second Closing Date, as applicable, of each of the
conditions set forth below. These conditions are for the Investors' sole
benefit and may be waived by any Investor in whole or in part at any time in
its sole discretion with respect to such Investor's obligation to acquire and
pay for the First Closing Shares or the Second Closing Shares, as applicable.
(a) Accuracy of CDRD's Representations and
Warranties. The representations and warranties of CDRD shall be true and
correct in all material respects as of the date when made and (except with
respect to the representations and warranties made in the
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first sentence of Section 2.1(g) and in Section 2.1(j)) as of the Escrow Date,
First Closing Date or Second Closing Date, as applicable, as though made at
that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by CDRD. CDRD shall have
performed all agreements and satisfied all conditions required to be performed
or satisfied by CDRD at or prior to such date including, without limitation,
delivering all certificates required by Section 1.3(b) or Section 1.4(b), as
applicable.
(c) NASDAQ. From the date of this Agreement to
the Escrow Date, the First Closing Date or Second Closing Date, as applicable,
trading in CDRD's Common Shares shall not have been suspended by the SEC or the
NASDAQ Small Capitalization Market, and trading in securities generally as
reported by NASDAQ shall not have been suspended or limited, and the Common
Shares shall not have been delisted from any exchange or market on which they
are listed on the date of this Agreement.
(d) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(e) Opinion of Counsel. At the First Closing
Date or the Second Closing Date, as applicable, the Investors shall have
received an opinion of counsel to CDRD substantially to the effect of Section
2.1(a) through (e) (subject to reasonable qualifications, including reasonable
knowledge qualifications), and such other opinions, certificates and documents
as the Investors or their counsel shall reasonably require incident to the
First Closing or the Second Closing, as applicable.
(f) Escrow Agreement. If the FCC does not adopt
the Pioneer's Preference Order, (i) CDRD and the Escrow Agent shall have
executed and delivered the Escrow Agreement in the form and substance of
Exhibit 2, and (ii) the conditions contained in such agreement for the release
of funds to CDRD shall have been satisfied or waived in accordance with such
agreement.
(g) Officer's Certificate. At the Escrow Date,
the First Closing Date or the Second Closing, as applicable, CDRD shall have
delivered to the Investors a certificate in form and substance reasonably
satisfactory to the Investors, executed by an executive officer of CDRD,
certifying as to satisfaction of conditions of the Escrow Date, the First
Closing or the Second Closing, as applicable, incumbency of signing officers,
the charter, by-laws and the authorizing resolutions of CDRD.
(h) Certificate of Designations. The Certificate
of Designations shall have been filed and become effective with the Secretary
of State of the State of Delaware and the Investors shall have received copies
of the filed Certificate of Designations.
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(i) Warrants. If the purchase price for the
Satellite DARS License to be purchased by CDRD has been finally established and
such price exceeds $225,000,000, the Warrants shall have been delivered by CDRD
to the Investors.
(j) Lack of Adverse Changes. None of the
following events shall have occurred: (i) the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of CDRD or any of
its subsidiaries or of all or any substantial part of any of their respective
property and assets, (ii) CDRD or any of its subsidiaries shall have become
generally unable to pay its debts as they become due, (iii) CDRD or any of its
subsidiaries shall have made a general assignment for the benefit of its
creditors, (iv) CDRD or any of its subsidiaries shall have commenced a
voluntary case or had an involuntary case commenced against CDRD or any of its
subsidiaries under the Federal Bankruptcy Code or similar law or regulation,
(v) CDRD or any of its subsidiaries shall have filed a petition seeking to take
advantage of any law providing for the relief or debtors, (vi) CDRD or any of
its subsidiaries or any of their respective management shall have become
subject to any criminal proceedings or investigations or any enforcement or
disciplinary proceedings or investigations initiated by any governmental
authority having jurisdiction over CDRD or any of its subsidiaries or such
person, respectively, (vii) any announcement shall have been made by the FCC
that, or to the effect that, CDRD will not receive a Satellite DARS License, or
(viii) taking into account any cash or binding commitments for financing
(either of which may only be raised through financings that are either junior
to or pari passu with the Preferred Shares in seniority, structure and maturity
("PERMITTED FINANCINGS")) and any deferred payment terms available to CDRD in
connection with its acquisition of a Satellite DARS License ("DEFERRED PAYMENT
TERMS"), CDRD shall have insufficient liquidity to satisfy all of its scheduled
principal and interest obligations, including, without limitation, obligations
under any Permitted Financings or Deferred Payment Terms, as such obligations
become due during the 13 full months immediately following what would otherwise
be the First Closing Date.
(k) Second Closing Notice. With respect to the
Second Closing, Investors shall have received the Second Closing Notice not
more than fifteen days after the First Closing Date.
(l) Election. With respect to the Second
Closing, if (i) the FCC shall have granted the Pioneer's Preference Order or
CDRD or its subsidiary shall have submitted a Winning Bid to acquire a
Satellite DARS License and (ii) the FCC shall have awarded more than two
Satellite DARS Licenses or not have announced that it will award no more than
two such licenses, then the Investors shall have approved the Second Closing by
a vote of Investors holding not less than 67% of the First Closing Shares. The
Investors' right of approval pursuant to this section shall not arise solely by
virtue of a decision of the FCC to open the portions of the spectrums from 2305
Mhz to 2320 Mhz and 2345 Mhz to 2360 Mhz previously allocated to Satellite DARS
for auction to winning bidders regardless of proposed use unless, prior to the
Second Closing, a license has been awarded by the FCC which permits the use of
such spectrum for Satellite DARS services and the recipient thereof has
commenced, or announced an intention to commence, use of such license for
Satellite DARS services.
23
<PAGE> 24
ARTICLE V
LEGEND AND SHARES
Each certificate representing the Preferred Shares shall be
stamped or otherwise imprinted with a legend substantially in the following
form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
CDRD agrees to reissue certificates representing the Preferred
Shares without the legend set forth above at such time as (i) the holder
thereof is permitted to dispose of such Preferred Shares pursuant to Rule
144(k) under the Act, (ii) such Preferred Shares are sold to a purchaser or
purchasers who (in the opinion of counsel to the seller or such purchaser, in
form and substance reasonably satisfactory to CDRD and its counsel) are able to
dispose of such shares publicly without registration under the Act, or (iii)
such Preferred Shares are registered under the Act. CDRD agrees to issue any
Common Shares issuable upon conversion of Preferred Shares if any, without any
legend that indicates a restriction on transferability at such times as (i) the
holder thereof is permitted to dispose of such Common Shares pursuant to Rule
144(k) under the Act, (ii) such Common Shares are sold to a purchaser or
purchasers who (in the opinion of counsel to the seller or such purchaser, in
form and substance reasonably satisfactory to CDRD and its counsel) are able to
dispose of such shares publicly without registration under the Act, or (iii)
such Common Shares are registered under the Act; provided in the case of clause
(iii), that the holder of such Common Shares or the recipient upon such
conversion represents to CDRD that such holder will only sell such shares, if
at all, pursuant to the plan of distribution described in an effective
registration statement.
ARTICLE VI
TERMINATION
Section 6.1 Termination by Mutual Consent. This
Agreement may be terminated at any time prior to the First Closing by the
mutual written consent of CDRD and all of the Investors.
Section 6.2 Automatic Termination. This Agreement shall
terminate without further action of the parties if the First Closing has not
occurred prior to (i) March 31, 1997 if CDRD has not submitted the Winning Bid
by such date or (ii) April 10, 1997 if CDRD has
24
<PAGE> 25
submitted the Winning Bid or the Pioneer's Preference Order has been adopted,
in each case, prior to March 31, 1997.
Section 6.3 Termination on Failure of Conditions. This
Agreement shall terminate upon notice given to CDRD from a majority in interest
of the Investors (i) not earlier than 5 business days after the conclusion of
an auction for Satellite DARs Licenses if CDRD has failed to meet the
conditions enumerated in Section 1.3(b)(y), (ii) not earlier than 30 calendar
days after a Pioneer's Preference Order has been adopted if CDRD has failed to
meet the conditions enumerated in Section 1.3(a)(i), or (iii) at any time upon
the occurrence and during the continuance for a period of 30 calendar days of
any of the events set forth in Section 4.2(j)(i) through (vii).
ARTICLE VII
MISCELLANEOUS
Section 7.1 Stamp Taxes; Placement Agent Fee. CDRD shall
pay all stamp and other taxes and duties levied in connection with the issuance
of the Preferred Shares and Warrants, if any, pursuant to this Agreement and
the Common Shares issued upon conversion of such Preferred Shares or exercise
of such Warrants. On the First Closing Date and the Second Closing Date, if
any, CDRD shall pay the fee of the Placement Agent in connection with the
transactions contemplated by this Agreement, consisting of (A) a cash payment
of 7.5% of the aggregate gross proceeds received by CDRD from the sale of (1)
the First Closing Shares on the First Closing Date, and (2) the Second Closing
Shares on the Second Closing Date, if any, and (B) a warrant (the "LIBRA
WARRANT") to purchase, at the same purchase price as the purchase price to the
Investors, Preferred Shares in an amount equal to 9% of the cumulative amount
of Preferred Shares issued and sold at (1) the First Closing on the First
Closing Date, and (2) the Second Closing on the Second Closing Date, if any.
Section 7.2 Specific Enforcement, Consent to
Jurisdiction.
(a) CDRD and the Investors acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions of this Agreement, this remedy being in addition to any other remedy
to which any of them may be entitled by law or equity.
(b) CDRD (i) hereby irrevocably submits to the
jurisdiction of the United States District Court, the New York State courts and
other courts of the United States sitting in New York County, New York for the
purposes of any suit, action or proceeding arising out of or relating to this
Agreement and (ii) hereby waives, and agrees not to assert in any such suit
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in
an inconvenient forum or that the venue
25
<PAGE> 26
of the suit, action or proceeding is improper. CDRD consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing in this paragraph shall affect or limit
any right to serve process in any other manner permitted by law.
Section 7.3 Entire Agreement; Amendment; Additional
Investors. This Agreement, together with the agreements and documents executed
in connection with this Agreement and with such agreements and documents,
contains the entire understanding of the parties with respect to the matters
covered by this Agreement and by such agreements and documents and, except as
specifically set forth in this Agreement or in such agreements and documents,
neither CDRD nor any Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. Except as otherwise provided herein,
no provision of this Agreement may be waived or amended other than by a written
instrument signed by the party against whom enforcement of any such amendment
or waiver is sought. Upon delivery of any such counterpart and acceptance
thereof by CDRD, such additional investor shall be an Investor (such term as
used in this Agreement to include such additional investor) and shall be as
fully a party to this Agreement as if such additional investor were an original
signatory of this Agreement, and no consent of any other Investor shall be
required for such addition.
Section 7.4 Notices. Any notice or other communication
required or permitted to be given under this Agreement shall be in writing and
shall be effective (a) upon hand delivery or delivery by telex (with correct
answer back received), telecopy or facsimile at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
to CDRD: CD Radio Inc.
Sixth Floor
1001 22nd Street, N.W.
Washington, D.C. 20037
Fax: (202) 296-6265
Attn: David Margolese
with copies to: Bogle & Gates
2 Union Square
601 Main Street
Seattle, Washington 98101
Fax: (206) 621-2660
Attn: Christopher J. Barry
26
<PAGE> 27
to the Investors: To each Investor at the address
and/or fax number set forth on
Schedule I of this Agreement.
with copies to: Libra Investments, Inc.
11766 Wilshire Boulevard
Suite 870
Los Angeles, California 90025
Fax: (310) 312-5666
Attn: General Counsel
and: Milbank, Tweed, Hadley & McCloy
601 S. Figueroa Street, 30th Floor
Los Angeles, California 90017
Fax: (213) 629-5063
Attn: Eric H. Schunk
Any party to this Agreement may from time to time change its address for
notices by giving at least 10 days' written notice of such changed address to
the other parties to this Agreement.
Section 7.5 Indemnity. In addition to the indemnities
provided in Section 1.5, each party shall indemnify each other party against
any loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement; provided that in no case shall any Investor be
liable in an amount in excess of the Purchase Price paid by such Investor.
Section 7.6 Waivers. No waiver by any party of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any other provision, condition or requirement of this Agreement, nor shall
any delay or omission of any party to exercise any right under this Agreement
in any manner impair the exercise of any such right accruing to it after such
waiver.
Section 7.7 Headings. The headings in this Agreement are
for convenience only, do not constitute a part of this Agreement and shall not
be deemed to limit or affect any of the provisions of this Agreement.
Section 7.8 Successors and Assigns. Except as otherwise
provided in this Agreement, this Agreement shall be binding upon and inure to
the benefit of the parties to this Agreement and their successors and assigns.
The parties to this Agreement may amend this Agreement without notice to or the
consent of any third party. CDRD may not assign this Agreement or any rights
or obligations under this Agreement without the prior written consent of all
Investors (which consent may be withheld for any reason in such Investor's sole
discretion). Any Investor may assign this Agreement or any rights or
obligations under this Agreement in whole or in part without the consent of
CDRD or any other Investor in connection with any sale or transfer of all or
any part of the Preferred Shares or Warrants, if any, or Underlying Shares
27
<PAGE> 28
held by such Investor; provided that an assignee that is not a holder of
Registrable Securities (as defined in Section 1.5(a)(iii)) will not receive the
rights of a holder of Registrable Securities set forth in Section 1.5.
Section 7.9 No Third Party Beneficiaries. This Agreement
is intended for the benefit of the parties to this Agreement and their
respective permitted successors and assigns and is not for the benefit of, nor
may any provision of this Agreement be enforced by, any other person.
Section 7.10 Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York without regard to such state's principles of conflict of
laws.
Section 7.11 Survival. The representations and warranties
and the agreements and covenants of CDRD and each Investor contained in this
Agreement shall survive the First Closing and the Second Closing.
Section 7.12 Execution. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement, it being understood that all parties need not sign the same
counterpart.
Section 7.13 Publicity. CDRD agrees that it will not
disclose, and will not include in any public or other announcement, the name of
any Investor without its consent, unless and until such disclosure is required
by law or applicable regulation, and then only to the extent of such
requirement.
Section 7.14 Agents. The parties acknowledge and agree
that the Investors are not agents, affiliates or partners of each other, that
all representations, warranties, covenants and agreements of the Investors
under this Agreement are several and not joint, that no Investor shall have any
responsibility or liability for the representations, warrants, agreements, acts
or omissions of any other Investor, and that any rights granted to "Investors"
under this Agreement shall be enforceable by each Investor under this
Agreement.
Section 7.15 Severability; Interpretation. If any
provision of this Agreement is held to be illegal, invalid or unenforceable
under any present or future law, and if the rights or obligations of any party
under this Agreement will not be materially and adversely affected thereby, (a)
such provision will be fully severable, (b) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, and (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal, invalid
or unenforceable provision or by its severance from this Agreement.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties to this Agreement have caused
this Agreement to be duly executed by their respective authorized officers as
of the date of this Agreement.
CDRD:
CD RADIO INC.
By:
-------------------------------
Name:
Its:
29
<PAGE> 30
INVESTORS:
THE VALUE REALIZATION FUND, L.P.
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o Canyon Partners
9665 Wilshire Boulevard, Suite 200
Beverly Hills, CA 90212
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
30
<PAGE> 31
GRS PARTNERS II
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o Canyon Partners
9665 Wilshire Boulevard, Suite 200
Beverly Hills, CA 90212
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
31
<PAGE> 32
THE CANYON VALUE REALIZATION FUND,
(CAYMAN) LTD.
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o Canyon Partners
9665 Wilshire Boulevard, Suite 200
Beverly Hills, CA 90212
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
32
<PAGE> 33
CERBERUS PARTNERS, L.P.
By:
-----------------------------------------
Name: Stephen Feinberg
Title: General Partner
Cerberus Associates, L.P.
General Partner
Cerberus Partners, L.P.
TAX ID# 13-3690298
Investor's address:
950 Third Avenue, 20th Floor
New York, NY 10022
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
CERBERUS INTERNATIONAL, LTD
By:
-----------------------------------------
Name: Stephen Feinberg
Title: Managing Member,
Partridge Hill L.L.C.
Investment Advisor to
Cerberus International
Investor's address:
950 Third Avenue, 20th Floor
New York, NY 10022
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
33
<PAGE> 34
THE COPERNICUS FUND, LP
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o DDJ Capital Management
141 Linden Street, Suite S-4
Wellesley, MA 02181
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
34
<PAGE> 35
THE GALILEO FUND, LP
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o DDJ Capital Management
141 Linden Street, Suite S-4
Wellesley, MA 02181
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
35
<PAGE> 36
DICKSTEIN & CO. L.P.
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o Dickstein Partners, L.P.
9 West 57th Street, Suite 4630
New York, NY 10019
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
36
<PAGE> 37
DICKSTEIN INTERNATIONAL LIMITED
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o Dickstein Partners, L.P.
9 West 57th Street, Suite 4630
New York, NY 10019
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
37
<PAGE> 38
GLOBAL BERMUDA LIMITED PARTNERSHIP
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o EBF & Associates
601 Lakeshore Parkway
Minnetonka, MN 55305
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
38
<PAGE> 39
LAKESHORE INTERNATIONAL, LIMITED
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o EBF & Associates
601 Lakeshore Parkway
Minnetonka, MN 55305
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
39
<PAGE> 40
ELLIOTT ASSOCIATES, L.P.
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
712 Fifth Avenue
36th Floor
New York, New York 10019
Fax: (212) 974-2092
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
40
<PAGE> 41
WESTGATE INTERNATIONAL, L.P.
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o Midland Bank Trust Corporation
(Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman
Cayman Islands
with a copy to:
c/o Stonington Management Corporation
712 Fifth Avenue
36th Floor
New York, New York 10019
Fax: (212) 974-2092
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
41
<PAGE> 42
EVEREST CAPITAL INTERNATIONAL, LTD.
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o Everest Capital
20 Parliament Street
Corner House
Hamilton, Bermuda HM12
Fax: (441) 292-2285
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
42
<PAGE> 43
EVEREST CAPITAL FUND, L.P.
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o Everest Capital
20 Parliament Street
Corner House
Hamilton, Bermuda HM12
Fax: (441) 292-2285
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
43
<PAGE> 44
THE JAY GOLDMAN MASTER LIMITED
PARTNERSHIP
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o Jay Goldman & Company
745 Fifth Avenue, Room 1103
New York, NY 10051
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
44
<PAGE> 45
GRACE BROTHERS, LTD.
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
1560 Sherman Avenue
Evanston, IL 60201
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
45
<PAGE> 46
MAINSTAY VP SERIES FUND, INC., ON BEHALF OF
ITS HIGH YIELD CORPORATE BOND FUND
PORTFOLIO
By: Mackay-Shields Financial Corporation
Its Investment Advisor
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
c/o Mackay-Shields Financial Corp.
9 West 57th Street
New York, New York 10019
Attn: Linda Grillo
Fax: (212) 758-4737
with a copy to:
Claude A. Baum, Esq.
Dechert Price & Rhoads
477 Madison Avenue
New York, New York 10022-5891
Fax: (212) 308-2041
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
Mainstay VP Series Fund, Inc., on
behalf of its High Yield Corporate
Bond Fund Portfolio, hereby
explicitly reduces the number of
days of prior written notice
required pursuant to Section 3.6 of
this Agreement for waiver of the
restriction referenced therein from
61 days to 2 days.
46
<PAGE> 47
THE MAINSTAY FUNDS, ON BEHALF OF ITS HIGH
YIELD CORPORATE BOND FUND SERIES
By: Mackay-Shields Financial Corporation
Its Investment Advisor
By:
----------------------------
Name:
----------------------------
Its:
----------------------------
Investor's address:
c/o Mackay-Shields Financial Corp.
9 West 57th Street
New York, New York 10019
Attn: Linda Grillo
Fax: (212) 758-4737
with a copy to:
Claude A. Baum, Esq.
Dechert Price & Rhoads
477 Madison Avenue
New York, New York 10022-5891
Fax: (212) 308-2041
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
The Mainstay Funds, on behalf of its
High Yield Corporate Bond Fund series,
hereby explicitly reduces the number
of days of prior written notice
required pursuant to Section 3.6 of
this Agreement for waiver of the
restriction referenced therein from
61 days to 2 days.
47
<PAGE> 48
THE RAVICH REVOCABLE TRUST OF 1989
By:
---------------------------------
Its Trustee
Investor's address:
c/o Libra Investments, Inc.
11766 Wilshire Boulevard
Suite 870
Los Angeles, California 90025
Fax: (310) 312-5666
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
48
<PAGE> 49
SCOGGIN CAPITAL MANAGEMENT
By:
-----------------------------------------
Its General Partner
By:
----------------------------
Name:
-----------------------------
Its:
----------------------------
Investor's address:
660 Madison Avenue, 20th Floor
New York, NY 10021
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
49
<PAGE> 50
SCOGGIN INTERNATIONAL FUND, LTD.
By:
-----------------------------------------
Its General Partner
By:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
Investor's address:
c/o Scoggin Capital Management, L.P.
660 Madison Avenue, 20th Floor
New York, NY 10021
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
50
<PAGE> 51
TCW SHARED OPPORTUNITY FUND II
By:
-----------------------------------------
Its General Partner
By:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
Investor's address:
c/o Trust Company of the West
11100 Santa Monica Boulevard,
Suite 2050
Los Angeles, CA 90025
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation
shall be applicable.
51
<PAGE> 52
LIBERTYVIEW PLUS FUND
By
--------------------------------
Its General Partner
By:
----------------------
Name:
--------------------
Its:
---------------------
Investor's address:
c/o LibertyView Capital Mgmt., Inc.
101 Hudson Street
Suite 3700
Jersey City, NJ 07302
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation shall be
applicable.
52
<PAGE> 53
LIBERTYVIEW LLC FUND
By
--------------------------------
Its Managing Partner
By:
----------------------
Name:
--------------------
Its:
---------------------
Investor's address:
c/o LibertyView Capital Mgmt., Inc.
101 Hudson Street
Suite 3700
Jersey City, NJ 07302
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation shall be
applicable.
53
<PAGE> 54
PARESCO, INC.
By
--------------------------------
Name:
--------------------
Its:
---------------------
Investor's address:
c/o LibertyView Capital Mgmt., Inc.
101 Hudson Street
Suite 3700
Jersey City, NJ 07302
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation shall be
applicable.
54
<PAGE> 55
NAVESINK INVESTMENT FUND, LDC
By
--------------------------------
Name:
--------------------
Its:
---------------------
Investor's address:
c/o Rumson Capital LLC
Galleria Building, 3rd Floor
2 Bridge Avenue
Red Bank, NJ 087701-1106
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation shall be
applicable.
55
<PAGE> 56
STONEHILL OFFSHORE PARTNERS LIMITED
By Stonehill Advisors LLC, as Agent
By
---------------------------------
Name: John Motulsky
A Managing Member
Investor's address:
110 East 59th Street
30th Floor
New York, NY 10002
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation shall be
applicable.
STONEHILL INVESTMENT CORP., for and on
behalf of Stonehill Partners, L.P.,
GRS Partners III, and Aurora Limited
Partnership
By
------------------------------------------
Name: John Motulsky
Its: Vice President
Investor's address:
110 East 59th Street
30th Floor
New York, NY 10002
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation shall be
applicable.
56
<PAGE> 57
HERTA AND PAUL AMIR FAMILY TRUST
By
------------------------------------------
Its Trustee
Investor's address:
c/o Amir Development Company
8730 Wilshire Boulevard
Beverly Hills, CA
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation shall be
applicable.
THE WOLENS FAMILY TRUST
By
------------------------------------------
Its Trustee
Investor's address:
c/o Amir Development Company
8730 Wilshire Boulevard
Beverly Hills, CA
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation shall be
applicable.
57
<PAGE> 58
LONGVIEW PARTNERS
By
--------------------------------
Its General Partner
By:
----------------------
Name:
--------------------
Its:
---------------------
Investor's address:
c/o Cumberland Associates
1114 Avenue of the Americas
New York, NY 10036
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation shall be
applicable.
58
<PAGE> 59
CUMBERLAND PARTNERS
By
--------------------------------
Its General Partner
By:
----------------------
Name:
--------------------
Its:
---------------------
Investor's address:
1114 Avenue of the Americas
New York, NY 10036
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation shall be
applicable.
59
<PAGE> 60
JMG CAPITAL PARTNERS, L.P.
By
--------------------------------
Its General Partner
By:
----------------------
Name:
--------------------
Its:
---------------------
Investor's address:
1999 Avenue of the Stars
Suite 1950
Los Angeles, CA 90067
For purposes of Section 3.6 of this
Agreement, the following percentage
limitation shall be applicable:
[ ] 4.99% [ ] 9.99%
[ ] no limitation
If no box is marked, no limitation shall be
applicable.
60
<PAGE> 61
Schedule I
<TABLE>
<CAPTION>
Investor* First Closing Second Closing
-------- ------------- --------------
Shares Shares
------ ------
<S> <C> <C>
CANYON PARTNERS
The Value Realization Fund, L.P. 7,500 7,500
GRS Partners II 1,500 1,500
The Canyon Value Realization Fund, (Cayman) Ltd. 11,000 11,000
TOTALS ------ ------
20,000 20,000
CERBERUS PARTNERS
Cerberus Partners. L.P. 10,000 10,000
Cerberus International, Ltd 10,000 10,000
------ ------
20,000 20,000
DDJ CAPITAL MANAGEMENT
The Copernicus Fund, LP 15,000 15,000
The Galileo Fund, LP 45,000 45,000
------ ------
TOTALS 60,000 60,000
DICKSTEIN PARTNERS
Dickstein & Co. L.P. 8,500 8,500
Dickstein International Limited 1,500 1,500
----- -----
TOTALS 10,000 10,000
EBF & ASSOCIATES
Global Bermuda Limited Partnership 20,000 20,000
Lakeshore International, Limited 10,000 10,000
------ ------
TOTALS 30,000 30,000
ELLIOTT ASSOCIATES, L.P.
Elliott Associates, L.P. 40,000 40,000
Westgate International, L.P. 20,000 20,000
------ ------
TOTALS 60,000 60,000
</TABLE>
61
<PAGE> 62
<TABLE>
<CAPTION>
Investor* First Closing Second Closing
-------- ------------- --------------
Shares Shares
------ ------
<S> <C> <C>
</TABLE>
* The term Investor includes each entity for which share amounts are listed
opposite such entity's name.
<TABLE>
<CAPTION>
Investor First Closing Second Closing
-------- ------------- --------------
Shares Shares
------ ------
<S> <C> <C>
EVEREST CAPITAL
Everest Capital International, Ltd. 140,000 140,000
Everest Capital Fund, L.P. 60,000 60,000
------- -------
TOTALS 200,000 200,000
THE JAY GOLDMAN MASTER LIMITED PARTNERSHIP 10,000 10,000
GRACE BROTHERS, LTD. 100,000 100,000
MACKAY-SHIELDS
Mainstay VP Series Fund, Inc. 28,000 28,000
The Mainstay Funds 432,000 432,000
------- -------
TOTALS 460,000 460,000
THE RAVICH REVOCABLE TRUST OF 1989 43,400 43,400
SCOGGIN CAPITAL MANAGEMENT, L.P.
Scoggin Capital Management 6,000 6,000
Scoggin International Fund, Ltd. 600 600
----- -----
TOTALS 6,600 6,600
TRUST COMPANY OF THE WEST
TCW Shared Opportunity Fund II 40,000 40,000
LIBERTY VIEW CAPITAL MANAGEMENT, INC.
Liberty View Plus Fund 12,000 12,000
Liberty View LLC Fund 4,000 4,000
Paresco, Inc. 24,000 24,000
------ ------
TOTALS 40,000 40,000
</TABLE>
62
<PAGE> 63
<TABLE>
<CAPTION>
Investor First Closing Second Closing
-------- ------------- --------------
Shares Shares
------ ------
<S> <C> <C>
NAVESINK INVESTMENT FUND, LDC 30,000 30,000
STONEHILL INVESTMENT CORP., AS AGENT 45,000 45,000
HERTA AND PAUL AMIR FAMILY TRUST 4,800 4,800
The Wolens Family Trust 200 200
CUMBERLAND ASSOCIATES
LongView Partners 10,000 10,000
Cumberland Partners 50,000 50,000
------ ------
TOTALS 60,000 60,000
JMG CAPITAL PARTNERS, L.P. 10,000 10,000
--------- ---------
1,250,000 1,250,000
========= =========
</TABLE>
63
<PAGE> 64
CERTIFICATE OF DESIGNATIONS
OF
5% DELAYED CONVERTIBLE PREFERRED STOCK
RESOLVED that there shall be a series of shares of the
Preferred Stock of CD Radio Inc. (the "CORPORATION"), designated "5% Delayed
Convertible Preferred Stock"; that the number of shares of such series shall be
8,000,000 and that the rights and preferences of such series (the "5%
PREFERRED") and the limitations or restrictions thereon, shall be as follows:
1. Dividends.
(a) The holders of the 5% Preferred shall be entitled to
receive out of any assets legally available therefor cumulative dividends at the
rate of $1.25 per share per annum, payable semi-annually on April 15 and October
15 of each year, when and as declared by the Board of Directors, in preference
and priority to any payment of any dividend on the Common Stock or any other
class or series of stock of the Corporation. Such dividends shall accrue on any
given share from the date of original issuance of the 5% Preferred and shall
accrue from day to day whether or not earned or declared, based on the actual
days elapsed and a 360-day year of 12 30-day months. If at any time dividends on
the outstanding 5% Preferred at the rate set forth above shall not have been
paid or declared and set apart for payment with respect to all preceding
periods, the amount of the deficiency shall be fully paid or declared and set
apart for payment, but without interest, before any distribution, whether by way
of dividend or otherwise, shall be declared or paid upon or set apart for the
shares of any other class or series of stock of the Corporation.
(b) Any dividend payable on the outstanding 5% Preferred may
be paid, at the option of the Corporation, either (i) in cash or (ii) by adding
the amount of such dividend to the Liquidation Preference (as defined below);
provided, however, that if the Corporation shall fail to pay any dividend when
due, the amount of such dividend shall be added to the Liquidation Preference
for such shares of 5% Preferred.
2. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the 5% Preferred shall be entitled to receive, prior and in
preference to any distribution of any assets of the Corporation to the holders
of any other class or series of shares, the amount of $25 per share plus any
accrued but unpaid dividends (the "LIQUIDATION PREFERENCE").
<PAGE> 65
3. Redemption; Forced Conversion; Lock-up.
(a) The 5% Preferred may be redeemed in whole but not in part
by the Corporation at any time (such date being referred to herein as the
"REDEMPTION DATE"), beginning on the later to occur of (i) December 15, 1997 and
(ii) the date that is 10 months after the date of original issuance of the 5%
Preferred, plus, in each case, 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 by the later of (A)
the 90th calendar day after the date of original issuance of the 5% Preferred
and (B) February 15, 1997 (the "INITIAL REGISTRATION DEADLINE"), or (y) any such
registration statement is suspended or the related prospectus is not current,
complete and otherwise usable, at a redemption price (the "REDEMPTION PRICE")
equal to (A) the Liquidation Preference plus (B) any accrued but unpaid cash
payments due with respect to the 5% Preferred in accordance with Sections
1.5(b), 3.3 and 3.11 of the Preferred Stock Investment Agreement dated as of
October 23, 1996, among the Corporation and the Investors named therein (the
"INVESTMENT AGREEMENT")("CASH PAYMENTS"); provided, that the Corporation may not
exercise such 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 Redemption Notice (as defined below) shall equal or
exceed $18 per share (subject to adjustment for stock dividends, stock splits
and reverse stock splits), and (ii) the shares of Common Stock issuable upon
conversion of the 5% Preferred are registered for resale by an effective
registration statement under the Securities Act of 1933, as amended (the "ACT"),
in compliance with the Investment Agreement, and such registration statement
remains in effect continuously without suspension and the prospectus remains
current, complete and otherwise usable from the date of the Redemption Notice
(as defined below) to and including the Redemption Date.
(b) At least 30 days but not more than 60 days prior to the
Redemption Date, irrevocable written notice (the "REDEMPTION NOTICE") shall be
mailed, first class postage prepaid, by the Corporation to each holder of record
of the 5% Preferred, at the address last shown on the records of the Corporation
for such holder, notifying such holder of the redemption that is to be effected,
specifying the Redemption Date, the Redemption Price, and the place at which
payment may be obtained and calling upon each such holder to surrender to the
Corporation, in the manner and at the place designated, a certificate or
certificates representing all the shares of 5% Preferred held by such holder.
Subject to the provisions of the following subsection (c), on or after the
Redemption Date, each holder of 5% Preferred shall surrender to the Corporation
the certificate or certificates representing all the shares of 5% Preferred
owned by such holder as of the Redemption Date, in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption Price of such
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled.
(c) If at the Redemption Date the registration condition
specified in clause (ii) of subsection (a) shall not be satisfied, then no
shares shall be redeemed and the Redemption Notice shall be deemed to be
withdrawn. In such event, any notice of conversion given by a holder of 5%
Preferred after the Redemption Notice was given shall be deemed to be withdrawn,
and any certificates for 5% Preferred which have been surrendered for conversion
or redemption
- 2 -
<PAGE> 66
shall be returned to the persons surrendering the same; provided, however, that
if a holder shall have received shares of Common Stock upon conversion of 5%
Preferred after the Redemption Notice was given but before the Redemption Date,
such holder may elect either to retain such Common Stock or tender such shares
of Common Stock to the Corporation for the Redemption Price.
(d) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the
holders of shares that have been redeemed (except the right to receive the
Redemption Price without interest upon surrender of the certificate or
certificates representing such shares) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(e) (i) If the Corporation sells Common Stock for net cash
proceeds to the Corporation in an amount not less than $100 million in a
registered underwritten public offering (other than stock issuable pursuant to a
registration statement on Form S-8 or S-4) prior to October 15, 1997 (a
"QUALIFYING OFFERING"), the Corporation may, upon consummation of the Qualifying
Offering, redeem the 5% Preferred in whole (but not in part) for an amount per
share in cash equal to (A) the sum of the Liquidation Preference plus any Cash
Payments due (B) divided by 72.125%. The Corporation shall give notice of such
redemption pursuant to this subsection (e) in the same manner as set forth for
Redemption Notices generally except that such notice must be given at the time
of the earlier of the initial filing or the public announcement of a proposed
filing with the Securities and Exchange Commission of the registration statement
with respect to the Qualifying Offering.
(ii) If the Corporation does not give notice of
redemption of the 5% Preferred pursuant to clause (i) of this subsection (e),
the Corporation and its underwriters may, by written notice from the Corporation
and its lead underwriter to each holder of 5% Preferred (a "LOCK-UP REQUEST"),
mailed on or after the time of the earlier of the initial filing or the public
announcement of a proposed filing with the Securities and Exchange Commission of
the registration statement with respect to the Qualifying Offering, first class
postage prepaid, at the address last shown on the records of the Corporation for
such holder, request that such holder of 5% Preferred agree, and cause any
transferee of such 5% Preferred to agree, to not offer, sell or transfer any
shares of the Common Stock into which the same may be converted during the
180-day period beginning on a date specified in the Lock-up Request, which date
may be as early as five (5) business days prior to the expected effective date
(but no later than the effective date) with respect to the registration
statement for the Qualifying Offering (the "LOCK-UP"); provided that the
Corporation shall specify the expected effective date by notice to the holders
given not later than two (2) business days prior to the beginning of the Lock-up
period (the "EFFECTIVE DATE NOTICE"). If the Corporation so requests a Lock-up,
each holder of 5% Preferred shall have the right, regardless of whether the
Corporation revokes or attempts to revoke the Lock-up Request, to require the
Corporation, upon consummation of the Qualifying Offering, to purchase its 5%
Preferred for a cash amount equal to (A) the sum of the Liquidation Preference
plus any Cash Payments due (B) divided by an amount equal to 1 minus the
Applicable Percentage; provided, that the Applicable Percentage for purposes of
this subsection (ii) shall be the Applicable Percentage in effect under Section
4(d)(ii) determined by reference to the date of consummation
- 3 -
<PAGE> 67
of the Qualifying Offering or, if such consummation occurs prior to February 15,
1997, 12.125%. In order for any holder of 5% Preferred to exercise such right,
such holder must give notice of such fact to the Corporation not later than 15
days after the Corporation has given the Lock-up Request. If any holder of 5%
Preferred shall fail for any reason to timely exercise such right, such holder,
by acceptance of shares of the 5% Preferred, shall be deemed to have agreed to
(1) be bound by the Lock-up Request and shall comply with and be bound by the
Lock-up and (2) sign a lock-up agreement in customary form if requested to do so
by the lead underwriter of the Qualifying Offering. Notwithstanding the
foregoing, if the Corporation requests in the Lock-up Request that the Lockup
become effective prior to the effective date of the registration statement with
respect to the Qualifying Offering then such Lock-up shall terminate if such
registration statement is not declared effective by the Securities and Exchange
Commission on or before the fifth business day following the expected effective
date specified in the Effective Date Notice and may be reinstated only by the
giving of a new Effective Date Notice within 30 calendar days of such
termination. After such 30-day period, a new Lock-up Request shall be required
in order to effect a new Lock-up.
(f) The Corporation may, upon at least 30 days but not more
than 60 days prior notice to the holders of 5% Preferred given in the same
manner specified for Redemption Notices generally, require the holders of all
and not less than all of outstanding shares of 5% Preferred to convert such
shares into (x) Common Stock at the then applicable Conversion Price (as defined
in Section 4(d)) and (y) all Cash Payments due on the Optional Conversion Date
(as defined below), effective on a date (the "OPTIONAL CONVERSION DATE")
specified in such notice that is three years or more after the date of original
issuance of the 5% Preferred; provided that that no such conversion shall occur
if the Corporation has commenced voluntary bankruptcy, become subject to
involuntary bankruptcy, had a receiver, liquidator, trustee or other officer
having similar power over the Corporation appointed over all or a substantial
part of its property, has ceased operations or shall be in default for money
borrowed (or the deferred purchase price of property and assets) in excess of
$50,000,000 and, in each case, such situation shall not have been remedied.
Within 3 business days after the Optional Conversion Date, written notice shall
be mailed, first class postage prepaid, by the Corporation to each holder of
record of the 5% Preferred, at the address last shown on the records of the
Corporation for such holder, notifying such holder of the optional conversion
that has been effected, specifying the then applicable Liquidation Preference,
Cash Payments and Conversion Price (and the method of calculation thereof) and
the place at which such holder shall surrender the certificate or certificates
representing the Preferred Shares so converted, and calling upon each such
holder to surrender to the Corporation, in the manner and at the place
designated, a certificate or certificates representing all the shares of 5%
Preferred held by such holder. Each holder of 5% Preferred shall surrender to
the Corporation the certificate or certificates representing all the shares of
5% Preferred owned by such holder as of the Optional Conversion Date, in the
manner and at the place designated in such notice, and thereupon the Corporation
shall issue and deliver to or upon the order of such holder a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled and shall pay to each such holder, in immediately available funds,
an amount equal to all Cash Payments due on the Optional Conversion Date with
respect to such holder's shares of 5% Preferred.
- 4 -
<PAGE> 68
(g) If at any time a Reorganization (as defined in Section
4(k)) shall occur or be proposed, each holder of 5% Preferred shall have the
right to require the Corporation, effective upon consummation of such
Reorganization, to purchase its 5% Preferred for a cash amount equal to (A) the
sum of the Liquidation Preference plus any Cash Payments due (B) divided by
72.125%. In order for any holder of 5% Preferred to exercise such right, such
holder must give notice of such fact to the Corporation not later than the later
to occur of (i) 30 days after receipt of notice of the Reorganization and (ii)
the consummation of the Reorganization. The Corporation shall provide notice to
holders of 5% Preferred given in the same manner as specified for Redemption
Notices generally, at least 30 days prior to the anticipated date of the
consummation of a Reorganization, which notice shall reasonably set forth the
rights of holders of 5% Preferred under this Section 3(g) and Section 4(k).
4. Conversion. The holders of the 5% Preferred shall have
optional conversion rights as follows:
(a) Accrual of Conversion Rights. Commencing on the earlier to
occur of (i) February 16, 1997 and (ii) the announcement or commencement of a
tender offer for shares of Common Stock, the 5% Preferred shares shall become
convertible; provided that the Corporation shall not be obligated to honor any
request for conversion of shares of the 5% Preferred at any time to the extent
that approval of the Federal Communications Commission ("FCC APPROVAL") of the
issuance of shares of Common Stock upon such conversion is or would be required
and has not been obtained; provided further that if FCC Approval (other than
approval in connection with a conversion of shares of the 5% Preferred resulting
in a holder of shares of the 5% Preferred, or a group of persons who have an
agreement or understanding to act in concert of which such holder is a member,
holding 50% or more of the voting securities of the Corporation) is not obtained
by a date that is 270 days after the Initial Registration Deadline, then, at any
time thereafter at the request of any holder of shares of the 5% Preferred, the
Corporation shall promptly purchase from such holder, at a purchase price per
share equal to (A) the sum of the Liquidation Preference plus any Cash Payments
divided by (B) 72.125%, the shares of 5% Preferred held by such holder.
(b) Right to Convert. At and after the time it has become
convertible, each share of 5% Preferred shall be convertible, at the option of
the holder thereof, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing (i) the Liquidation Preference plus
any Cash Payments due on the date the notice of conversion is given, by (ii) the
Conversion Price determined as hereinafter provided in effect on said date.
(c) Mechanics of Conversion. To convert shares of 5% Preferred
into shares of Common Stock, the holder shall give written notice to the
Corporation (which notice may be given by facsimile transmission) that such
holder elects to convert the same and shall state therein the number of shares
to be converted and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. Promptly
thereafter the holder shall surrender the certificate or certificates
representing the shares to be converted, duly endorsed, at the office of the
Corporation or of any transfer agent for such shares, or at such other place
designated by the Corporation; provided that the Corporation shall at all times
maintain an office or agency in New York City for such purposes. The Corporation
shall,
- 5 -
<PAGE> 69
immediately upon receipt of such notice, issue and deliver to or upon the order
of such holder, against delivery of the certificates representing the shares
that have been converted, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled (in the number(s) and
denomination(s) designated by such holder), and the Corporation shall deliver to
such holder a certificate or certificates for the number of shares of 5%
Preferred that such holder has not elected to convert (in the number(s) and
denomination(s) designated by such holder). The Corporation shall effect such
issuance and shall transmit the certificates by messenger or overnight delivery
service to reach the address designated by such holder within two business days
after the receipt of such notice. For all purposes of this Certificate of
Designations, such conversion shall be deemed to have been made immediately
prior to the close of business on the date such notice of conversion is given.
The person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock at the close of business on such date.
(d) Determination of Conversion Price.
(i) At any date up to and including November 15,
1997, the "CONVERSION PRICE" shall be, as applicable, either (x) the
weighted-average (based upon the number of shares sold) of the actual selling
price (but not less than the lower of (A) the price of shares sold in the
Qualifying Offering if shares are so sold on the date of such trade and (B) the
low trading price on the date of such trade as reported on the principal market
for the Common Stock), at which the holder shall have sold shares of Common
Stock received or receivable upon conversion of the 5% Preferred, reduced by any
trading commissions or underwriting spreads paid by such holder, as certified to
the Corporation by such holder, multiplied by an amount equal to 1 minus the
Applicable Percentage set forth below, or (y) the average of the daily means
between the low trading price of the Common Stock and the closing price of the
Common Stock for the 3 consecutive trading days immediately preceding the date
of conversion, multiplied by an amount equal to 1 minus the Applicable
Percentage set forth below; provided, however, that clause (x) shall only apply
to the extent shares of Common Stock are actually so sold and the holder
converting 5% Preferred shall have given notice to the Corporation of such sale
not more than 24 hours after such sale; provided further that, failure to give
such notice within such time shall result in determination of the Conversion
Price in accordance with clause (y).
- 6 -
<PAGE> 70
(ii) The "APPLICABLE PERCENTAGE" shall be as follows:
<TABLE>
<CAPTION>
Conversion after the
following date: Applicable Percentage:
--------------- ----------------------
<S> <C> <C>
2/15/97 12.125%
3/15/97 14.250%
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>
(iii) At any date after November 15, 1997, the Conversion Price
shall be 72.125% of the least of (x) the average of the daily means between the
low trading price of the Common Stock and the closing price of the Common Stock
for all the trading days between October 15, 1997 and November 15, 1997
(inclusive) for such trading days, (y) the average of the daily means between
the low trading price of the Common Stock and the closing price of the Common
Stock during the 3 consecutive trading days immediately preceding the date of
conversion and (z) the weighted-average (based upon the number of shares sold)
of the actual selling price (but not less than the low trading price on the date
of such trade as reported on the principal market for the Common Stock), at
which the holder shall have sold shares of Common Stock received or receivable
upon conversion of the 5% Preferred, reduced by any trading commissions or
underwriting spreads paid by such holder, as certified to the Corporation by
such holder; provided, however, that clause (z) shall only apply to the extent
shares of Common Stock are actually sold and the holder converting 5% Preferred
shall have given notice to the Corporation of such sale not more than 24 hours
after such sale; provided, further that, clause (z) shall be unavailable if such
holder shall fail to give such notice within such time.
(iv) The "LOW TRADING PRICE" and the "CLOSING PRICE", respectively,
of the Common Stock on any day shall be (A) the lowest reported sale price and
the reported closing price (last sale price), regular way, of the Common Stock
on the principal stock exchange on which the Common Stock is listed, or (B) if
the Common Stock is not listed on a stock exchange, the lowest reported sale
price and the reported closing price of the Common Stock on the principal
automated securities price quotation system on which sale prices of the Common
Stock are reported, or (C) if the Common Stock is not listed on a stock exchange
and sale prices of the Common Stock are not reported on an automated quotation
system, the final bid price and the mean of the final bid and asked prices for
the Common Stock as reported by National Quotation Bureau Incorporated if at
least two securities dealers have inserted both bid and asked quotations for the
Common Stock on at least five of the ten preceding trading days. If none of the
foregoing provisions are applicable, the phrase "MEANS BETWEEN THE LOW TRADING
PRICE OF THE COMMON STOCK AND THE CLOSING PRICE OF THE COMMON STOCK" on a day
will be the fair market
- 7 -
<PAGE> 71
value of the Common Stock on that day as determined by a member firm of the New
York Stock Exchange, Inc., selected in good faith by the Board of Directors of
the Corporation. The term "TRADING DAY" means (x) if the Common Stock is listed
on at least one stock exchange, a day on which there is trading on the principal
stock exchange on which the Common Stock is listed, (y) if the Common Stock is
not listed on a stock exchange but sale prices of the Common Stock are reported
on an automated quotation system, a day on which trading is reported on the
principal automated quotation system on which sales of the Common Stock are
reported, or (z) if the foregoing provisions are inapplicable, a day on which
quotations are reported by National Quotation Bureau Incorporated.
(v) In the event that during any period of consecutive
trading days provided for above, the Corporation shall declare or pay any
dividend on the Common Stock payable in Common Stock or in rights to acquire
Common Stock, or shall effect a stock split or reverse stock split, or a
combination, consolidation or reclassification of the Common Stock, then the
Conversion Price shall be proportionately decreased or increased, as
appropriate, to give effect to such event.
(e) Distributions. In the event the Corporation shall at any
time or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation or other property
(other than cash paid out of current earnings) or any of its subsidiaries other
than additional shares of Common Stock, then in each such event, in addition to
the number of shares of Common Stock receivable upon conversion, provision shall
be made so that the holders of 5% Preferred shall receive, upon the conversion
thereof, the securities of the Corporation that they would have received had
they been the owners on the date of such event of the number of shares of Common
Stock issuable to them upon conversion.
(f) Certificates as to Adjustments. Upon the occurrence of any
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause independent public
accountants selected by the Corporation to verify such computation and prepare
and furnish to each holder of 5% Preferred a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of 5% Preferred, furnish or cause to be
furnished to such holder a like certificate prepared by the Corporation setting
forth (i) such adjustments and readjustments, and (ii) the number of other
securities and the amount, if any, of other property that at the time would be
received upon the conversion of 5% Preferred with respect to each share of
Common Stock received upon such conversion.
(g) Notice of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any security or right convertible into or
entitling the holder thereof to receive additional shares of Common Stock, or
any right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive or exercise any
other right, the Corporation shall mail
- 8 -
<PAGE> 72
to each holder of 5% Preferred at least 10 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right and the amount
and character of such dividend, distribution, security or right.
(h) Issue Taxes. The Corporation shall pay any and all issue
and other taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of 5% Preferred pursuant hereto; provided, however, that
the Corporation shall not be obligated to pay any transfer taxes resulting from
any transfer requested by any holder in connection with any such conversion.
(i) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the 5% Preferred, at least such number of its shares
of Common Stock that is the greater of (a) 10,000,000 and (b) 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 at the Conversion Price calculated using
the method set forth in Section 4(d)(i)(y) or Section 4(d)(iii)(x) or (y), as
applicable, and the Applicable Percentage, in each case as adjusted for all
subdivisions or combinations of the Common Stock or payments of dividends on the
Common Stock made in shares of Common Stock, and if at any time the number of
authorized but unissued and reserved shares of Common Stock shall not be greater
than or equal to such larger amount, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued and reserved shares of Common Stock to such number of
shares as shall be sufficient for such purpose, including, without limitation,
engaging in best efforts to obtain the requisite stockholder approval. In the
event that the Corporation shall at any time fail to authorize or reserve the
number of shares of Common Stock sufficient to effect the conversion of all
outstanding shares of the 5% Preferred at the Conversion Price calculated using
the method set forth in Section 4(d)(i)(y) or Section 4(d)(iii)(x) or (y), as
applicable, and the Applicable Percentage, then at any time thereafter at the
request of any holder of shares of the 5% Preferred, the Corporation shall
promptly purchase from such holder, at a purchase price equal to (A) the sum of
the Liquidation Preference plus any Cash Payments due divided by (B) 72.125%,
the number of shares of the 5% Preferred equal to such holder's pro-rata share
of the "DEFICIENCY." The "DEFICIENCY" shall be equal to the number of shares of
the 5% Preferred that would not be able to be converted for shares of Common
Stock, due to an insufficient amount of Common Stock available, if all the then
outstanding shares of the 5% Preferred were submitted for conversion.
(j) Fractional Shares. No fractional shares shall be issued
upon the conversion of any share or shares of 5% Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of 5% Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith by the Board of
Directors of the Corporation).
- 9 -
<PAGE> 73
(k) Reorganization or Merger. In case of any reorganization or
any reclassification of the Common Stock or other capital stock of the
Corporation or any consolidation or merger of the Corporation with or into any
other corporation or corporations or a sale of all or substantially all of the
assets of the Corporation to any other person (a "REORGANIZATION"), in which any
of the holders of 5% Preferred does not elect to require the Corporation to
redeem the 5% Preferred as provided in Section 3(g), then, as part of such
Reorganization, provision shall be made so that each share of 5% Preferred shall
thereafter be convertible into the number of shares of stock or other securities
or property (including cash) to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of 5% Preferred not so redeemed
would have been entitled upon the record date of (or date of, if no record date
is fixed) such event and, in any case, appropriate adjustment (as determined by
the Board of Directors) shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of the
holders of the 5% Preferred, to the end that the provisions set forth herein
shall thereafter be applicable, as nearly as equivalent as is practicable, in
relation to any shares of stock or the securities or property (including cash)
thereafter deliverable upon the conversion of the shares of 5% Preferred.
(l) Additional Satellite DARS Licenses. If (a) the Corporation
has issued shares of 5% Preferred in the second closing under the Investment
Agreement ("SECOND CLOSING") and (b) at any time within the earlier of the
closing of a Qualified Offering and twelve months after the Second Closing, (i)
more than two licenses (including the license awarded to the Corporation) have
been awarded by the Federal Communications Commission that permit the recipients
thereof to provide satellite digital audio radio services ("SATELLITE DARS"),
and (ii) more than two recipients of such licenses (including the Corporation)
commence or announce an intention to commence Satellite DARS using their license
and (iii) the holders of more than one-third of the then outstanding shares of
5% Preferred shall so request in writing, then, on the first business day
following 60 calendar days after receipt of such request, the Corporation shall
promptly purchase one-half of the shares of 5% Preferred held by each such
requesting holder as of such date at a purchase price per share equal to (A) the
sum of the Liquidation Preference plus any Cash Payments then due and unpaid
divided by (B) an amount equal to 1 minus the Applicable Percentage.
5. Other Provisions. For all purposes of this Certificate of
Designations, the term "DATE OF ORIGINAL ISSUANCE OF THE 5% PREFERRED" shall
mean the day on which any shares of the 5% Preferred are first issued by the
Corporation pursuant to the terms of the Investment Agreement, and the terms
"TRADING PRICE", "LAST TRADE PRICE", "CLOSING PRICE" and "TRADING DAYS" shall
have the meanings given them in Section 4(d)(iv) hereof. Any provision herein
that conflicts with or violates any applicable usury law shall be seemed
modified to the extent necessary to avoid such conflict or violation.
6. Restrictions and Limitations. The Corporation shall not undertake the
following actions without the consent of the holders of a majority of the 5%
Preferred: (A) modify its Certificate of Incorporation or Bylaws so as to amend
or change any of the rights, preferences or privileges of the 5% Preferred; (B)
purchase or otherwise acquire for value any Common Stock or other equity
security of the Corporation or any non-wholly-owned subsidiary thereof not held
by the Corporation or any wholly-owned subsidiary while there exists any
arrearage in the
- 10 -
<PAGE> 74
payment of cumulative dividends hereunder or any Cash Payments due or the
Liquidation Preference exceeds $25; or (C) prior to a Qualifying Offering: (i)
authorize or issue any other preferred equity security senior to the 5%
Preferred (in security, structure or maturity); (ii) declare or pay any
dividends or make any distribution except to the holders of the 5% Preferred; or
(iii) effect any Reorganization. The Corporation shall not, in connection with a
repurchase of any shares of 5% Preferred, undertake any of the following actions
without the consent of all of the holders of the 5% Preferred: (1) reduce the
amount of 5% Preferred whose holders must consent to an amendment or waiver, (2)
reduce the rate of, or change the time for payment of, dividends on the 5%
Preferred or alter the Liquidation Preference, or (3) alter the conversion
provisions with respect to the 5% Preferred.
7. Voting Rights. Except as provided herein or as provided for by law,
the 5% Preferred shall have no voting rights.
8. Notices. Any notice required by the provisions of this Certificate
of Designations to be given to the holders of shares of 5% Preferred shall be
deemed given five (5) days after deposit in the United States mail, postage
prepaid, or one day after deposit with a nationally-recognized overnight
courier, in either case addressed to each holder of record at its address
appearing on the books of the Corporation. The Corporation shall distribute to
the holders of shares of the 5% Preferred, copies of all notices, materials,
annual and quarterly reports, proxy statements, information statements and any
other documents distributed generally to the holders of shares of Common Stock,
at such times and by such method as such documents are distributed to such
holders.
9. Attorneys' Fees. Any holder of 5% Preferred shall be entitled to
recover from the Corporation the reasonable attorneys, fees and expenses
incurred by such holder in connection with enforcement by such holder of any
obligation of the Corporation hereunder.
- 11 -
<PAGE> 75
THIS ESCROW AGREEMENT is made this 20th
---------------------------------------
Date
day of March , 1997 between/among
--------------------------------------------
Month
CD Radio Inc. (the " Party A " herein),
- ------------------------------------------ -----------------------
Party "A" Party " A "
" "
- ----------------------------------------------------------------------------
Party "B"
(the " " herein) and CITIBANK, N.A.
-------------------------------------------
Party "B"
(the "Escrow Agent" herein).
The above-named parties appoint said Escrow Agent with the duties and
responsibilities and upon the terms and conditions provided in Schedule A
annexed hereto and made apart hereof.
ARTICLE FIRST: The above-named parties agree that the following provisions shall
control with respect to the rights, duties, liabilities, privileges and
immunities of the Escrow Agent:
a) The Escrow Agent shall neither be responsible for or under, nor chargeable
with knowledge of, the terms and conditions of any other agreement,
instrument or document executed between/among the parties hereto, except
as may be specifically provided in Schedule A annexed hereto. This
Agreement sets forth all of the obligations of the Escrow Agent, and no
additional obligations shall be implied from the terms of this Agreement
or any other agreement, instrument or document.
b) The Escrow Agent may act in reliance upon any instructions, notice,
certification, demand, consent, authorization, receipt, power of attorney
or other writing delivered to it by any other party without being required
to determine the authenticity or validity thereof or the correctness of
any fact stated herein, the propriety or validity of the service thereof,
or the jurisdiction of the court issuing any judgment or order. The
Escrow Agent may act in reliance upon any signature believed by it to be
genuine, and may assume that such person has been properly authorized to
do so.
c) Each of the parties, jointly and severally, agrees to reimburse the Escrow
Agent on demand for, and to indemnify and hold the Escrow Agent harmless
against and with respect to, any and all loss, liability, damage or
expense (including, but without limitation, attorneys' fees, costs and
disbursements) that the Escrow Agent may suffer or incur in connection
with this Agreement and its performance hereunder or in connection
herewith, except to the extent such loss, liability, damage or expense
arises from its willful misconduct or gross negligence as adjudicated by a
court of competent jurisdiction. The Escrow Agent shall have the further
right at any time and from time to time to charge, and reimburse itself
from, the property held in escrow hereunder.
d) The Escrow Agent may consult with legal counsel of its selection in the
event of any dispute or question as to the meaning or construction of any
of the provisions hereof or its duties hereunder, and it shall incur no
liability and shall be fully protected in acting in accordance with the
opinion and instructions of such counsel. Each of the parties, jointly
and severally, agrees to reimburse the Escrow Agent on demand for such
legal fees, disbursements and expenses and in addition, the Escrow Agent
shall have the right to reimburse itself for such fees, disbursements and
expenses from the property held in escrow hereunder.
e) The Escrow Agent shall be under no duty to give the property held in
escrow by it hereunder any greater degree of care than it gives its own
similar property.
f) The Escrow Agent shall invest the property held in escrow in such a manner
as directed in Schedule A annexed hereto but which shall include deposits
in Citibank even though Citibank may receive a benefit or profit
therefrom.
THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE THAT NON-DEPOSIT INVESTMENT
PRODUCTS ARE NOT OBLIGATION OF, OR GUARANTEED, BY CITIBANK/CITICORP NOR
ANY OF ITS AFFILIATES; ARE NOT FDIC INSURED; AND ARE SUBJECT TO
INVESTMENTS RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED. ONLY DEPOSITS IN THE UNITED STATES ARE SUBJECT TO FDIC
INSURANCE.
g) In the event of any disagreement between/among any of the parties to this
agreement, or between /among them or either or any of them and any other
person, resulting in adverse claims or demands being made in connection
with the subject matter of the Escrow, or in the event that the Escrow
Agent, in good faith, be in doubt as to what action it should take
hereunder, the Escrow Agent may, at its option, refuse to comply with any
claims or demands on it, or refuse to take any other action hereunder, so
long as such disagreement continues or such doubt exists, and in any such
event, the Escrow Agent shall not become liable in any way or to any
person for its failure or refusal to act, and the Escrow Agent shall be
entitled to continue so to refrain from acting until (i) the rights of all
parties shall have been fully and finally adjudicated by a court of
competent jurisdiction, or (ii) all differences shall have been adjusted
and all doubt resolved by agreement among all of the interested persons,
and the Escrow Agent shall have been notified thereof in writing signed by
all such persons. The rights of the Escrow Agent under this paragraph are
cumulative of all other rights which it may have by law or otherwise.
Page 2 Escrow Agreement - Preferred Custody Services
<PAGE> 76
h) The Escrow Agent is authorized, for any securities at any time held
hereunder, to register such securities in the name of its nominee(s) or
the nominees of any securities depository, and such nominee(s) may sign
the name of any of the parties hereto to whom or to which such securities
belong and guarantee such signature in order to transfer securities or
certify ownership thereof to tax or other governmental authorities.
i) Notice to the parties shall be given as provided in Schedule A annexed
hereto.
ARTICLE SECOND: The Escrow Agent shall make payments of income earned on the
escrowed property as provided in Schedule A annexed hereto. Each such payee
shall provide to the Escrow Agent an appropriate W-9 form for tax identification
number certification or a W-8 form for non-resident alien certification. The
Escrow Agent shall be responsible only for income reporting to the Internal
Revenue Service with respect to income earned on the escrowed property.
ARTICLE THIRD: The Escrow Agent may, in its sole discretion, resign and
terminate its position hereunder at any time following 60 days written notice to
the parties to the Escrow Agreement herein. Any such resignation shall
terminate all obligations and duties of the Escrow Agent hereunder. On the
effective date of such resignation, the Escrow Agent shall deliver this Escrow
Agreement together with any and all related instruments or documents to any
successor Escrow Agent agreeable to the parties, subject to this Escrow
Agreement herein. If a successor Escrow Agent has not been appointed prior to
the expiration of 60 days following the date of the notice of such resignation,
the then acting Escrow Agent may petition any court of competent jurisdiction
for the appointment of a successor Escrow Agent, or other appropriate relief.
Any such resulting appointment shall be binding upon all parties to this
Agreement.
ARTICLE FOURTH: The Escrow Agent shall receive the fees provided in Schedule B
annexed hereto. In the event that such fees are not paid to the Escrow Agent
within 60 days of presentment to the party responsible for such fees as set
forth in said Schedule B, then the Escrow Agent may pay itself such fees from
the property held in escrow hereunder.
ARTICLE FIFTH: Any modification of this Agreement or any additional obligations
assumed by an party hereto shall be binding only if evidenced by a writing
signed by each of the parties hereto.
ARTICLE SIXTH: This Agreement may be executed in one or more counterparts, each
of which counterparts shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same Agreement.
In witness whereof, the parties have executed this Agreement as of the date
first above written.
CITIBANK, N.A.
as Escrow Agent
By: /s/ John P. Howard
-----------------------------------
Title: Vice President
---------------------------------
PARTY A
By: /s/ David Margolese CD RADIO INC.
-----------------------------------
Title: Chairman & CEO
---------------------------------
PARTY B
By:
----------------------------------
Title:
---------------------------------
Escrow Agreement - Preferred Custody Services Page 3
<PAGE> 77
IN WITNESS WHEREOF, the authorized representatives of the parties hereto
have set their hands or their names and seals, the day and year first above
written.
ENGELHARD/ICC
By: [SIG]
-----------------------------------
Name:
---------------------------------
Title: PRESIDENT - COO
--------------------------------
CARRIER ASIA PACIFIC OPERATIONS PTE. LTD.
By: [SIG]
-----------------------------------
Name:
---------------------------------
Title: PRESIDENT
---------------------------------
<PAGE> 78
SCHEDULE A TO ESCROW AGREEMENT BETWEEN
CITIBANK, N.A., AS ESCROW AGENT, AND CD RADIO INC., AS PARTY A
1. Preferred Stock Investment Agreement. CD Radio Inc.
("PARTY A") has entered into a Preferred Stock Investment Agreement (the
"INVESTMENT AGREEMENT") dated as of October 23, 1996, as amended, with the
Investors identified therein (including their successors and assigns, the
"INVESTORS"), pursuant to which Party A has agreed to sell and issue to the
Investors an aggregate of up to 8,000,000 shares of Party A's 5% Delayed
Convertible Preferred Stock (the "PREFERRED SHARES") and, under certain
circumstances, warrants to purchase shares of Party A's common stock (the
"WARRANTS"). Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Investment Agreement.
2. Deposit with Escrow Agent. Upon the Escrow Date,
each Investor severally will deliver or cause to be delivered to the Escrow
Agent payment to the escrow account identified on the cover page hereof (the
"ESCROW ACCOUNT"), in the amount set forth next to such Investor's name in
column 1 on Exhibit C hereto (together with any income and interest that
accrues thereon, the "ESCROWED PROPERTY"). Such monies will be wire
transferred directly from the Investors to the Escrow Account.
3. Conditions for Release. The Escrowed Property shall
remain in the Escrow Account pursuant to the terms hereof until:
(a) at the close of the final bid submission round of the
Satellite DARS License auction conducted by the FCC, if (1) Party A is the
winning bidder for one of the Satellite DARS Licenses and the Bid Financing
Condition (as defined below) is met and (2) each of the conditions set forth in
Article IV of the Investment Agreement and applicable to the First Closing
shall be fulfilled or waived in accordance with the Investment Agreement;
provided, that it shall be a condition of release of the Escrowed Property from
the Escrow Account (the "BID FINANCING CONDITION"), that Party A have at that
time additional cash and/or binding commitments for financing (from the
proceeds from the sale of the Second Closing Shares and/or any other binding
commitments that are either pari passu or junior in seniority, structure and
maturity to the Preferred Shares) for an amount sufficient, together with the
Escrowed Property to be released to Party A, to enable Party A to fully and
timely make the payments required to purchase the Satellite DARS License; or
(b) the earliest of (i) five Business Days after the
conclusion of the Satellite DARS License auction if Party A has not submitted a
Winning Bid or if the Bid Financing Condition, if applicable, is not met, (ii)
the date Party A indicates, or takes any action indicating, that it will not,
or Party A otherwise loses its right to, acquire the Satellite DARS License on
the terms prescribed in the auction thereof, (iii) May 1, 1997 (or May 12,
1997, if Party A has submitted a Winning Bid) or (iv) any other termination of
the Investment Agreement.
4. Release of Escrowed Property. The Escrow Agent shall
only release the Escrowed Property as specified below:
(a) if the Escrow Agent receives from Party A a copy of a
certificate of the chief executive, operating or financial officer of Party A
in the form of Exhibit A hereto issued to the Investors (the "CERTIFICATE")
stating that the conditions contained in paragraph (a) of Section 3 above have
been satisfied, then the Escrow Agent shall release and transfer to each
Investor, the amount set forth next to such Investor's name in column 2 of
Exhibit C hereto and the remainder of the Escrowed Property to an account
designated by Party A to the Escrow Agent in writing, on the second business
day following the Escrow Agent's receipt of such Certificate; or
<PAGE> 79
(b) if (i) May 1, 1997 (or May 12, 1997 if Party A has
submitted a Winning Bid) shall have occurred without a release of Escrowed
Property pursuant to Section 4(a) or (ii) the Escrow Agent receives from a
majority in interest (as reflected on Exhibit C) of the Investors and from
Party A a certificate in the form of Exhibit D that indicates that any of the
events itemized in Section 3(b)(i), (ii) or (iv) above have occurred, then the
Escrow Agent shall release and transfer the Escrowed Property to the Investors
in such amounts as are stipulated on the attached Exhibit C, together with each
Investor's pro rata share of the income and interest thereon.
5. Interest Bearing Account. The Escrow Agent shall
hold the Escrowed Property in an interest bearing account. Any interest earned
on the Escrowed Property shall be paid to the party or parties entitled to the
Escrowed Property.
6. Third Party Beneficiary. Each of the Investors shall
be a third party beneficiary of, and entitled to enforce, this Agreement.
- 2 -
<PAGE> 80
EXHIBIT A TO SCHEDULE A
[Date]
The Value Realization Fund, L.P.
GRS Partners II
The Canyon Value Realization Fund, (Cayman) Ltd.
Cerberus Partners, L.P.
The Copernicus Fund, LP
The Galileo Fund, LP
Dickstein & Co. L.P.
Dickstein International Limited
Global Bermuda Limited Partnership
Lakeshore International, Limited
Elliott Associates, L.P.
Westgate International, L.P.
Everest Capital International, Ltd.
Everest Capital Fund, L.P.
The Jay Goldman Master Limited Partnership
Grace Brothers, Ltd.
MainStay VP Series Fund, Inc., on behalf of its High Yield Corporate Bond
Portfolio
The MainStay Funds, on behalf of its High Yield Corporate Bond Fund Series
The Brown & Williamson Master Retirement Trust
Police Officers Pension System of the City of Houston
Highbridge Capital Corporation
The MainStay Funds, on behalf of its Strategic Income Fund Series
The Ravich Revocable Trust of 1989
Scoggin Capital Management
Scoggin International Fund, Ltd.
TCW Shared Opportunity Fund II
LibertyView Plus Fund
LibertyView LLC Fund
Paresco, Inc.
Navesink Investment Fund, LDC
Stonehill Offshore Partners Limited
Stonehill Investment Corp., for and on behalf of Stonehill Partners L.P., GRS
Partners III and Aurora Limited Partnership
Herta and Paul Amir Family Trust
The Wolens Family Trust
LongView Partners
Cumberland Partners
JMG Capital Partners, L.P.
The James P. Argyropoulos Trust Dated 8/8/91
Banco Santander Trust and Banking Corp. (Bahamas) Ltd.
CC Investments, Ltd.
Continental Casualty Company
Greenlight Capital, L.P.
Greenlight Capital Offshore, Ltd.
Lloyd I. Miller Trust A-4 Dated 9/19/80, Amended and Restated 9/20/83
Milfam II, L.P.
A-1
<PAGE> 81
Milner Trust
Post Balanced Fund, L.P.
UBS Securities LLC
Citibank, N.A., Escrow Agent
153 East 53rd Street
New York, NY 10043
Re: Certificate Regarding Escrow Agreement Between
Citibank, NA and CD Radio Inc., dated
March 20, 1997 (the "Escrow Agreement")
Ladies and Gentlemen:
We are writing pursuant to paragraph 4(a) of Schedule A to the
above-referenced Escrow Agreement. All capitalized terms not defined herein
shall have the same meaning as defined in the Escrow Agreement.
The following conditions for release of the Escrowed Property have
been met: (i) at the close of the final bid submission round of the Satellite
DARS License auction conducted by the FCC, CD Radio Inc. was the winning bidder
for one of the Satellite DARS Licenses and the Bid Financing Condition has been
met as shown on Annex A or waived in a writing executed by each Investor and
(ii) each of the conditions set forth in Article IV of the Investment Agreement
and applicable to the First Closing have been fulfilled or waived in accordance
with the Investment Agreement.
Citibank, N.A., as escrow agent, is therefore authorized to release to
each Investor on [insert date calculated based on Section 1.3(b) of the
Investment Agreement], the amounts set forth next to such Investor's name in
column 2 of Exhibit C to the Escrow Agreement and the remainder of the Escrowed
Property [less the Remaining Deferred Payments Amount], plus all interest
earned thereon, to CD Radio Inc. as provided in paragraphs 4(a) and 5 of
Schedule A to the Escrow Agreement.
Yours very truly,
By:
----------------------------
Name:
Title: Chief [Executive]
[Operating] [Financial]
Officer
A-2
<PAGE> 82
ANNEX A
ANNEX A TO EXHIBIT A TO SCHEDULE A TO ESCROW AGREEMENT
DETERMINATION OF BID FINANCING CONDITION
<TABLE>
<S> <C> <C>
1. Purchase price payable for Satellite DARS License . . . . . . . . . . . . . . . $___________
2. Net proceeds from First Closing and Second Closing:
(a)
$___________
(i) Gross proceeds from First Closing and Second Closing (if any) .
(ii) Less: Financing fees, deal expenses and 2% funding fee on First
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . $___________
(iii) Net Proceeds from sale of Preferred Shares (a(i)-a(ii)) . . . . $___________
(b) Gross proceeds from all other financings for which CDRD has
binding commitments:
(i) (A) From such financings that are pari passu to the
Preferred Shares . . . . . . . . . . . . . . . . . . . $___________
(B) From such financings that are junior to the Preferred
Shares . . . . . . . . . . . . . . . . . . . . . . . . $___________
(C) Total gross proceeds from all other such financings
((b)(i)(A) + (b)(i)(B)) . . . . . . . . . . . . . . . . $___________
(ii) Less: Financing fees, funding fees and deal expenses for all
other such financings . . . . . . . . . . . . . . . . . . . . . $___________
(iii) Net proceeds from all other such financings ((b)(i)(C) - $___________
(b)(ii)) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) Total net proceeds from all financings and commitments for
financings ((a)(iii) plus (b)(iii) . . . . . . . . . . . . . . $___________
(d) Total additional cash currently held by CDRD . . . . . . . . . $___________
(e) Total funds available for payment of purchase price ((c) plus
(d)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $___________
</TABLE>
IF LINE 2(e) IS GREATER THAN OR EQUAL TO LINE 1, THE BID FINANCING CONDITION IS
MET.
A-3
<PAGE> 83
EXHIBIT B TO SCHEDULE A
[Intentionally Omitted]
B-1
<PAGE> 84
EXHIBIT C TO SCHEDULE A
<TABLE>
<CAPTION>
Column 1
Payment Column 2
Investor* Amount** 2% Amount
-------- -------- ---------
<S> <C> <C>
CANYON PARTNERS
The Value Realization Fund, L.P. $187,500 $3,750
GRS Partners II 37,500 750
The Canyon Value Realization Fund, 275,000 5,500
(Cayman) Ltd.
CERBERUS PARTNERS
Cerberus Partners. L.P. 500,000 10,000
DDJ CAPITAL MANAGEMENT
The Copernicus Fund, LP 375,000 7,500
The Galileo Fund, LP 1,125,000 22,500
DICKSTEIN PARTNERS
Dickstein & Co., L.P. 212,500 4,250
Dickstein International Limited 37,500 750
EBF & ASSOCIATES
Global Bermuda Limited Partnership 500,000 10,000
Lakeshore International, Limited 250,000 5,000
ELLIOTT ASSOCIATES, L.P.
Elliott Associates, L.P. 3,000,000 60,000
Westgate International, L.P. 2,000,000 40,000
EVEREST CAPITAL
Everest Capital International, Ltd. 18,175,000 363,500
Everest Capital Fund, L.P. 6,825,000 136,500
THE JAY GOLDMAN MASTER LIMITED PARTNERSHIP 250,000 5,000
GRACE BROTHERS, LTD. 6,000,000 120,000
MACKAY-SHIELDS
MainStay VP Series Fund, Inc., on behalf 1,400,000 28,000
of its High Yield Corporate Bond
Portfolio
The MainStay Funds, on behalf of its High 12,450,000 249,000
Yield Corporate Bond Fund Series
The Brown & Williamson Master 250,000 5,000
Retirement Trust
Police Officers Pension System of the City 225,000 4,500
of Houston
Highbridge Capital Corporation 150,000 3,000
The MainStay Funds, on behalf of its 25,000 500
Strategic Income Fund Series
THE RAVICH REVOCABLE TRUST OF 1989 1,085,000 21,700
</TABLE>
C-1
<PAGE> 85
<TABLE>
<CAPTION>
Column 1
Payment Column 2
Investor* Amount** 2% Amount
-------- -------- ---------
<S> <C> <C>
SCOGGIN CAPITAL MANAGEMENT, L.P.
Scoggin Capital Management 150,000 3,000
Scoggin International Fund, Ltd. 15,000 300
TRUST COMPANY OF THE WEST
TCW Shared Opportunity Fund II 1,000,000 20,000
LIBERTYVIEW CAPITAL MGMT., INC.
LibertyView Plus Fund 300,000 6,000
LibertyView LLC Fund 100,000 2,000
Paresco, Inc. 600,000 12,000
NAVESINK INVESTMENT FUND, LDC 750,000 15,000
STONEHILL INVESTMENT CORP.
Stonehill Offshore Partners Limited 290,625 5,812.50
Stonehill Partners, L.P. 1,096,875 21,937.50
GRS Partners III 187,500 3,750
Aurora Limited Partnership 300,000 6,000
AMIR DEVELOPMENT TRUST
Herta and Paul Amir Family Trust 245,000 4,900
The Wolens Family Trust 12,500 250
CUMBERLAND ASSOCIATES
LongView Partners 250,000 5,000
Cumberland Partners 1,750,000 35,000
JMG CAPITAL PARTNERS, L.P. 250,000 5,000
JAMES P. ARGYROPOULOS
The James P. Argyropoulos Trust Dated 150,000 3,000
8-8-91
BANCO SANTANDER
Banco Santander Trust and Banking Corp. 2,500,000 50,000
(Bahamas) Ltd.
CC INVESTMENTS, LTD. 1,500,000 30,000
CONTINENTAL CASUALTY COMPANY 15,000,000 300,000
GREENLIGHT CAPITAL
Greenlight Capital, L.P. 562,500 11,250
Greenlight Capital Offshore, Ltd. 187,500 3,750
LLOYD MILLER
Lloyd I. Miller Trust A-4 Dated 9-19-80,
Amended and Restated 9-20-83 75,000 1,500
Milfam II, L.P. 75,000 1,500
</TABLE>
C-2
<PAGE> 86
<TABLE>
<CAPTION>
Column 1
Payment Column 2
Investor* Amount** 2% Amount
-------- -------- ---------
<S> <C> <C>
MILNER TRUST 125,000 2,500
POST BALANCED FUND, L.P. 1,000,000 20,000
UBS SECURITIES LLC 2,500,000 50,000
============== ============
$86,307,500 $1,726,150
</TABLE>
- -----------------------
* The term Investor includes each entity for which
share amounts are listed opposite such entity's name.
** Investors shall also receive their pro-rata share
(based on the above-stated Payment Amounts) of the
interest earned thereon pursuant to Section 4(b) of
Schedule A to the Escrow Agreement.
C-3
<PAGE> 87
EXHIBIT D TO SCHEDULE A
Citibank, N.A., Escrow Agent
153 East 53rd Street
New York, NY 10043
Re: Certificate Regarding Escrow Agreement Between
Citibank, NA and CD Radio Inc., dated March 20, 1997
(the "Escrow Agreement")
Ladies and Gentlemen:
All capitalized terms not defined herein shall have the same meaning
as defined in the Escrow Agreement. Pursuant to paragraph 4(b) of Schedule A to
the above-referenced Escrow Agreement, the undersigned hereby certify to you as
follows:
[Five Business Days have passed since the conclusion of the Satellite
DARS License auction and Party A was not a winning bidder or the Bid Financing
Condition, if applicable, has not been met][Party A has indicated, or has taken
action indicating, that it will not, or Party A otherwise has lost its right
to, acquire the Satellite DARS License on the terms prescribed in the auction
thereof] [The Investment Agreement has terminated in accordance with its
terms].
Citibank, N.A., as escrow agent, is therefore authorized to release to
Investors the Escrowed Property, plus all interest earned thereon, as provided
in paragraph 4(b) of Schedule A to the Escrow Agreement.
Yours very truly,
CD Radio, Inc.
Accepted and Approved:*
INVESTORS:
Dated: March , 1997 THE VALUE REALIZATION FUND, L.P.
--- By: Canpartners Investments III, L.P.
By: Canyon Capital Management, L.P.
By: Canpartners Incorporated
By:
----------------------------
Its
D-1
<PAGE> 88
<TABLE>
<S> <C>
Dated: March ___, 1997 GRS Partners II
By:
-------------------------------------------------------
Its Account Manager
Dated: March ___, 1997 The Canyon Value Realization Fund, (Cayman) Ltd.
By:
-------------------------------------------------------
Its Account Manager
Dated: March ___, 1997 Cerberus Partners, L.P.
By:
-------------------------------------------------------
General Partner Cerberus Associates, L.P.
General Partner Cerberus Partners, L.P.
Dated: March ___, 1997 The Copernicus Fund, LP
By: DDJ Copernicus, LLC
By:
-----------------------------------------------
Its Member
Dated: March ___, 1997 The Galileo Fund, LP
By: DDJ Galileo, LLC
By:
-----------------------------------------------
Its Member
Dated: March ___, 1997 Dickstein & Co., L.P.
By: Dickstein Partners, L.P.
By: Dickstein Partners, Inc.
By:
-----------------------------------------------
Its
</TABLE>
D-2
<PAGE> 89
<TABLE>
<S> <C>
Dated: March ___, 1997 Dickstein International Limited
By: Dickstein Partners, Inc.
By:
-----------------------------------------------
Its
Dated: March ___, 1997 Global Bermuda Limited Partnership
By: Global Capital Management, Inc.
By:
-----------------------------------------------
Its Authorized Signatory
Dated: March ___, 1997 Lakeshore International, Limited
By: Global Capital Management, Inc.
By:
-----------------------------------------------
Its Authorized Signatory
Dated: March ___, 1997 Elliott Associates, L.P.
By:
-----------------------------------------------
Its General Partner
Dated: March ___, 1997 Westgate International, L.P.
By: Martley International, Inc. as Attorney-in-fact
By:
-------------------------------------
Its
Dated: March ___, 1997 Everest Capital International, Ltd.
By: Everest Capital, Ltd., Investment Manager
By:
-------------------------------------
Its
</TABLE>
D-3
<PAGE> 90
<TABLE>
<S> <C>
Dated: March ___, 1997 Everest Capital Fund, L.P.
By: Everest Capital, Ltd., General Partner
By:
-------------------------------------
Its
Dated: March ___, 1997 The Jay Goldman Master Limited Partnership
By:
-------------------------------------------------------
Its General Partner
Dated: March ___, 1997 Grace Brothers, Ltd.
By:
-------------------------------------------------------
Its General Partner
Dated: March ___, 1997 MainStay VP Series Fund, Inc., on behalf of its High Yield
Corporate Bond Portfolio
By: Mackay-Shields Financial Corporation
Its Investment Advisor
By:
-------------------------------------------------------
Name:
Its:
Dated: March ___, 1997 The MainStay Funds, on behalf of Its High Yield Corporate Bond Fund Series
By: Mackay-Shields Financial Corporation
Its Investment Advisor
By:
-------------------------------------------------------
Name: Jeffrey Platt
Its: Director
</TABLE>
D-4
<PAGE> 91
<TABLE>
<S> <C>
Dated: March ___, 1997 The Brown & Williamson Master Retirement Trust
By: Mackay-Shields Financial Corporation
Its Investment Advisor
By:
-------------------------------------------------------
Name: Jeffrey Platt
Its: Director
Dated: March ___, 1997 Police Officers Pension System of the City of Houston
By: Mackay-Shields Financial Corporation
Its Investment Advisor
By:
-------------------------------------------------------
Name: Jeffrey Platt
Its: Director
Dated: March ___, 1997 Highbridge Capital Corporation
By: Mackay-Shields Financial Corporation
Its Investment Advisor
By:
-------------------------------------------------------
Name: Jeffrey Platt
Its: Director
Dated: March ___, 1997 The MainStay Funds, on behalf of its Strategic Income Fund Series
By: Mackay-Shields Financial Corporation
Its Investment Advisor
By:
-------------------------------------------------------
Name: Jeffrey Platt
Its: Director
</TABLE>
D-5
<PAGE> 92
<TABLE>
<S> <C>
Dated: March ___, 1997 The Ravich Revocable Trust of 1989
By:
-------------------------------------------------------
Its Trustee
Dated: March ___, 1997 Scoggin Capital Management
By:
-------------------------------------------------------
Its General Partner
By:
-------------------------------------------------------
Its
By:
-------------------------------------------------------
Its
Dated: March ___, 1997 Scoggin International Fund, Ltd.
By:
-------------------------------------------------------
Its General Partner
Dated: March ___, 1997 TCW Shared Opportunity Fund II
By: TCW Investment Management Company, its
Investment Adviser
By:
-------------------------------------
Its
By:
-------------------------------------
Its
Dated: March ___, 1997 LibertyView Plus Fund
By:
-------------------------------------------------------
Its
</TABLE>
D-6
<PAGE> 93
<TABLE>
<S> <C>
Dated: March ___, 1997 LibertyView LLC Fund
By: Liberty View Capital Management, Inc.
By:
-------------------------------------------------------
Its
Dated: March ___, 1997 Paresco, Inc.
By:
-------------------------------------------------------
Its
Dated: March ___, 1997 Navesink Investment Fund, LDC
By:
-------------------------------------------------------
Its
Dated: March ___, 1997 Stonehill Offshore Partners Limited
By: Stonehill Advisors LLC, as Agent
By:
-------------------------------------
Its:
Dated: March ___, 1997 Stonehill Investment Corp., for and on behalf of
Stonehill Partners, L.P., GRS Partners III and Aurora
Limited Partnership
By:
-------------------------------------------------------
Its:
Dated: March ___, 1997 Herta and Paul Amir Family Trust
By:
-------------------------------------------------------
Its Trustee
Dated: March ___, 1997 The Wolens Family Trust
By:
-------------------------------------------------------
Its Trustee
</TABLE>
D-7
<PAGE> 94
<TABLE>
<S> <C>
Dated: March ___, 1997 LongView Partners
By:
-------------------------------------------------------
Its General Partner
By:
-------------------------------------------------------
Its General Partner
Dated: March ___, 1997 Cumberland Partners
By:
-------------------------------------------------------
Its General Partner
By:
-------------------------------------------------------
Its
Dated: March ___, 1997 JMG Capital Partners, L.P.
By: JMG Capital Management, Inc.
By:
-------------------------------------------------------
Its General Partner
Dated: March ___, 1997 The James P. Argyropoulos Trust
Dated 8/8/91
By:
-------------------------------------------------------
Its Trustee
Dated: March ___, 1997 Banco Santander Trust and Banking Corp. (Bahamas) Ltd.
By:
-------------------------------------------------------
Its Attorney-in-fact
Dated: March ___, 1997 CC Investments, Ltd.
By:
-------------------------------------------------------
</TABLE>
D-8
<PAGE> 95
<TABLE>
<S> <C>
Its Director
Dated: March ___, 1997 Continental Casualty Company
By:
------------------------------------------------------
Its Group Vice President and Deputy Gaming Counsel
Dated: March ___, 1997 Greenlight Capital, L.P.
By:
-------------------------------------------------------
Its General Partner
Dated: March ___, 1997 Greenlight Capital Offshore, Ltd.
By:
-------------------------------------------------------
Its Investment Advisor
Dated: March ___, 1997 Lloyd I. Miller Trust A-4 Dated 9/19/80, Amended and Restated 9/20/83
By:
-------------------------------------------------------
Its
Dated: March ___, 1997 Milfam II, L.P.
By:
-------------------------------------------------------
Its
Dated: March ___, 1997 Milner Trust
By:
-------------------------------------------------------
Its Trustee
Dated: March ___, 1997 Post Balanced Fund, L.P.
By:
-------------------------------------------------------
Its General Partner
</TABLE>
D-9
<PAGE> 96
<TABLE>
<S> <C>
Dated: March ___, 1997 UBS Securities LLC
By:
-------------------------------------------------------
Its Managing Director
</TABLE>
D-10
<PAGE> 97
SCHEDULE B TO ESCROW AGREEMENT BETWEEN
CITIBANK, N.A., AS ESCROW AGENT, AND
CD RADIO INC., AS PARTY A
Escrow Agent Fees. The initial fees of the Escrow Agent for
acting as Escrow Agent hereunder shall be payable by Party A in the amount of
$2,000.00 on the date hereof. Upon the Escrow Date, an additional fee shall be
due and payable by Party A according to the following schedule:
<TABLE>
<CAPTION>
Total of Escrowed Property Additional Fee
- -------------------------- --------------
<S> <C>
Less than or equal to $40,000,000.00 $8,000.00
$40,000,000.01 to $60,000,000.00 $10,000.00
$60,000,000.01 to $80,000,000.00 $12,000.00
$80,000,000.01 to $100,000,000.00 $14,000.00
$100,000,000.01 or greater $18,000.00
</TABLE>
E-1
<PAGE> 98
EXHIBIT 3
Warrant No. __
WARRANT
to Purchase Common Stock of
CD RADIO INC.,
a Delaware corporation
THIS IS TO CERTIFY THAT:
[INSERT NAME OF INVESTOR]
----------
or registered assigns (the "Holder") is entitled to purchase from CD RADIO
INC., a Delaware corporation (the "Issuer"), at any time during the Exercise
Period (as defined below), a number of Stock Units (as defined below) equal to
[INSERT NUMBER], at a purchase price of $10.00 per Stock Unit (adjusted as
provided below), all on the terms and conditions provided in this warrant
(this "Warrant").
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE PROPOSED TRANSACTION
DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER FEDERAL OR
STATE SECURITIES LAWS, OR UNLESS THE PROPOSED TRANSACTION IS
REGISTERED OR QUALIFIED AS REQUIRED.
THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS.
<PAGE> 99
SECTION 1. CERTAIN DEFINITIONS. As used in this Warrant,
unless the context otherwise requires:
"Additional Shares of Nonpreferred Stock" means all shares of
Nonpreferred Stock issued or issuable by the Issuer after the date of this
Warrant, other than the Warrant Stock.
"Affiliate" means, with respect to a specified Person, any
other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person,
whether through the ownership of voting securities or by agreement or
otherwise.
"Appraised Value" means the fair market value of all
outstanding Common Stock (on a fully diluted basis including any fractional
shares and assuming the exercise in full of all then-outstanding Warrants and
all other options, warrants or other rights to purchase shares of Common Stock
that are then currently exercisable at exercise prices less than the Current
Market Price), as determined by the Board of Directors in good faith. "Fair
market value" is defined for this purpose as the price in a single transaction
determined on a going-concern basis that would be agreed upon by the most
likely hypothetical buyer for 100% of the equity capital of the Issuer (on a
fully diluted basis including any fractional shares and assuming the exercise
in full of all then-outstanding Warrants and all other options, warrants or
other rights to purchase shares of Common Stock that are then currently
exercisable at exercise prices less than the Current Market Price).
"Board of Directors" means either the board of directors of the
Issuer or any duly authorized committee of that board.
"Business Day" means any day that is not a Saturday or a Sunday
or a public holiday or a day on which banks are required or permitted to close
under the laws of the State of New York.
"Common Stock" means the Issuer's authorized common stock as
constituted on the date of original issuance of this Warrant, and any other
stock into which such Common Stock may be changed after such date.
"Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for Additional Shares of Nonpreferred Stock, either immediately or upon the
arrival of a specified date or the happening of a specified event.
"Current Market Price" per share of Common Stock for the
purposes of any provision of this Warrant at the date herein specified, shall
be deemed to be the price determined pursuant to the first applicable of the
following methods:
(i) If the Common Stock is traded on a national
securities exchange or is traded in the over-the-counter market, the Current
Market Price per share of Common Stock shall be deemed to be the average of
the daily market prices for five (5) consecutive Business Days commencing five
(5) Business Days before such date. The market price for each such Business
Day shall be, (a) if the Common Stock is traded on a national securities
exchange or the NASDAQ National Market, its last reported sale price on the
preceding Business Day on such national securities exchange or the NASDAQ
National Market or, if there was no sale on that day, the last reported sale
price on such national securities exchange or the NASDAQ National Market on
the next preceding Business Day on which there was a
2
<PAGE> 100
sale, all as made available over the Consolidated Last Sale Reporting System
of the CTA Plan (the "CLSRS") or, if the Common Stock is not then eligible for
reporting over the CLSRS, its last reported sale price on the preceding
Business Day on such national securities exchange or the NASDAQ National
Market or, if there was no sale on that day, on the next preceding Business
Day on which there was a sale on such exchange or (b) if the principal market
for the Common Stock is the over-the-counter market, but the Common Stock is
not then eligible for reporting over the CLSRS, but the Common Stock is quoted
on the National Association of Securities Dealers Automated Quotations System
("NASDAQ"), the last sale price reported on NASDAQ on the preceding Business
Day or, if the Common Stock is an issue for which last sale prices are not
reported on NASDAQ, the closing bid quotation on such day, but, in each of the
next preceding two cases, if the relevant NASDAQ price or quotation did not
exist on such day, then the price or quotation on the next preceding Business
Day in which there was such a price or quotation.
(ii) If the Current Market Price per share of Common Stock
cannot be ascertained by any of the methods set forth in paragraph (i)
immediately above, the Current Market Price per share of outstanding Common
Stock shall be deemed to be the price equal to the quotient determined by
dividing the Appraised Value by the number of shares (including any fractional
shares) of Common Stock on a fully-diluted basis as determined in accordance
with GAAP.
"Current Warrant Price" per share of Common Stock, for the
purpose of any provision of this Warrant at the date herein specified, means
the amount equal to the quotient resulting from dividing the Exercise Price in
effect on such date by the number of shares (including any fractional share)
of Common Stock comprising a Stock Unit on such date.
"Effective Date" means the date this Warrant was issued by the
Issuer.
"Election Notice" has the meaning ascribed to such term in
Section 2 of this Warrant.
"Exercise Period" shall mean the period commencing on the
Effective Date and expiring upon the date that is five years after the
Effective Date.
"Exercise Price" means the purchase price per Stock Unit as set
forth on the first page of this Warrant on the date of original issue of this
Warrant and thereafter shall mean such dollar amount as shall result from the
adjustments specified in Section 4, if any.
"Expiration Date" means the final date of the Exercise Period.
"GAAP" means generally accepted accounting principles,
consistently applied, as in effect at the time of application to the
provisions hereof.
"Holder" has the meaning ascribed to such term in the first
paragraph of this Warrant.
"Holder Indemnified Party" has the meaning ascribed to such
term in Section 10.6 of this Warrant.
"Investment Agreement" means that certain Preferred Stock
Investment Agreement dated as of October 23, 1996, by and among the Issuer and
the Investors named therein.
"Issuer" has the meaning ascribed to such term in the first
paragraph of this Warrant.
3
<PAGE> 101
"Issuer's Business Office" has the meaning ascribed to such
term in Section 2 of this Warrant.
"Liabilities" has the meaning ascribed to such term in Section
10.6 of this Warrant.
"Nonpreferred Stock" shall mean the Common Stock and shall also
include stock of the Issuer of any other class which is not preferred as to
dividends or assets over any other class of stock of the Issuer and which is
not subject to redemption.
"Person" means a corporation, an association, a trust, a
partnership, a joint venture, a limited liability company, an organization, a
business, an individual, a government or political subdivision thereof, a
governmental body or any other legal entity.
"Restricted Certificate" shall mean a Warrant bearing the
restrictive legend set forth in Section 10.1.
"Restricted Securities" shall mean Restricted Stock and
Restricted Warrants.
"Restricted Stock" shall mean Warrant Stock with respect to a
Restricted Warrant or otherwise evidenced by a Restricted Certificate.
"Restricted Warrant" shall mean a Warrant evidenced by a
Restricted Certificate.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time.
"SEC" means the Securities and Exchange Commission and any
successor agency.
"Seller" means a holder of Restricted Securities for which the
Issuer shall be required to file a registration statement or which shall be
registered under the Securities Act at the request of such holder pursuant to
any of the provisions of Section 10. Neither the Issuer nor any of its
Affiliates shall be deemed a "Seller" for any purposes of this Warrant.
"Stock Unit" shall constitute one share of Common Stock, as
such Common Stock was constituted on the date of original issue of this
Warrant and thereafter shall constitute such number of shares (including any
fractional shares) of Common Stock as shall result from the adjustments
specified in Section 4, if any.
"Warrants" shall mean this Warrant and all additional or new
warrants issued upon transfer, division or combination of, or in substitution
for this Warrant or any such additional or new warrant. All Warrants shall at
all times be identical as to terms and conditions and date, except as to the
number of Stock Units for which they may be exercised.
"Warrant Stock" means the shares of Common Stock purchasable by
the holder of a Warrant upon the exercise of such Warrant.
SECTION 2. EXERCISE OF WARRANT. The Holder may, at any time
during the Exercise Period, exercise this Warrant in whole at any time or in
part from time to time for the number of Stock Units which such Holder is then
entitled to purchase under this Warrant; provided that the Issuer shall not be
obligated to honor any request for exercise of this Warrant at any time to the
extent that approval of
4
<PAGE> 102
the Federal Communications Commission ("FCC") of the issuance of shares of
Warrant Stock upon such exercise is or would be required and has not been
obtained.
The Issuer shall promptly and expeditiously after the Effective
Date apply for, and uses its best efforts to obtain, any and all approvals,
consents, authorizations or orders of, or make any filings or registrations
with, the FCC necessary to permit the exercise of this Warrant and all
warrants issued to the Investors (as defined in the Investment Agreement) in
accordance with the terms hereof and thereof (the "FCC Approval"). If the FCC
Approval is not obtained by a date that is 270 days after the Initial
Registration Deadline, then, at any time thereafter at the request of the
holder of this Warrant (as defined in the Investment Agreement), the Issuer
shall promptly purchase this Warrant from such holder, at a purchase price
equal to (A) the number of Stock Units that would otherwise be then issuable
upon exercise in full of this Warrant multiplied by (B) (i) the Current Market
Price multiplied by the number of shares of Common Stock that comprise a Stock
Unit minus (ii) the Exercise Price.
The Holder may exercise this Warrant, in whole or in part, by
either of the following methods:
(a) The Holder may deliver to the Issuer at its office
maintained pursuant to Section 15 ("Issuer's Business Office") for such
purpose (i) a written notice of such Holder's election to exercise this
Warrant (an "Election Notice"), which notice shall specify the number of Stock
Units to be purchased, (ii) this Warrant and (iii) a sum equal to the Exercise
Price therefor in immediately available funds; or
(b) The Holder may also exercise this Warrant, in whole or in
part, in a "cashless" or "net-issue" exercise by delivering to the Issuer's
Business Office (i) this Warrant and (ii) an Election Notice, which Election
Notice shall specify the number of Stock Units to be delivered to such Holder
("Deliverable Units") and the number of Stock Units with respect to which this
Warrant is being surrendered in payment of the aggregate Exercise Price for
the Deliverable Units ("Surrendered Units"); provided that the Exercise Price
multiplied by the number of Deliverable Units shall not exceed the value of
the Surrendered Units; provided further that the sum of number of Deliverable
Units and the number of Surrendered Units so specified shall not exceed the
aggregate Stock Units represented by this Warrant. For purposes of this
provision, each Stock Unit as to which this Warrant is surrendered will be
attributed a value equal to the product of (x) the Current Market Price per
share of Common Stock minus the Current Warrant Price per share of Common
Stock, multiplied by (y) the number of shares of Common Stock then comprising
a Stock Unit.
An Election Notice may be in the form of the subscription set
out at the end of this Warrant. Upon delivery thereof, the Issuer shall as
promptly as practicable, and in any event within two (2) Business Days
thereafter, cause to be executed and delivered to such Holder a certificate or
certificates representing the aggregate number of fully-paid and nonassessable
shares of Common Stock issuable upon such exercise.
The stock certificate or certificates for Warrant Stock so
delivered shall be in such denominations as may be specified in the Election
Notice and shall be registered in the name of such Holder or such other name
or names as shall be designated in the Election Notice. Such certificate or
certificates shall be deemed to have been issued and such Holder or any other
Person so designated to be named therein shall be deemed to have become a
holder of record of such shares, and shall have rights including, to the
extent permitted by law, the right to vote such shares or to consent or to
receive notice as a stockholder, as of the time the Election Notice is
delivered to the Issuer in accordance with this Section 2(b). If this Warrant
shall have been exercised only in part, the Issuer shall, at the time of
delivery of said certificate or certificates, deliver to such Holder a new
Warrant dated the date of the
5
<PAGE> 103
Election Notice, evidencing the rights of such Holder to purchase Stock Units
in an amount equal to the total number of Stock Units represented by this
Warrant minus the total number of Deliverable Units and Surrendered Units
received upon exercise of this Warrant through the date of such exercise in
part, which new Warrant shall in all other respects be identical to this
Warrant, or, at the request of such Holder, appropriate notation may be made
on this Warrant and this Warrant shall be returned to such Holder.
Except as otherwise provided in Section 8, the Issuer shall pay
all expenses, transfer taxes and other charges payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 2,
except that, if such stock certificates shall be registered in a name or names
other than the name of the Holder, funds sufficient to pay all stock transfer
taxes which shall be payable upon the issuance of such stock certificate or
certificates shall be paid by the Holder at the time of delivering the
Exercise Notice.
All shares of Common Stock issuable upon the exercise of this
Warrant shall be validly issued, fully paid and nonassessable, and free from
all liens and other encumbrances thereon, other than liens or other
encumbrances created by the Holder.
Except as provided in Section 7, the Issuer will not close its
books against the transfer of this Warrant or of any share of Warrant Stock in
any manner that interferes with the timely exercise of this Warrant.
If any fractional interest in a share of Common Stock would be
deliverable upon exercise of this Warrant, the Issuer shall, at its option,
either issue fractional shares of Common Stock or pay in cash an amount equal
to the Current Market Price of such fractional interest.
SECTION 3. TRANSFER, DIVISION AND COMBINATION. Subject to
Section 10, this Warrant and all rights hereunder are transferable, in whole
or in part, on the books of the Issuer to be maintained for such purpose, upon
surrender of this Warrant at the Issuer's Business Office, together with a
written assignment of this Warrant duly executed by the Holder or its agent or
attorney and payment of funds sufficient to pay any stock transfer taxes
payable upon the making of such transfer. Upon such surrender and payment the
Issuer shall, subject to Section 10, execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denominations
specified in such instrument of assignment, and this Warrant shall promptly be
canceled. If and when this Warrant is assigned in blank (in case the
restrictions on transferability in Section 10 shall have been terminated), the
Issuer may (but shall not be obliged to) treat the bearer hereof as the
absolute owner of this Warrant for all purposes and the Issuer shall not be
affected by any notice to the contrary. This Warrant, if properly assigned in
compliance with this Section 3 and Section 10, may be exercised by an assignee
for the purchase of shares of Common Stock without having a new Warrant
issued.
This Warrant may, subject to Section 10, be divided or combined
with other Warrants upon presentation at the Issuer's Business Office of the
Issuer, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with the preceding paragraph and with Section
10, as to any transfer which may be involved in such division or combination,
the Issuer shall execute and deliver a new Warrant or Warrants in exchange for
the Warrant or Warrants to be divided or combined in accordance with such
notice.
The Issuer shall pay all expenses, taxes (except as provided in
Section 8) and other charges incurred by the Issuer in the performance of its
obligations in connection with the preparation, issue and delivery of Warrants
under this Section 3.
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The Issuer agrees to maintain at the Issuer's Business Office
books for the registration and transfer of the Warrants.
SECTION 4. ADJUSTMENT OF STOCK UNIT OR EXERCISE PRICE. The
number of shares of Common Stock comprising a Stock Unit, and the Exercise
Price per Stock Unit, shall be subject to adjustment from time to time as set
forth in this Section 4 and in Section 5. The Issuer shall not take any
action with respect to its Nonpreferred Stock of any class requiring an
adjustment pursuant to any of the following Subsections 4.1, 4.2 or 4.7
without at the same time taking like action with respect to its Nonpreferred
Stock of each other class; and the Issuer shall not create any class of
Nonpreferred Stock which carries any rights to dividends.
4.1. Stock Dividends, Subdivisions and Combinations. If at any
time or from time to time the Issuer shall:
(a) take a record of the holders of its Nonpreferred Stock for
the purpose of entitling them to receive a dividend payable in, or other
distribution of, Nonpreferred Stock; or
(b) subdivide its outstanding shares of Nonpreferred Stock
into a larger number of shares of Nonpreferred Stock; or
(c) combine its outstanding shares of Nonpreferred Stock into
a smaller number of shares of Nonpreferred Stock;
then the number of shares of Common Stock comprising a Stock Unit immediately
after the happening of any such event shall be adjusted so as to consist of
the number of shares of Common Stock which a record holder of the number of
shares of Common Stock comprising a Stock Unit immediately prior to the
happening of such event would own or be entitled to receive immediately after
the happening of such event.
4.2. Certain Other Dividends and Distributions. If at any time
or from time to time the Issuer shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive any dividend
or other distribution of:
(a) cash (other than a cash distribution made as a dividend
and payable out of earnings or earned surplus legally available for the
payment of dividends under the laws of the jurisdiction of incorporation of
the Issuer, to the extent, but only to the extent, that the aggregate of all
such dividends paid or declared after the date hereof, does not exceed the
consolidated net income of the Issuer earned subsequent to the date hereof
determined in accordance with GAAP), or
(b) any evidence of its indebtedness (other than Convertible
Securities), any shares of its stock (other than Additional Shares of
Nonpreferred Stock) or any other securities or property of any nature
whatsoever (other than cash and other than Convertible Securities or
Additional Shares of Nonpreferred Stock), or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness (other than Convertible Securities), any
shares of its stock (other than Additional Shares of Nonpreferred Stock) or
any other securities or property of any nature whatsoever (other than cash
that, if distributed, would give rise to an adjustment under Section 4.2(a))
and other than Convertible Securities or Additional Shares of Nonpreferred
Stock),
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then the number of shares of Common Stock thereafter comprising a Stock Unit
shall be adjusted to that number determined by multiplying the number of
shares of Common Stock comprising a Stock Unit immediately prior to such
adjustment by a fraction (i) the numerator of which shall be the Current
Market Price per share of Common Stock at the date of taking such record, and
(ii) the denominator of which shall be such Current Market Price per share of
Common Stock at the date of taking such record minus the portion applicable to
one share of Nonpreferred Stock of any such cash so distributable and of the
fair value of any and all such evidences of indebtedness, shares of stock,
other securities or property, or warrants or other subscription or purchase
rights, so distributable. Such fair value shall be determined in good faith
by the Board of Directors. A reclassification of the Nonpreferred Stock into
shares of Nonpreferred Stock and shares of any other class of stock shall be
deemed a distribution by the Issuer to the holders of its Nonpreferred Stock
of such shares of such other class of stock within the meaning of this
Subsection 4.2 and, if the outstanding shares of Nonpreferred Stock shall be
changed into a larger or smaller number of shares of Nonpreferred Stock as a
part of such reclassification, shall be deemed a subdivision or combination,
as the case may be, of the outstanding shares of Nonpreferred Stock within the
meaning of Subsection 4.1.
4.3. Issuance of Additional Shares of Nonpreferred Stock. If
at any time or from time to time the Issuer shall (except as provided below)
issue, whether in connection with the merger of a corporation into the Issuer
or otherwise, any Additional Shares of Nonpreferred Stock for a consideration
per share less than the Current Market Price per share of such stock, then the
number of shares of Common Stock thereafter comprising a Stock Unit shall be
adjusted to be that number determined by multiplying the number of shares of
Common Stock comprising a Stock Unit immediately prior to such adjustment by a
fraction (a) the numerator of which shall be the sum of (i) the number of such
Additional Shares of Nonpreferred Stock so issued and (ii) the number of
shares of Nonpreferred Stock outstanding immediately prior to such issuance,
and (b) the denominator of which shall be the sum of (i) the number of such
Additional Shares of Nonpreferred Stock that the aggregate consideration for
the total number of such shares of Additional Shares of Nonpreferred Stock
would purchase at the Current Market Price per share of Common Stock and (ii)
the number of shares of Nonpreferred Stock outstanding immediately prior to
such issuance. For purposes of this Subsection 4.3, the date as of which the
Current Market Price per share of Common Stock shall be computed shall be the
earlier of (i) the date on which the Issuer shall enter into a firm contract
for the issuance of such Additional Shares of Nonpreferred Stock, or (ii) the
date of actual issuance of such Additional Shares of Nonpreferred Stock. For
the purpose of calculations pursuant to this Section 4.3, Nonpreferred Stock
issuable upon conversion of the Preferred Shares (as defined in the Investment
Agreement) or upon exercise or conversion of Convertible Securities, warrants,
options or other rights outstanding at the time of such calculation (computed
based on an assumed exercise or conversion as of the date as to which number
of outstanding shares of Nonpreferred Stock is so calculated) for which an
adjustment was required to be made, or it has been determined that no
adjustment was required to be made, pursuant to Subsection 4.4 or 4.5, shall
be deemed to be outstanding at the time of such calculation. The provisions
of this Subsection 4.3 shall not apply to any issuance of Additional Shares of
Nonpreferred Stock for which an adjustment is provided under Subsection 4.1.
No adjustment of the number of shares of Common Stock comprising a Stock Unit
shall be made under this Subsection 4.3 upon the issuance of any Additional
Shares of Nonpreferred Stock that are issued pursuant to the exercise of any
options, warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Convertible Securities,
if any such adjustment shall previously have been made (or it was determined
that no adjustment was to be made at the time of issuance) upon the issuance
of such options, warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any option, warrant or other
right therefor) pursuant to Subsection 4.4 or 4.5. Notwithstanding the
foregoing, no adjustment shall be required pursuant to this Subsection 4.3,
(1) upon the issuance or conversion of the Preferred Shares (as such term is
defined in the Investment Agreement), (2) in connection with the issuance of
Additional Shares of Nonpreferred Stock upon the exercise or
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conversion, in accordance with the terms thereof, of any warrants, options or
other rights to subscribe for or purchase such shares, or any Convertible
Securities, which were outstanding on October 11, 1996, or (3) in connection
with the issuance of no more than 2,000,000 (subject to appropriate adjustment
for stock splits, stock dividends and similar events) Additional Shares of
Nonpreferred Stock (in addition to those permitted in (2) immediately above)
in accordance with and pursuant to any employee benefit plan to which
employees, directors and/or consultants of the Issuer are entitled to
participate, which plan shall have been approved by the stockholders of the
Issuer.
4.4. Issuance of Warrants, Options or Other Rights. If at any
time or from time to time the Issuer shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive a distribution
of, or shall otherwise issue, any warrants, options or other rights to
subscribe for or purchase any Additional Shares of Nonpreferred Stock or any
Convertible Securities and the consideration per share for which additional
shares of Nonpreferred Stock may at any time thereafter be issuable pursuant
to such warrants, options or other rights or pursuant to the terms of such
Convertible Securities shall be less than the Current Market Price per share
of Common Stock, then the number of shares of Common Stock thereafter
comprising a Stock Unit shall be adjusted as provided in Subsection 4.3 on the
basis that (i) the maximum number of Additional Shares of Nonpreferred Stock
issuable pursuant to all such warrants, options or other rights or necessary
to effect the conversion or exchange of all such Convertible Securities shall
be deemed to have been issued as of the date specified in the next following
sentence of this Subsection 4.4, (ii) the aggregate consideration for such
maximum number of Additional Shares of Nonpreferred Stock shall be deemed to
be the minimum consideration received and receivable by the Issuer for the
issuance of such Additional Shares of Nonpreferred Stock pursuant to such
warrants, options or other rights or pursuant to the terms of such Convertible
Securities and (iii) the consideration per share received by the Issuer for
such Additional Shares of Nonpreferred Stock shall be that number determined
by dividing (a) the aggregate consideration for such maximum number of
Additional Shares of Nonpreferred Stock (determined as set forth in clause
(ii) of this sentence) by (b) the maximum number of Additional Shares of
Nonpreferred Stock issuable pursuant to all such warrants, options or other
rights or necessary to effect the conversion or exchange of all such
Convertible Securities (determined as set forth in clause (i) of this
sentence). For purposes of this Subsection 4.4, the computation date for
clause (i) above and as of which the Current Market Price per share of Common
Stock shall be computed shall be the earliest of (x) the date on which the
Issuer shall take a record of the holders of its Nonpreferred Stock for the
purpose of entitling them to receive any such warrants, options or other
rights, (y) the date on which the Issuer shall enter into a firm contract for
the issuance of such warrants, options or other rights (or, if such contract
specifies that the price will be determined as of a later date, then such
later date shall be used for purposes of this Subsection 4.5), and (z) the
date of actual issuance of such warrants, options or other rights.
Notwithstanding the foregoing, no adjustment shall be required pursuant to
this Subsection 4.4, (1) upon the issuance or conversion of the Preferred
Shares (as such term is defined in the Investment Agreement), (2) in
connection with the issuance of Additional Shares of Nonpreferred Stock upon
the exercise or conversion, in accordance with the terms thereof, of any
warrants, options or other rights to subscribe for or purchase such shares, or
any Convertible Securities, which were outstanding on October 11, 1996 and
described on Schedule 2.1(c) of the Investment Agreement, or (3) in connection
with the issuance of no more than 2,000,000 (subject to appropriate
adjustments for stock splits, stock dividends and similar events) Additional
Shares of Nonpreferred Stock (in addition to those permitted in (2)
immediately above) in accordance with and pursuant to any employee benefit
plan to which employees, directors and/or consultants of the Issuer are
entitled to participate, which plan shall have been approved by the
stockholders of the Issuer.
4.5. Issuance of Convertible Securities. (i) If at any time or
from time to time the Issuer shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive a distribution
of, or shall otherwise issue, any Convertible Securities and the consideration
per
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share for which Additional Shares of Nonpreferred Stock may at any time
thereafter be issuable pursuant to the terms of such Convertible Securities
shall be less than the Current Market Price per share of Common Stock, then
the number of shares of Common Stock thereafter comprising a Stock Unit shall
be adjusted as provided in Subsection 4.3 on the basis that (1) the maximum
number of Additional Shares of Nonpreferred Stock necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the computation date specified in clause (ii) of this
Subsection 4.5, (2) the aggregate consideration for such maximum number of
Additional Shares of Nonpreferred Stock shall be deemed to be the minimum
consideration received and receivable by the Issuer for the issuance of such
Additional Shares of Nonpreferred Stock pursuant to the terms of such
Convertible Securities and (3) the consideration per share received by the
Issuer for such Additional Shares of Nonpreferred Stock shall be that number
determined by dividing (a) the aggregate consideration for such maximum number
of Additional Shares of Nonpreferred Stock (determined as set forth in clause
(2) of this sentence) by (b) the maximum number of Additional Shares of
Nonpreferred Stock necessary to effect the conversion or exchange of all such
Convertible Securities (determined as set forth in clause (1) of this
sentence).
(ii) For purposes of this Subsection 4.5, the computation date
for Section 4.5(i) (1) above and as of which the Current Market Price per
share of Common Stock shall be computed shall be the earliest of (x) the date
on which the Issuer shall take a record of the holders of its Nonpreferred
Stock for the purpose of entitling them to receive any such Convertible
securities, (y) the date on which the Issuer shall enter into a firm contract
for the issuance of such Convertible Securities (or, if such contract
specifies that the price will be determined as of a later date, then such
later date shall be used for purposes of this Subsection 4.5), and (z) the
date of actual issuance of such Convertible Securities; provided that with
respect to any Convertible Security for which the maximum number of Additional
Shares of Nonpreferred Stock necessary to effect the conversion of all such
Convertible Securities is not determinable at the time of issuance of such
Convertible Security, the computation date shall be the earlier of (a) the
actual date of conversion and (b) the date of exercise of this Warrant
assuming such Convertible Securities are converted on such date on the terms
thereof. No adjustment of the number of shares of Common Stock comprising a
Stock Unit shall be made under this Subsection 4.5 upon the issuance of any
Convertible Securities which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights therefor, if any such
adjustment shall previously have been made upon the issuance of such warrants
or other rights pursuant to Subsection 4.4. Subject to Section 4.6(f), the
adjustments made in this Section 4 shall remain in effect regardless of
whether any Convertible Securities are converted or any warrants, options or
other rights to purchase Additional Shares of Nonpreferred Stock or
Convertible Securities are ever exercised.
4.6. Other Provisions Applicable to Adjustments Under this
Section. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock comprising a Stock Unit
provided for above in this Section 4:
(a) Treasury Stock. The sale or other disposition of any
issued shares of Nonpreferred Stock owned or held by or for the account of the
Issuer shall be deemed an issuance thereof for purposes of this Section 4.
(b) Computation of Consideration. To the extent that any
Additional Shares of Nonpreferred Stock or any Convertible Securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Shares of Nonpreferred Stock or any Convertible Securities shall be issued for
cash consideration, the consideration received by the Issuer therefor shall be
deemed to be the amount of cash received by the Issuer therefor, or, if such
Additional Shares of Nonpreferred Stock or Convertible Securities are offered
by the Issuer for subscription, the subscription price, or, if such Additional
Shares
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of Nonpreferred Stock or Convertible Securities are sold to underwriters or
dealers for public offering without a subscription offering, the initial
public offering price, in any such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and without deduction of
any compensation, discounts or expenses paid or incurred by the Issuer for and
in the underwriting of, or otherwise in connection with, the issue thereof.
To the extent that such issuance shall be for a consideration other than
solely for cash, then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith by the
Board of Directors of the Issuer. The consideration for any Additional Shares
of Nonpreferred Stock issuable pursuant to any warrants, options or other
rights to subscribe for or purchase the same shall be the consideration
received or receivable by the Issuer for issuing such warrants, options or
other rights, plus the additional consideration payable to the Issuer upon the
exercise of such warrants, options or other rights. The consideration for any
Additional Shares of Nonpreferred Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration received or receivable by
the Issuer for issuing any warrants, options or other rights to subscribe for
or purchase such Convertible Securities, plus the consideration paid or
payable to the Issuer in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any, payable to
the Issuer upon the exercise of the right of conversion or exchange in such
Convertible Securities. In case of the issuance at any time of any Additional
Shares of Nonpreferred Stock or Convertible Securities in payment or
satisfaction of any dividend upon any class of stock other than Nonpreferred
Stock, the Issuer shall be deemed to have received for such Additional Shares
of Nonpreferred Stock or Convertible Securities a consideration equal to the
amount of such dividend so paid or satisfied.
(c) When Adjustments to Be Made. The adjustments required by
the preceding Subsections of this Section 4 shall be made whenever and as
often as any specified event requiring an adjustment shall occur, except that
no adjustment shall be made except pursuant to Subsection 4.1 if it would
decrease the number of shares of Common Stock comprising a Stock Unit
immediately prior to such adjustment. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on
the date of its occurrence.
(d) Fractional Interests. In computing adjustments under this
Section, fractional interests in Nonpreferred Stock shall be taken into
account to the nearest one-thousandth of a share.
(e) When Adjustments Not Required. (i) If the Issuer shall
take a record of the holders of its Nonpreferred Stock for the purpose of
entitling them to receive a dividend or distribution or subscription or
purchase rights and shall, thereafter and before the distribution thereof to
stockholders, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no adjustment
shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and annulled.
(ii) No adjustment shall be made for any warrant, option or
right granted or adjustment made to any other warrant, option or right which
grant or adjustment is triggered solely by an adjustment or exercise of this
Warrant.
(iii) No adjustment in the number of shares of Common Stock
comprising a Stock Unit or the Exercise Price shall be required by this
Section 4 if such adjustment either by itself or with other adjustments
required by this Section 4 and not previously made would require an increase
or decrease of less than 1% in such number or price. Any adjustment
representing a change of less than such minimum amount that is so postponed
shall be carried forward and made when such adjustment, together with other
adjustments required by this Section 4 and not previously made, would result
in an adjustment of 1% or greater of such amount or price.
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(f) When Readjustments Made. The number of shares of Common
Stock comprising a Stock Unit that may be purchased upon exercise of this
Warrant shall be readjusted to reflect the expiration of any warrants, options
or other rights, except where no adjustment of the number of shares of Common
Stock comprising a Stock Unit had previously been made with respect to such
expired warrant, option or right.
4.7. Merger, Consolidation or Disposition of Assets. In the
event the Issuer (1) shall consolidate with or merge into any other Person and
shall not be the continuing or surviving Person of such consolidation or
merger, or (2) shall permit any other Person to consolidate with or merge into
the Issuer and the Issuer shall be the continuing or surviving Person but, in
connection with such consolidation or merger, the Nonpreferred Stock shall be
changed into or exchanged for other securities of any other Person or cash or
any other property, or (3) shall transfer all or substantially all of its
properties or assets to any other Person, or (4) shall effect a capital
reorganization or reclassification of the Nonpreferred Stock, then, and in
each such event, proper provision shall be made so that, upon the basis and
the terms and in the manner provided in this Subsection 4.7, the Holder shall
have the right, at the Holder's option, to receive either (i) a reduction of
the Exercise Price equal to the amount applicable to the number of shares of
Common Stock then comprising a Stock Unit of any such cash and of the fair
value of any and all such shares of stock or of other securities or property
to be received by or distributed to the holders of Nonpreferred Stock of the
Company, or (ii), upon the conversion of all or any part of this Warrant at
any time after the consummation of such consolidation, merger, transfer,
reorganization or reclassification, in lieu of the Common Stock issuable upon
such conversion prior to such consummation, the other securities, cash and
property to which such Holder would have been entitled upon such consummation
if such Holder had converted the Warrant immediately prior to such
consummation, subject to adjustments (subsequent to such action) as nearly
equivalent as possible to the adjustments provided for in this Section 4;
provided that option (i) shall be available upon the occurrence of any such
event only if the holders of Nonpreferred Stock prior to such event continue
to hold Nonpreferred Stock upon the occurrence of such event. Such fair value
and such adjustments shall be determined in good faith by the Board of
Directors of the Company. Anything contained in this Warrant to the contrary
notwithstanding, the Issuer will not effect any of the transactions described
in clauses (1) through (4) above unless, prior to the consummation of such
transaction, each other Person (other than the Issuer) that may be required to
deliver any securities, cash or property upon the conversion of the Warrant
shall assume, by written instrument delivered to the Holder, the obligation to
deliver to the Holder such Common Stock, securities, cash or property as the
Holder may be entitled to receive upon such conversion.
The foregoing provisions of this Subsection 4.7 shall similarly
apply to successive mergers, consolidations or dispositions. In addition to
any other requirements under this Subsection 4.7, the Issuer shall give notice
to the Holder of this Warrant of any merger, consolidation or disposition at
least thirty (30) days before the occurrence of such merger, consolidation or
disposition.
4.8. Other Action Affecting Nonpreferred Stock. In case at any
time or from time to time the Issuer shall take any action affecting its
Nonpreferred Stock, other than an action described in any of the foregoing
Subsections 4.1 to 4.8, inclusive, then, unless in the opinion of the Holder
such action will not have a materially adverse effect upon the rights of the
Holder, the number of shares of Common Stock comprising a Stock Unit shall be
adjusted in such manner and at such time as the Issuer and the holders of
warrants exercisable for a majority of the Stock Units then issuable upon the
exercise of all warrants issued to the Investors (as defined in the Investment
Agreement) may in good faith agree to be equitable in the circumstances. If
the Issuer and such holders cannot agree upon a manner of adjustment, such
adjustment will be made in the manner determined by the Board of Directors in
good faith.
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SECTION 5. NOTICE TO WARRANT HOLDERS.
5.1. Notice of Adjustment of Stock Unit or Exercise Price.
Whenever the number of shares of Common Stock comprising a Stock Unit, or the
price at which a Stock Unit may be purchased upon exercise of the Warrants,
shall be adjusted pursuant to Section 4, the Issuer shall obtain a certificate
signed by Coopers and Lybrand, another "Big Six" accounting firm or
independent accountants selected by the Issuer and acceptable to the holders
of warrants exercisable for a majority of the Stock Units then issuable upon
the exercise of all warrants issued to the Investors (as defined in the
Investment Agreement), setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was
calculated (including a statement of the fair value, as determined by the
Board of Directors of the Issuer or by appraisal (if applicable), of any
evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights referred to in Section 4.2,
Section 4.6(b) or Section 4.7) and specifying the number of shares of Common
Stock comprising a Stock Unit and (if such adjustment was made pursuant to
Section 4.7) describing the number and kind of any other shares of stock
comprising a Stock Unit, and any change in the purchase price or prices
thereof, after giving effect to such adjustment or change. The Issuer shall
promptly, and in any case within 10 Business Days after the making of such
adjustment, cause a signed copy of such certificate to be delivered to each
holder of a Warrant in accordance with Section 16. The Issuer shall keep at
the Issuer's Business Office copies of all such certificates and cause the
same to be available for inspection at said office during normal business
hours by the Holder or any prospective purchaser of a Warrant designated by
the Holder.
5.2. Notice of Certain Corporate Action. If the Issuer shall
propose (a) to pay any dividend payable in stock of any class to the holders
of its Nonpreferred Stock or to make any other distribution to the holders of
its Nonpreferred Stock (other than a cash dividend for which no adjustment is
required under Section 4.2), or (b) to offer to the holders of its
Nonpreferred Stock rights to subscribe for or to purchase any Additional
Shares of Nonpreferred Stock or shares of stock of any class or any other
securities, rights or options, or (c) to effect any reclassification of its
Nonpreferred Stock (other than a reclassification involving only the
subdivision, or combination, of outstanding shares of Nonpreferred Stock), or
(d) to effect any capital reorganization, or (e) to effect any consolidation,
merger, sale, transfer or other disposition of all or substantially all of its
property, assets or business, or (f) to effect the liquidation, dissolution or
winding up of the Issuer, then in each such case, the Issuer shall deliver to
each holder of a Warrant, in accordance with Section 16, a notice of such
proposed action, which shall specify the date on which a record is to be taken
for the purposes of such stock dividend, distribution or rights, or the date
on which such reclassification, reorganization, consolidation, merger, sale,
transfer, disposition, liquidation, dissolution or winding up is to take place
and the date of participation therein by the holders of Nonpreferred Stock, if
any such date is to be fixed, and shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such action
on the Common Stock and the number and kind of any other shares of stock which
will comprise a Stock Unit, and the purchase price or prices thereof, after
giving effect to any adjustment which will be required as a result of such
action. Such notice shall be so delivered in the case of any action covered
by clause (a) or (b) above at least ten (10) days prior to the record date for
determining holders of the Nonpreferred Stock for purposes of such action, and
in the case of any other such action, at least thirty (30) days prior to the
date of the taking of such proposed action or the date of participation
therein by the holders of Nonpreferred Stock, whichever shall be the earlier.
5.3. Notice of Expiration Date. The Issuer shall deliver to
each holder of a Warrant notice of the Expiration Date. Such notice may be
delivered by the Issuer not less than thirty (30) days but not more than sixty
(60) days prior to the then existing Expiration Date. Failure to timely
deliver such notice shall extend the Expiration Date to a date that is the
later of (i) the Expiration Date or (ii) the date occurring thirty days after
the date such notice is delivered.
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SECTION 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK. The
Issuer shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
exercise of this Warrant and all warrants issued to the Investors (as defined
in the Investment Agreement) and the conversion of the Preferred Shares (as
defined in the Investment Agreement), at least such number that is the greater
of (x) 10,000,000 shares of Common Stock (subject to appropriate adjustment
for stock splits, stock dividends and similar events) and (y) 1.5 times the
number of its shares of Common Stock as shall from time to time be sufficient
to effect the exercise of all outstanding Warrants and all warrants issued to
the Investors (as defined in the Investment Agreement) and the conversion of
the Preferred Shares (as defined in the Investment Agreement). All shares of
Common Stock which shall be issued upon exercise of this Warrant or upon such
conversion, as the case may be, shall be duly and validly issued and
fully-paid and nonassessable.
Before taking any action that would cause an adjustment
reducing the Current Warrant Price per share of Common Stock below the then
par value, if any, of the shares of Common Stock issuable upon exercise of the
Warrants, the Issuer shall take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Issuer may validly and legally
issue fully-paid and nonassessable shares of ordinary Common Stock at such
adjusted Current Warrant Price.
Before taking any action that would result in an adjustment in
the number of shares of Common Stock comprising a Stock Unit or in the Current
Warrant Price per share of Common Stock, the Issuer shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
SECTION 7. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS.
In the case of all dividends or other distributions by the Issuer to the
holders of its Nonpreferred Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, the Issuer will in
each such case take such a record as of the close of business on a Business
Day. The Issuer will not at any time, except upon dissolution, liquidation or
winding up, close its stock transfer books or Warrant transfer books so as to
result in preventing or delaying the exercise or transfer of any Warrant.
SECTION 8. TRANSFER TAXES. The Issuer will pay any and all
transfer taxes that may be payable in respect of the issuance or delivery of
shares of Common Stock on exercise of this Warrant. The Issuer shall not,
however, be required to pay any tax that may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a
name other than that in which this warrant is registered, and no such issue or
delivery shall be made unless and until the Person requesting such issue has
paid to the Issuer the amount of any such tax, or has established, to the
satisfaction of the Issuer, that such tax has been paid.
SECTION 9. NO VOTING RIGHTS. Except as expressly provided in
this Warrant, this Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Issuer.
SECTION 10. RESTRICTIONS ON EXERCISE AND TRANSFERABILITY. The
Restricted Securities shall not be transferable except upon the conditions
specified in this Section 10; provided that, notwithstanding any other
provisions of this Section 10, the Holder (and each other person mentioned
below in this clause) shall have the right to transfer any Restricted
Securities to any Affiliate of such Holder, in each case free of the
restrictions on transfer imposed by this Section 10 other than the requirement
as to the legending of the certificates for such Restricted Securities
specified in Section 10.1. Each such transferee shall be subject to the same
transfer restrictions imposed on the Warrant holder by this Agreement. The
Warrant Stock has not been registered under the Securities Act or registered
or qualified under the securities laws of any state, and this Warrant may not
be exercised unless the exercise
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of the Warrant does not require registration or qualification under state or
federal securities laws or unless the transaction is registered or qualified
as required. No holder of this Warrant that did not purchase this Warrant
directly from the Issuer shall be permitted to exercise this Warrant unless
such holder shall provide, if requested by the Issuer, an opinion of counsel
to such holder (in form and substance satisfactory to the Issuer and its
counsel) to the effect that such exercise may be accomplished without such
registration or qualification or that such registration or qualification has
occurred.
10.1. Restrictive Legend. Unless and until otherwise
permitted by this Section 10, each certificate for Warrants issued under this
Agreement, each certificate for any Warrants issued to any subsequent
transferee of any such certificate, each certificate for any Warrant Stock
issued upon exercise of any Warrant and each certificate for any Warrant Stock
issued to any subsequent transferee of any such certificate, shall be stamped
or otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS THE PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION
UNDER FEDERAL OR STATE SECURITIES LAWS, OR UNLESS THE PROPOSED TRANSACTION IS
REGISTERED OR QUALIFIED AS REQUIRED.
In addition, each certificate for Warrants issued under this
Agreement and each certificate for any Warrants issued to any subsequent
transferee of any such certificate shall be stamped or otherwise imprinted
with a legend in substantially the following form:
THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS.
In addition, each certificate for Warrants issued to any
subsequent transferee of any such certificate shall be stamped or otherwise
imprinted with a legend in substantially the following form:
THIS WARRANT MAY NOT BE EXERCISED UNLESS SUCH TRANSACTION DOES
NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER FEDERAL OR STATE SECURITIES
LAWS, OR UNLESS SUCH TRANSACTION IS REGISTERED OR QUALIFIED AS REQUIRED.
The Issuer agrees to issue any shares of Common Stock issuable
upon exercise of Warrants without any legend that indicates a restriction on
transferability at such times as (i) the holder thereof is permitted to
dispose of such shares of Common Stock pursuant to Rule 144(k) under the
Securities Act, (ii) such shares of Common Stock are sold to a purchaser or
purchasers who in the opinion of counsel to the seller or such purchaser, in
form and substance reasonably satisfactory to the Issuer and its counsel) are
able to dispose of such shares publicly without registration under the
Securities Act, or (iii) such shares of Common Stock are registered under the
Securities Act; provided in the case of (iii), that the holder of such shares
of Common Stock or the recipient upon such conversion or exercise represents
to the Issuer that such holder will only sell such shares, if at all, pursuant
to the plan of distribution described in an effective registration statement.
10.2. Proposed Transfers. No transfer of any Restricted
Securities, other than a transfer covered by the proviso contained in the
introductory paragraph to this Section 10, may be made unless the proposed
transfer does not require registration under the Securities Act, or unless the
proposed transfer
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is registered as required. The Issuer may require an opinion of counsel of
such transferring holder (which counsel shall be reasonably satisfactory to
the Issuer) to the effect that such proposed transfer may be effected without
registration under the Securities Act. Each certificate evidencing the
Restricted Securities thus to be transferred (and each certificate evidencing
any untransferred balance of the Restricted Securities evidenced by such
Restricted Certificate) shall bear the restrictive legend set forth in
Subsection 10.1, unless in the opinion of the Issuer or the opinion of such
counsel, if requested, pursuant to Rule 144(k) of the Securities Act, such
legend is not required in order to ensure compliance with the Securities Act.
10.3. Demand Registration. Subject to the limitations
contained in Section 10.7, at any time after the earlier of the date that is
(i) six months after the Qualifying Offering (as defined in the Investment
Agreement) or (ii) October 16, 1997 if the Qualifying Offering has not
occurred by such date, the Issuer shall be requested by holders of warrants
exercisable for a majority of the Stock Units then issuable upon the exercise
of all warrants issued to the Investors (as defined in the Investment
Agreement) to effect the registration of any of its Restricted Securities
under the Securities Act, the Issuer shall promptly give written notice of
such proposed registration to all holders of outstanding Restricted Securities
and thereupon shall, as expeditiously as possible, use its best efforts to
effect the registration under the Securities Act by filing pursuant to Rule
415 of the Securities Act a "shelf" registration statement on Form S-3 (or, if
the staff at the SEC takes the position that Form S-3 is not available and
holders of warrants exercisable for a majority of the Stock Units then
issuable upon the exercise of all warrants issued to the Investors so request,
on Form S-1) covering all Restricted Securities, the holder or holders of
which shall have made written request to the Issuer for registration thereof
within 30 days after the giving of such written notice by the Issuer, all to
the extent required to permit the disposition (in accordance with the intended
methods thereof, as aforesaid) by the prospective Seller or Sellers of the
Restricted Securities so registered; provided, that if Form S-3 is not
available, the Issuer shall notify the holders of warrants in writing of such
fact, which notice shall set forth the reasons therefor and the holders' right
to request registration on Form S-1. Any registration statement filed on Form
S-1 shall be maintained by the Issuer for a period of 45 continuous days and,
if not so maintained shall not be deemed to count against the number of
effective registration statements pursuant to this Section 10.3 permitted to
be made by holders pursuant to Section 10.7. Upon the Issuer's request, the
holder or holders making a request for registration shall promptly provide the
Issuer with description of the intended method of disposition of such
securities by the prospective Seller or Sellers. Sellers holding warrants
exercisable for a majority of the Stock Units then issuable upon the exercise
of all warrants issued to investors subject to such registration shall have
the right to select the managing underwriter or underwriters for the offering
of such Restricted Securities.
In the case of an underwritten public offering of Restricted
Securities to be so registered, if the managing underwriter advises that the
number of securities to be so registered is too large a number to be
reasonably sold, the number of such securities sought to be registered by each
Seller shall be reduced, pro rata in proportion to the number of securities
sought to be registered by all Sellers, to the extent necessary to reduce the
number of securities to be registered to the number recommended by the
managing underwriter.
From and after the date of this Agreement, the Issuer shall
not, nor shall it allow the holders of any securities of the Issuer to,
include any of their securities in any registration statement filed by the
Issuer pursuant to this Section 10 unless such inclusion will not reduce the
amount of the Restricted Stock included therein.
10.4. Piggyback Registration. If the Issuer at any time
proposes to register any shares of Common Stock or warrants to purchase Common
Stock under the Securities Act on Form S-1, S-2 or
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S-3 or the equivalent (otherwise than pursuant to Subsection 10.3), whether of
its own accord or at the request of any holder or holders of such securities,
it shall each such time give written notice to all holders of outstanding
Restricted Securities of its intention so to do.
Upon the written request of a holder or holders of any such
Restricted Securities given within 30 days after receipt of any such notice,
the Issuer shall use its best efforts to cause all Restricted Securities, the
holder or holders of which shall have so requested registration thereof, to be
registered under the Securities Act pursuant to such registration statement,
all to the extent required to permit the sale or other disposition (in
accordance with the intended methods thereof as aforesaid) by the prospective
Seller or Sellers of the Restricted Securities so registered; provided,
however, that the Issuer shall not be obligated to include any Restricted
Securities in the registration statement with respect to the Qualifying
Offering (as defined in the Investment Agreement). Upon the Issuer's request,
the holder or holders making a request for registration shall promptly provide
the Issuer with a description of the intended method of disposition of such
securities by the prospective Seller or Sellers.
If the managing underwriter for the respective offering advises
the Issuer in writing that the inclusion in such registration of some or all
of the Restricted Securities sought to be registered by the Seller or Sellers
in its opinion shall cause the proceeds or the price per unit the Issuer or
the requesting or demanding holder of securities shall derive from such
registration to be reduced or that the number of securities to be registered
at the instance of the Issuer or such requesting or demanding holder plus the
number of securities sought to be registered by the Sellers is too large a
number to be reasonably sold, the number of shares of Restricted Securities
shall be reduced pro rata, along with the securities sought to be registered
by any other holder or holders of Common Stock (other than any holder
exercising a demand registration right), to the extent necessary to reduce the
number of securities to be registered to the number recommended by the
managing underwriter.
The Issuer shall not grant to any Person at any time on or
after the Effective Date a "piggyback" right to request the Issuer to register
any securities of the Issuer under the Securities Act unless such right
provides that if the managing underwriter for the respective Sellers believes
that sale of such securities would adversely affect the amount of, or price at
which, the respective Restricted Securities being registered under this
Section 10.4 can be sold, then, the amount of such securities that may be
registered and sold shall be reduced pro rata with the Restricted Securities
in accordance with the immediately preceding paragraph.
In the case of an underwritten public offering of Common Stock
by the Company, each Seller, if requested by the managing underwriter, shall
agree to exercise its rights pursuant to this Section 10.4 only through
participation in such underwritten public offering.
10.5. Registration Procedures. (a) If and whenever the
Issuer is required by the provisions of this Section 10 to use its best
efforts to effect the registration of any of the Restricted Securities under
the Securities Act, the Issuer shall (except as otherwise provided in this
Warrant), as expeditiously as possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Warrant Stock and use its best efforts to cause such
registration to become effective as provided in Subsection 10.3 or 10.4, and
upon the request of any holder of Warrant Stock keep such registration
statement effective for so long as any holder of Restricted Securities desires
to dispose of the securities covered by such registration statement (or, in
the case of a filing on Form S-1, 45 continuous days), or, if earlier, until
such Warrant Stock may be sold under Rule 144(k) (provided that the Issuer's
transfer agent has accepted an instruction from the Issuer to such effect).
The Issuer may suspend or delay the effectiveness of a
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registration statement with respect to such Warrant Stock or the use of any
prospectus used in connection with any such registration effected pursuant to
this subsection (i) only in the event, and for such period of time (not to
exceed 90 cumulative aggregate days in any 12 month-period) as, such a
suspension as the Issuer concludes in its reasonable judgment is required by
applicable securities laws or the rules and regulations of the Securities and
Exchange Commission. The Issuer shall use its best efforts to cause such
suspension to terminate at the earliest possible date; provided that the
Issuer shall be permitted to maintain such suspension if, and only for so long
as, the Board of Directors of the Issuer shall, in good faith, determine that
failure to maintain such suspension is reasonably likely to be seriously
detrimental (excluding detriment resulting from the price of the Common Stock
or the exercise of this Warrant) to the Issuer or would interfere with a
material transaction that the Issuer is then contemplating.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement and notify the holders of
Restricted Securities of the filing and effectiveness of such registration
statement and any amendments or supplements.
(iii) Furnish to each holder of Restricted Securities such
numbers of copies of a current prospectus conforming with the requirements of
the Securities Act, copies of the registration statement, any amendment or
supplement thereto and any documents incorporated by reference therein and
such other documents as such holder of Restricted Securities may reasonably
require in order to facilitate the disposition of Warrant Stock owned by such
holder of Restricted Securities.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or "Blue Sky" laws of such jurisdictions as shall be reasonably requested by
the holder of Restricted Securities, provided that the Issuer shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(v) Notify each holder of Restricted Securities immediately of
the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement
of material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, and use its best efforts promptly to update
and/or correct such prospectus.
(vi) In connection with an underwritten offering, furnish, at
the request of any holder of Restricted Securities, (1) an opinion of counsel
of the Issuer, dated the closing date of the offering statement, in form and
substance reasonably satisfactory to such holder and its counsel and covering,
without limitation, such matters as the due authorization and issuance of the
securities being registered and compliance with securities laws by the Issuer
in connection with the authorization, issuance and registration thereof, and
(2) if such registration is made in connection with an underwritten public
offering, a letter or letters of the Issuer's independent public accountants
in form and substance reasonably satisfactory to the holder, such holder's
lead underwriter and their respective counsel.
(vii) Use its best efforts to list the Warrant Stock covered
by such registration statement with any securities exchange or market on which
the Common Stock is then listed.
(viii) Make available for inspection by the holder of
Restricted Securities, upon request, all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to
reporting requirements under the Securities Exchange Act of 1934, as amended,
including
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material filed pursuant to Section 13(a) or 15(d) and filed subsequent to the
Effective Date and require the Issuer's officers, directors and employees to
supply all information reasonably requested by any holder of Restricted
Securities in connection with such registration statement.
(ix) Permit an offering made pursuant to a registration made
at the request of requisite holders under Section 10.3 to be underwritten by
an underwriter of recognized national standing and enter into such agreements
with such underwriter (including agreements to indemnify) and cause delivery
of such legal opinions and letters of independent public accountants as is
customary in underwritten public offerings in accordance with clause (vi), in
each case, at the Issuer's expense.
(b) Each Seller will furnish to the Issuer in connection with
any registration under this Section 10 such information regarding itself, the
Restricted Stock and other securities of the Issuer held by it, and the
intended method of disposition of such securities as shall be reasonably
required to effect the registration of the Restricted Stock held by such
Seller. The intended method of disposition (Plan of Distribution) of such
securities as so provided by any such holder shall be included without
alteration in the registration statement covering the Restricted Stock and
shall not be changed without the written consent of such holder.
10.6. Indemnification. (a) The Issuer shall indemnify,
defend and hold harmless each Seller and each of its officers, directors,
employees, agents, partners or controlling persons (within the meaning of the
Act) (each, a "Holder Indemnified Party") from and against, and shall
reimburse such Holder Indemnified Party with respect to, any and all claims,
suits, demands, causes of action, losses, damages, liabilities, costs or
expenses ("Liabilities") to which such Holder Indemnified Party may become
subject under the Securities Act or otherwise, arising from or relating to
(A) any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that the Issuer shall not be liable
with respect to any Seller in any such case to the extent that any such
liability arises out of or is based upon an untrue statement or omission so
made in such registration statement, prospectus or amendment or supplement
thereto in reliance upon and in strict conformity with written information
furnished in an instrument duly executed by such Seller specifically for use
in the registration statement; provided further, that the Issuer shall not be
liable with respect to any Seller in any such case to the extent that any such
Liability arises out of or is based upon an untrue statement or omission made
in any preliminary prospectus if (i) such Seller under an obligation to send
or deliver a copy of the prospectus with or prior to the delivery of written
confirmation of the sale of Restricted Stock to the person asserting such
Liability who purchased such Restricted Stock that are the subject thereof
from such Seller failed to do so and (ii) the prospectus would have completely
corrected such untrue statement or omission and if, having previously been
furnished by or on behalf of the Issuer with copies of the prospectus so
correcting such untrue statement or omission and having been obligated to
deliver such prospectus, such Seller thereafter failed to deliver such
prospectus prior to or concurrently with the sale of Restricted Stock to the
person asserting such Liability who purchased such Restricted Stock that is
the subject thereof from such Seller; and provided further, that the Issuer
shall not be liable with respect to any Seller in any such case to the extent
that any Liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission in the prospectus, if
such untrue statement or alleged untrue statement, omission or alleged
omission is completely corrected in an amendment or supplement to the
prospectus and if, having previously been furnished by or on behalf of the
Issuer with copies of the prospectuses so amended or supplemented and having
been obligated to deliver such prospectuses, such Seller thereafter failed to
deliver such prospectus as so amended or supplemented, prior to or
concurrently
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with the sale of Restricted Stock to the person asserting such Liability who
purchased such Restricted Stock that is the subject thereof from such Seller.
(b) In the event of any registration under the Securities Act
of Restricted Stock pursuant to Section 10, each Seller hereby severally
agrees to indemnify, defend and hold harmless the Issuer, and its officers,
directors, employees, agents, partners or controlling persons (within the
meaning of the Act) (each, an "Issuer Indemnified Party") from and against,
and shall reimburse such the Issuer Indemnified Party with respect to, any and
all Liabilities to which such the Issuer Indemnified Party may become subject
under the Securities Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any amendment
or supplement thereto, or (B) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; provided, that such holders will be liable in any such case to the
extent, and only to the extent, that any such liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in such registration statement, prospectus or
amendment or supplement thereto in reliance upon and in strict conformity with
written information furnished in an instrument duly executed by such holder
specifically for use in the preparation thereof; provided further that in no
case shall any such holder be liable in any such case in an amount in excess
of the net proceeds received by such holder upon the sale of Restricted Stock
pursuant to such registration statement, prospectus or amendment or supplement
thereto.
(c) (i) Promptly after receipt by any Holder Indemnified
Party of notice of the commencement of any action, such Holder Indemnified
Party shall, if a claim in respect thereof is to be made against the Issuer
hereunder, notify the Issuer in writing thereof but the omission so to notify
the Issuer shall not relieve the Issuer from any Liability that it may have to
the Holder Indemnified Party other than under this section and shall only
relieve it from any Liability that it may have to the Holder Indemnified Party
under this section if and to the extent the Issuer is actually prejudiced by
such omission. In case any such action shall be brought against any Holder
Indemnified Party and such Holder Indemnified Party shall notify the Issuer of
the commencement thereof, the Issuer shall be entitled to participate in and,
to the extent it shall wish, to assume and undertake the defense thereof with
counsel reasonably satisfactory to such Holder Indemnified Party, and, after
notice from such Seller to the Holder Indemnified Party of its election so to
assume and undertake the defense such Seller shall not be liable to the Holder
Indemnified Party under this section for any legal expenses subsequently
incurred by the Holder Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with
counsel so selected; provided, however, that if the defendants in any such
action include both the Issuer and such Holder Indemnified Party and the
Holder Indemnified Party shall have reasonably concluded that there may be
reasonable defenses available to it that are different from or additional to
those available to the Issuer or if the interests of the Holder Indemnified
Party reasonably may be deemed to conflict with the interests of the Issuer,
the Holder Indemnified Party shall have the right to select a separate counsel
and to assume such legal defenses and otherwise to participate in the defense
of such action, with the reasonable expenses and fees of such separate counsel
and other reasonable expenses related to such participation to be reimbursed
by the Issuer as incurred. In clarification of the foregoing, the Issuer
shall pay the reasonable expenses and fees of one separate counsel whose
selection is approved by the largest group of similarly situated Holder
Indemnified Parties as measured by the aggregate par value of such Restricted
Stock owned by such group. Any Holder Indemnified Party who chooses not to be
represented by the foregoing separate counsel shall be entitled, at its own
expense, to be represented by counsel of its own selection.
(ii) Promptly after receipt by any Issuer Indemnified Party of
notice of the commencement of any action, such Issuer Indemnified Party shall,
if a claim in respect thereof is to be
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made against any Seller hereunder, notify such Seller in writing thereof but
the omission so to notify such Seller shall not relieve such Seller from any
Liability that it may have to the Issuer Indemnified Party other than under
this section and shall only relieve it from any Liability that it may have to
the Issuer Indemnified Party under this section if and to the extent such
Seller is actually prejudiced by such omission. In case any such action shall
be brought against any Issuer Indemnified Party and such Issuer Indemnified
Party shall notify Seller of the commencement thereof, such Seller shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
Issuer Indemnified Party, and, after notice from such Seller to the Issuer
Indemnified Party of its election so to assume and undertake the defense such
Seller shall not be liable to the Issuer Indemnified Party under this section
for any legal expenses subsequently incurred by the Issuer Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected; provided, however, that
if the defendants in any such action include both the Sellers and such Issuer
Indemnified Party and the Issuer Indemnified Party shall have reasonably
concluded that there may be reasonable defenses available to it that are
different from or additional to those available to the Sellers or if the
interests of the Issuer Indemnified Party reasonably may be deemed to conflict
with the interests of the Sellers, the Issuer Indemnified Party together with
all other defendant Issuer Indemnified Parties shall have the right to select
one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and
fees of such separate counsel and other reasonable expenses related to such
participation to be reimbursed by such Sellers as incurred.
10.7. Expenses; Limitations on Registration. (a) With
respect to the inclusion of Restricted Stock in a registration statement
pursuant to Section 10, all fees, costs and expenses of and incidental to such
registration, inclusion and public offering shall be borne by the Issuer;
provided, however, that any securityholders participating in such registration
shall bear their pro-rata share of the underwriting discounts and commissions,
if any, incurred by them in connection with such registration.
(b) The fees, costs and expenses of registration to be borne
by the Issuer as provided in this Section 10 shall include, without
limitation, all registration, filing and NASD fees, listing fees, printing
expenses, fees and disbursements of counsel and accountants for the Issuer,
and all legal fees and disbursements and other expenses of complying with
state securities or Blue Sky laws of any jurisdiction or jurisdictions in
which securities to be offered are to be registered and qualified. Subject to
appropriate agreements as to confidentiality, the Issuer shall make available
to counsel for the Sellers its documents and personnel for due diligence
purposes. Except as otherwise provided herein, fees and disbursements of
counsel and accountants for the selling securityholders shall be borne by the
respective selling securityholders.
(c) The holders of all Restricted Securities shall be entitled
to an aggregate of two (2) effective registrations pursuant to requests made
under Section 10.3 and an unlimited number of registrations pursuant to
requests made under Section 10.4; provided that any such registration request
made by the requisite number of holders which request shall be withdrawn
(other than by reason of the Company's failure to perform its obligations
hereunder) by the holders of a majority in number of shares evidenced or
covered by the Restricted Securities sought to be so registered, after the
respective registration statement shall have become effective, shall be
treated as an "effective" registration for purposes of this Warrant.
(d) Notwithstanding the rights of the holders pursuant to
Sections 10.3 and 10.4, the Issuer shall have no obligation to effect a
registration for any securities that are eligible for resale pursuant to Rule
144(k) under the Securities Act, provided that the Issuer's transfer agent has
accepted an
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instruction from the Company specifying that such securities are eligible for
sale without restriction pursuant to Rule 144(k).
SECTION 11. LIMITATION OF LIABILITY. No provision hereof, in
the absence of affirmative action by the Holder to purchase shares of Warrant
Stock, and no mere enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of such Holder for the purchase price
of the Warrant Stock or as a stockholder of the Issuer, whether such liability
is asserted by the Issuer or by creditors of the Issuer.
SECTION 12. LOSS, DESTRUCTION OF WARRANT CERTIFICATES. Upon
receipt of evidence satisfactory to the Issuer of the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
(the original Warrant holder's or any other institutional Warrant holder's
indemnity being satisfactory indemnity in the event of loss, theft or
destruction of any Warrant owned by such original or institutional holder),
or, in the case of any such mutilation, upon surrender and cancellation of
such Warrant, the Issuer shall make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing
the right to purchase the same aggregate number of shares of Common Stock.
SECTION 13. FURNISH INFORMATION. The Issuer agrees that it
shall deliver to the Holder promptly after their becoming available copies of
all financial statements, reports and proxy statements that the Issuer shall
have sent to its stockholders generally.
SECTION 14. AMENDMENTS; LIKE TREATMENT OF HOLDERS OF WARRANTS.
The terms of this Warrant and all other warrants issued to Investors (as
defined in the Investment Agreement) may be amended, and the observance of any
term therein may be waived, but only with the written consent of the holders
of warrants evidencing a majority in number of the total number of Stock Units
at the time purchasable upon the exercise of all then outstanding warrants
issued to Investors, provided that no such action may change the number of
shares of stock comprising a Stock Unit or the Exercise Price, without the
written consent of the holders of warrants evidencing 100% in number of the
total number of Stock Units at the time purchasable upon the exercise of all
then outstanding warrants. For the purposes of determining whether the
holders of outstanding warrants issued to Investors entitled to purchase a
requisite number of Stock Units at any time have taken any action authorized
by this Warrant, any warrants owned by the Issuer or any Affiliate of the
Issuer (other than an institutional investor which may be deemed an Affiliate
solely by reason of the ownership of warrants) shall be deemed not to be
outstanding. Neither the Issuer nor any of its subsidiaries shall, directly
or indirectly, pay or cause to the paid any consideration, whether by way of
interest, fee or otherwise, to any holder of warrants issued to Investors for,
or as an inducement to any consent, waiver or amendment of any terms or
provisions of such warrants issued to Investors unless such consideration is
offered to be paid to or agreed to be paid to all such holders which so
consent, waive or agree to amend in the time frame set forth in solicitation
documents relating to such consent, waiver or agreement. Neither the Issuer
nor any of its subsidiaries shall, directly or indirectly, redeem or
repurchase any warrants issued to Investors unless such offer of redemption or
repurchase is made pro rata to all holders of such warrants on identical
terms.
SECTION 15. OFFICE OF THE ISSUER. So long as this Warrant
remains outstanding, the Issuer shall maintain an office in the City of New
York where this Warrant may be presented for exercise, transfer, division or
combination as provided in this Warrant. Such office shall be at
[____________________________________________________________________________],
Attention: [__________], unless and until the Issuer shall designate and
maintain some other office for such purposes and deliver written notice thereof
to the holders of all outstanding Warrants.
22
<PAGE> 120
SECTION 16. NOTICES GENERALLY. Except as otherwise provided
in this Warrant, any notice or other communication required or permitted to be
given under this Warrant shall be in writing and shall be effective (a) upon
hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered
on a Business Day during normal business hours where such notice is to be
received), or the first Business Day following such delivery (if delivered
other than on a Business Day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid addressed to such address or
upon actual receipt of such mailing, whichever shall first occur, to any
holder of a Warrant at its last known address appearing on the books of the
Issuer, or, except as herein otherwise expressly provided, to the Issuer at
its principal executive office, CD Radio Inc., Sixth Floor, 1001 22nd Street
N.W., Washington, D.C. 20037; Facsimile (202) 296-6265; Attention: David
Margolese, or such other address as shall have been furnished to the party
giving or making such notice, demand or delivery.
SECTION 17. SUCCESSORS AND ASSIGNS. This Warrant shall bind
and inure to the benefit of an be enforceable by the parties to this Warrant
and their respective successors and assigns, and, without limiting the
generality of the foregoing, shall inure to the benefit of and be enforceable
by each Person who shall from time to time be the Holder of this Warrant.
SECTION 18. GOVERNING LAW. This Warrant shall be governed by
and construed and enforced in accordance with the internal laws of the State
of New York, without regard to the such state's principles of conflict of
laws.
SECTION 19. NO WAIVER; CUMULATIVE REMEDIES. No waiver by any
party of any default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement of this Agreement, nor
shall any delay or omission of any party to exercise any right under this
Agreement in any manner impair the exercise of any such right accruing to it
after such waiver. The rights, remedies, powers and privileges provided in
this Warrant are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
SECTION 20. SPECIFIC PERFORMANCE AND COUNSEL FEES. The Issuer
and the Holder agree that irreparable damage would occur in the event that any
of the provisions of this Warrant were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
Holder shall be entitled to an injunction or injunctions to prevent breaches
of this Warrant and to enforce specifically the terms and provisions of this
Warrant in any court of the United States or any state of the United States
having jurisdiction, this being in addition to any other remedy to which it
may be entitled at law or in equity. In addition, in the event the Holder is
required to enforce the terms and provisions of this Warrant and is successful
in doing so, it shall be reimbursed by the Issuer for all costs and expenses,
including legal fees, which it may incur in bringing such legal proceeding.
SECTION 21. SEVERABILITY. If any provision of this Agreement
is held to be illegal, invalid or unenforceable under any present or future
law, and if the rights or obligations of any party under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
and (c) the remaining provisions of this Agreement will remain in full force
and effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance from this Agreement.
23
<PAGE> 121
IN WITNESS WHEREOF, the Issuer has caused this warrant to be
signed in its name by its President or a Vice President.
Dated: ________, 1996
CD RADIO INC., a
Delaware corporation
By:
------------------------------------
Name:
Title:
24
<PAGE> 122
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for and purchases Stock Units of CD RADIO INC., a
Delaware corporation, purchasable with this Warrant, and [herewith makes
payment therefor in the amount of $__________,] [hereby tenders __________
Stock Units as payment therefor,] all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for the
shares of Common Stock of CD Radio Inc. hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of
and delivered to ____________________ whose address is
________________________________________________________________ and, if such
Stock Units shall not include all of the Stock Units issuable as provided in
this Warrant, that a new Warrant of like tenor and date for the balance of the
Stock Units issuable thereunder (less any Stock Units used for payment of the
Exercise Price) be delivered to the undersigned.
Dated:
-------------------------------------------
(Signature of Registered owner)
-------------------------------------------
(Street Address)
-------------------------------------------
(City) (State) (Zip Code)
<PAGE> 123
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all
of the rights of the undersigned under this Warrant, with respect to the
number of Stock Units set forth below:
No. of Stock
Name and Address of Assignee Units
---------------------------- ------------
and does hereby irrevocably constitute and appoint ____________________
Attorney to make sure transfer on the books of CD RADIO INC., a Delaware
corporation, maintained for such purpose, with full power of substitution in
the premises.
Dated:
--------------------------------------
Signature
--------------------------------------
Witness
NOTICE: The signature to the assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or any change whatever.
The signature to this assignment must be guaranteed by a bank or
trust company having an office or correspondent in Los Angeles,
California, or New York, New York, or by a firm having membership on
the New York Stock Exchange.
<PAGE> 1
EXHIBIT 10.24.1
FIRST AMENDMENT
TO PREFERRED STOCK INVESTMENT AGREEMENT
This FIRST AMENDMENT TO PREFERRED STOCK INVESTMENT
AGREEMENT (this "AMENDMENT") is dated as of March 7, 1997, and entered into by
and among CD Radio Inc., a Delaware corporation ("CDRD") and the undersigned
investors and any additional investor that signs a counterpart to this
Agreement (collectively, "INVESTORS"). Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Preferred
Stock Investment Agreement dated as of October 23, 1996, by and between CDRD
and Investors ("PREFERRED STOCK INVESTMENT AGREEMENT").
RECITALS
WHEREAS, CDRD and Investors desire to amend the Preferred
Stock Investment Agreement as set forth below;
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
SECTION 1. AMENDMENTS TO THE PREFERRED STOCK INVESTMENT
AGREEMENT
1.1 AMENDMENT OF RECITALS: The Recitals to the Preferred
Stock Investment Agreement shall be amended by deleting the first two Recitals
and replacing such Recitals with two new Recitals as follows:
"WHEREAS, CDRD desires to issue and sell to the
Investors, and the Investors desire to purchase from CDRD,
up to an aggregate of 8,000,000 shares of CDRD's 5%
Delayed Convertible Preferred Stock having the rights,
designations and preferences set forth in the Certificate
of Designations of CDRD (the "CERTIFICATE OF
DESIGNATIONS") in identical form and substance of Exhibit
I attached to this Agreement (the "PREFERRED SHARES"), on
the terms and conditions set forth in this Agreement;
"WHEREAS, CDRD initially desires to sell to the
Investors up to 4,000,000 of the Preferred Shares ("FIRST
CLOSING SHARES") in the event that it, or its subsidiary,
receives notice from the Federal Communications Commission
("FCC"), with respect to the authority to provide
satellite digital audio radio services ("SATELLITE DARS
LICENSE"), that it is the winning bidder for a Satellite
DARS License at the conclusion of an auction for Satellite
DARS Licenses (a "WINNING BID"), all on the terms and
conditions set forth in this Agreement."
1.2 AMENDMENT OF SECTION 6.2: AUTOMATIC TERMINATION.
Section 6.2 of the Preferred Stock Investment Agreement is hereby amended by
deleting such Section in its entirety and substituting the following therefor:
"Section 6.2 Automatic Termination. This
Agreement shall terminate without further action of the
parties if the First Closing has not occurred prior to (i)
May 1, 1997 if CDRD has not submitted the Winning Bid by
such date or (ii) May 12, 1997 if CDRD has submitted the
Winning Bid prior to May 1, 1997."
<PAGE> 2
1.3 AMENDMENT OF SECTION 7.3: ENTIRE AGREEMENT; AMENDMENT;
ADDITIONAL INVESTORS; INCREASED COMMITMENTS. Section 7.3 of the Preferred Stock
Investment Agreement is hereby amended (i) by adding the subsection reference
"(a)" before the first sentence of such Section, (ii) by deleting the third
sentence thereof and (iii) by adding the following as subsection (b) as
follows:
"(b) (i) Any Investor may increase its investment
under this Agreement at any time on or prior to
the First Closing Date to purchase such number
of First Closing Shares and Second Closing
Shares as shall be agreed between such Investor
and CDRD in writing. Upon execution of a written
agreement regarding such commitment by such
Investor and CDRD, such Investor shall be
obligated to purchase and CDRD shall be
obligated to sell the additional First Closing
Shares and Second Closing Shares set forth in
such commitment pursuant to the terms of this
Agreement;
(ii) Any individual or other legal entity may
become an additional investor under this
Agreement at any time on or prior to the First
Closing Date with respect to such number of
First Closing Shares and Second Closing Shares
as shall be agreed between such Investor and
CDRD. Any additional investor under this
Agreement may become an additional investor by
executing and delivering a counterpart to the
First Amendment to Preferred Stock Investment
Agreement, dated as of March 7, 1997. Upon
delivery of any such counterpart and acceptance
thereof by CDRD, such counterpart shall be
attached to this Amendment, such additional
investor shall be an Investor (such term as used
in this Agreement to include such additional
Investor) and such additional investor shall be
as fully a party to this Agreement as if such
additional investor were an original signatory
of this Agreement. No consent of any other
Investor shall be required for such addition;
in each case, Schedule I to this Agreement and Exhibits A,
B, C and D to Schedule A to Exhibit 2 to this Agreement,
each automatically shall be revised to reflect the new
allocation of First Closing Shares and Second Closing
Shares to such Investor pursuant to clause (b)(i) above or
the joining of such additional investors to this Agreement
pursuant to clause (b)(ii) above, as the case may be."
1.4 AMENDMENT OF EXHIBIT 1: CERTIFICATE OF DESIGNATIONS OF
5% DELAYED CONVERTIBLE PREFERRED STOCK. Exhibit 1 to the Preferred Stock
Investment Agreement is hereby amended by deleting the initial paragraph
thereof and substituting the following paragraph in its place:
"RESOLVED that there shall be a series of shares of the
Preferred Stock of CD Radio Inc. (the "CORPORATION"),
designated "5% Delayed Convertible Preferred Stock"; that
the number of shares of such series shall be 8,000,000 and
that the rights and preferences of such series (the "5%
PREFERRED") and the limitation or restrictions thereon,
shall be as follows:"
1.5 AMENDMENT OF SCHEDULE A TO EXHIBIT 2: PREFERRED
CUSTODY SERVICES ESCROW AGREEMENT. Schedule A to Exhibit 2 to the Preferred
Stock Investment Agreement is hereby amended by deleting the references to
"March 31, 1997" and to "April 10, 1997" in Sections 3(b)(iii) and 4(b)(i)
thereof and substituting for each such reference "May 1, 1997" and "May 12,
1997", respectively.
- 2 -
<PAGE> 3
SECTION 2. MISCELLANEOUS
2.1 REFERENCE TO AND EFFECT ON THE PREFERRED STOCK
INVESTMENT AGREEMENT.
(i) On and after the Effective Date, each
reference in the Preferred Stock Investment Agreement to
"this Agreement", "hereunder", "hereof", "herein", or
words of like import referring to the Preferred Stock
Investment Agreement and each reference in the Preferred
Stock Investment Agreement and other related agreements to
the "Investment Agreement", "thereunder" "thereof" or
words of like import referring to the Preferred Stock
Investment Agreement shall mean and be a reference to the
Preferred Stock Investment Agreement, as amended by this
Amendment.
(ii) Except as specifically amended by this
Amendment, the Preferred Stock Investment Agreement shall
remain in full force and effect and is hereby ratified and
confirmed.
2.2 COUNTERPARTS; EFFECTIVENESS. This Amendment may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment shall become
effective as to each party that executes a counterpart of this Amendment on the
date of such execution (the "EFFECTIVE DATE"). Any party who does not execute a
counterpart to this Amendment shall not be bound by the terms of the Agreement.
[Remainder of page intentionally left blank]
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
CD RADIO INC.
By:
---------------------------
Name:
Title:
- 4 -
<PAGE> 5
<TABLE>
<CAPTION>
INVESTORS:
<S> <C>
Dated: March , 1997 THE VALUE REALIZATION FUND, L.P.
--- By: Canpartners Investments III, L.P.
By: Canyon Capital Management, L.P.
By: Canpartners Incorporated
By:
-------------------------------
its
Dated: March , 1997 GRS Partners II
---
By:
-----------------------------------
its Account Manager
Dated: March , 1997 The Canyon Value Realization Fund,
--- (Cayman) Ltd.
By:
-----------------------------------
its Account Manager
Dated: March , 1997 Cerberus Partners, L.P.
---
By:
-----------------------------------
General Partner Cerberus
Associates, L.P.
General Partner Cerberus
Partners, L.P.
Dated: March , 1997 Cerberus International, Ltd.
---
By:
----------------------------------
Managing Member,
Partridge Hill, L.L.C.
Investment Advisor to
Cerberus International
Dated: March , 1997 The Copernicus Fund, LP
--- By: DDJ Copernicus, LLC
By:
----------------------------
its Member
</TABLE>
- 5 -
<PAGE> 6
<TABLE>
<S> <C>
Dated: March , 1997 The Galileo Fund, LP
--- By: DDJ Galileo, LLC
By:
----------------------------
its Member
Dated: March , 1997 Dickstein International Limited
--- By: Dickstein Partners, Inc.
By:
----------------------------
its
Dated: March , 1997 Global Bermuda Limited Partnership
--- By: Global Capital Management, Inc.
By:
----------------------------
its Authorized Signatory
Dated: March , 1997 Lakeshore International, Limited
--- By: Global Capital Management, Inc.
By:
----------------------------
its Authorized Signatory
Dated: March , 1997 Elliott Associates, L.P.
---
By:
-----------------------------------
its General Partner
Dated: March , 1997 Westgate International, L.P.
--- By: Martley International, Inc. as
Attorney-in-fact
By:
----------------------------
its
Dated: March , 1997 Everest Capital International, Ltd.
---
</TABLE>
- 6 -
<PAGE> 7
<TABLE>
<S> <C>
By: Everest Capital, Ltd., Investment
Manager
By:
------------------------------
its
Dated: March , 1997 Everest Capital Fund, L.P.
--- By: Everest Capital, Ltd.,
General Partner
By:
--------------------------------
its
Dated: March , 1997 The Jay Goldman Master Limited Partnership
---
By:
--------------------------------
its General Partner
Dated: March , 1997 Grace Brothers, Ltd.
---
By:
--------------------------------
its General Partner
Dated: March , 1997 Mainstay VP Series Fund, Inc., on behalf
--- of its High Yield Corporate Bond Portfolio
By: Mackay-Shields Financial Corporation
its Investment Advisor
By:
--------------------------------
name:
its:
Dated: March , 1997 The Mainstay Funds, on behalf of its High Yield
--- Corporate Bond Fund series
By: Mackay-Shields Financial Corporation
its Investment Advisor
By:
--------------------------------
name:
its:
</TABLE>
- 7 -
<PAGE> 8
<TABLE>
<S> <C>
Dated: March , 1997 The Ravich Revocable Trust of 1989
---
By:
------------------------------------
its Trustee
Dated: March , 1997 Scoggin Capital Management
---
By:
-----------------------------------
its General Partner
By:
-----------------------------------
its
By:
-----------------------------------
its
Dated: March , 1997 Scoggin International Fund, Ltd.
---
By:
-----------------------------------
its General Partner
Dated: March , 1997 TCW Shared Opportunity Fund II
--- By: TCW Investment Management Company,
its Investment Adviser
By:
------------------------------
its
By:
------------------------------
its
Dated: March , 1997 LibertyView Plus Fund
---
By:
-----------------------------------
its
</TABLE>
- 8 -
<PAGE> 9
<TABLE>
<S> <C>
Dated: March , 1997 LibertyView LLC FUND
--- By: Liberty View Capital Management, Inc.
By:
------------------------------
its
Dated: March , 1997 Paresco, Inc.
---
By:
-----------------------------------
its
Dated: March , 1997 Navesink Investment Fund, LDC
---
By:
-----------------------------------
its
Dated: March , 1997 Stonehill Offshore Partners Limited
--- By: Stonehill Advisors LLC, as Agent
By:
-----------------------------------
its:
Dated: March , 1997 Stonehill Investment Corp., for an on behalf of
--- Stonehill Partners, L.P., GRS Partners III and Aurora
Limited Partnership
By:
-----------------------------------
its:
Dated: March , 1997 Herta and Paul Amir Development Family Trust
---
By:
-----------------------------------
its Trustee
Dated: March , 1997 The Wolens Family Trust
---
By:
-----------------------------------
its Trustee
</TABLE>
- 9 -
<PAGE> 10
<TABLE>
<S> <C>
Dated: March , 1997 LongView Partners
----
By:
-----------------------------------
its General Partner
By:
-----------------------------------
its General Partner
Dated: March , 1997 Cumberland Partners
---
By:
-----------------------------------
its General Partner
By:
-----------------------------------
its
Dated: March , 1997 JMG Capital Partners, L.P.
--- By: JMG Capital Management, Inc.
By:
-----------------------------------
its General Partner
</TABLE>
- 10 -
<PAGE> 11
<TABLE>
<S> <C>
Dated: March , 1997 Dickstein & Co., L.P.
--- By: Dickstein Partners, L.P.
By: Dickstein Partners, Inc.
By:
----------------------------
its
</TABLE>
- 11 -
<PAGE> 12
<TABLE>
<S> <C>
ADDITIONAL INVESTORS:
Dated: , 1997 [ADDITIONAL INVESTOR NAME]
-----------------
By
-------------------------
Its
Investor's address:
For purposes of Section 3.6 of this Agreement, the
following percentage limitation shall be applicable:
[ ] 4.99% [ ] 9.99% [ ] no limitation
If no box is marked, no limitation shall be applicable.
CD RADIO INC.
By:
----------------------------------------------
David Margolese,
Chairman and Chief Executive Officer
----------------------------------------------
Aggregate Number of Shares of Preferred Stock
Agreed to be Issued and Sold
</TABLE>
<PAGE> 1
EXHIBIT 10.24.2
SECOND AMENDMENT
TO PREFERRED STOCK INVESTMENT AGREEMENT
This SECOND AMENDMENT TO PREFERRED STOCK INVESTMENT AGREEMENT
(this "AMENDMENT") is dated as of March 14, 1997, and entered into by and among
CD Radio, Inc., a Delaware corporation ("CDRD") and the undersigned investors
and any additional investor that signs a counterpart to this Amendment
(collectively, "INVESTORS"). Capitalized terms used herein without definition
shall have the same meanings herein as set forth in the Preferred Stock
Investment Agreement dated as of October 23, 1996, by and between CDRD and
Investors, as amended by the First Amendment to Preferred Stock Investment
Agreement, dated as of March 7, 1997 (the "FIRST AMENDMENT", as so amended, the
"PREFERRED STOCK INVESTMENT AGREEMENT").
RECITALS
WHEREAS, CDRD and Investors desire to amend the Preferred Stock
Investment Agreement as set forth below;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE PREFERRED STOCK
INVESTMENT AGREEMENT
1.1 AMENDMENT OF RECITALS: The Recitals to the Preferred
Stock Investment Agreement shall be amended by deleting the third Recital and
replacing such Recital with a new Recital as follows:
"WHEREAS, CDRD will have the option to sell to the
Investors a number of Preferred Shares up to the number of
First Closing Shares ("SECOND CLOSING SHARES") after the
First Closing Shares have been sold, subject to the terms
and conditions set forth in this Agreement."
1.2 AMENDMENT OF SECTION 1.1: PURCHASE AND SALE OF
PREFERRED SHARES. Section 1.1 of the Preferred Stock Investment Agreement is
hereby amended by deleting such Section in its entirety and substituting the
following therefor:
"Section 1.1 Purchase and Sale of Preferred Shares.
Upon the following terms and conditions, CDRD shall issue
and sell to each Investor severally, and each Investor
severally shall purchase from CDRD, the number of First
Closing Shares and up to the number of Second Closing
Shares indicated next to such Investor's name on Schedule I
attached to this Agreement."
1.3 AMENDMENT OF SECTION 1.4: THE SECOND CLOSING. Section
1.4(a)(i)(A) of the Preferred Stock Investment Agreement is hereby amended
deleting such clause in its entirety and substituting the following therefor:
"(A) ten days after written notice ("SECOND CLOSING
NOTICE") from CDRD electing to sell an aggregate number to
all Investors of Second Closing Shares specified in such
Second Closing Notice (which number shall not exceed the
number of First Closing Shares) and which Second Closing
Notice shall be delivered to the Investors not earlier
<PAGE> 2
than the First Closing Date and not later than fifteen days
after the First Closing Date; and "
Section 1.4 of the Preferred Stock Investment Agreement is hereby further
amended by adding after the last sentence of clause (a) thereof the following
sentence:
"On the Second Closing Date each Investor shall purchase a
number of Second Closing Shares equal to the total number
of Second Closing Shares to be sold to all Investors on
such date as specified in the Second Closing Notice
multiplied by the quotient of the number of First Closing
Shares purchased by such Investor divided by the total
number of First Closing Shares sold to all Investors."
1.4 NEW SECTION 3.14: MINIMUM DRAW AMOUNT. The Preferred
Stock Investment Agreement is hereby amended by adding a new Section 3.14 as
follows:
"Section 3.14 Minimum Draw Amount. If CDRD submits a
Winning Bid, CDRD shall sell a number of Preferred Shares
to Investors at least sufficient to generate gross proceeds
to CDRD equal to the amount bid for the Satellite DARS
License; provided, however, that in no event shall CDRD be
permitted to sell fewer Preferred Shares to Investors than
the number of First Closing Shares issuable under this
Agreement nor required to sell more Preferred Shares to
Investors than twice such number."
1.5 AMENDMENT OF SECTION 7.3: ENTIRE AGREEMENT;
AMENDMENTS; ADDITIONAL INVESTORS; INCREASED COMMITMENTS. Section 7.3(b) of the
Preferred Stock Investment Agreement is hereby amended by deleting such clause
in its entirety and substituting the following therefor:
"(b) (i) Any Investor may increase its commitment under
this Agreement at any time on or prior to the First
Closing Date to purchase such number of First
Closing Shares and up to such number of Second
Closing Shares as shall be agreed between such
Investor and CDRD in writing. Upon execution of a
written agreement regarding such commitment by such
Investor and CDRD, such Investor shall be obligated
to purchase and CDRD shall be obligated to sell the
number of additional First Closing Shares and up to
the number of additional Second Closing Shares set
forth in such commitment pursuant to the terms of
this Agreement;
(ii) Any individual or other legal entity may become
an additional investor under this Agreement at any
time on or prior to the First Closing Date with
respect to such number of First Closing Shares and
up to such number of Second Closing Shares as shall
be agreed between such Investor and CDRD. Any
additional investor under this Agreement may become
an additional investor by executing and delivering a
counterpart to the most recent amendment to the
Preferred Stock Investment Agreement, as amended to
the date of such execution. Upon delivery of any
such counterpart and acceptance thereof by CDRD,
such counterpart shall be attached to such
amendment, such additional investor shall be an
Investor (such term as used in this Agreement to
include such additional Investor) and such
additional investor shall be as fully a party to
this Agreement as if such additional investor were
an original
- 2 -
<PAGE> 3
signatory of this Agreement. No consent of any other
Investor shall be required for such addition;
in each case, Schedule I to this Agreement and Exhibits A, B,
C and D to Schedule A to Exhibit 2 to this Agreement,
automatically shall be revised to reflect the new allocation
of First Closing Shares and Second Closing Shares to such
Investor pursuant to clause (b)(i) above or the joining of
such additional investors to this Agreement pursuant to
clause (b)(ii) above, as the case may be."
1.6 AMENDMENT TO SECTION 7.1: PLACEMENT AGENT FEE. Section
7.1(B) of the Preferred Stock Investment Agreement is hereby amended by adding
after the first occurrence of the words "Preferred Shares" in such clause, the
parenthetical "(or securities of CDRD that are either pari passu or junior in
seniority, structure and maturity to the Preferred Shares)".
1.7 AMENDMENT OF SCHEDULE A TO EXHIBIT 2: PREFERRED CUSTODY
SERVICES ESCROW AGREEMENT.
(A) Schedule A to Exhibit 2 to the Preferred Stock Investment
Agreement is hereby amended by deleting clause 3(a) thereof in its entirety and
substituting therefor the following:
"(a) at the close of the final bid submission
round of the Satellite DARS License auction conducted by the
FCC, if (1) Party A is the winning bidder for one of the
Satellite DARS Licenses and the Bid Financing Condition (as
defined below) is met and (2) each of the conditions set
forth in Article IV of the Investment Agreement and
applicable to the First Closing shall be fulfilled or waived
in accordance with the Investment Agreement; provided, that
it shall be a condition of release of the Escrowed Property
from the Escrow Account (the "BID FINANCING CONDITION"), that
Party A have at that time additional cash and/or binding
commitments for financing (from the proceeds from the sale of
the Second Closing Shares and/or any other binding
commitments that are either pari passu or junior in
seniority, structure and maturity to the Preferred Shares)
for an amount sufficient, together with the Escrowed Property
to be released to Party A, to enable Party A to fully and
timely make the payments required to purchase the Satellite
DARS License; or"
(B) Schedule A to Exhibit 2 is hereby further amended by
deleting the last two provisos in Section 4(a) thereof.
(C) Schedule A to Exhibit 2 is hereby further amended by
deleting the second full paragraph of Exhibit A thereof in its entirety and
replacing such paragraph with the following:
"The following conditions for release of the Escrowed
Property have been met: (i) at the close of the final bid
submission round of the Satellite DARS License auction
conducted by the FCC, CD Radio Inc. was the winning bidder
for one of the Satellite DARS Licenses and the Bid Financing
Condition has been met as shown on Annex A or waived in a
writing executed by each Investor and (ii) each of the
conditions set forth in Article IV of the Investment
Agreement and applicable to the First Closing have been
fulfilled or waived in accordance with the Investment
Agreement."
- 3 -
<PAGE> 4
(D) Schedule A to Exhibit 2 is hereby further amended by
deleting Annex A thereto in its entirety and replacing such Annex A with Annex
A hereto.
(E) Schedule A to Exhibit 2 is hereby further amended by
deleting the contents of Exhibit B thereto in their entirety and replacing such
contents with the words "Intentionally Omitted".
SECTION 2. MISCELLANEOUS
2.1 REFERENCE TO AND EFFECT ON THE PREFERRED STOCK
INVESTMENT AGREEMENT.
(i) Each reference in the Preferred Stock Investment
Agreement to "this Agreement", "hereunder", "hereof", "herein", or
words of like import referring to the Preferred Stock Investment
Agreement and each reference in the Preferred Stock Investment
Agreement and other related agreements to the "Investment Agreement",
"thereunder" "thereof" or words of like import referring to the
Preferred Stock Investment Agreement shall mean and be a reference to
the Preferred Stock Investment Agreement, as amended by the First
Amendment to Preferred Stock Investment Agreement, dated as of March
7, 1997, and as further amended by this Amendment.
(ii) Except as specifically amended by this Amendment, the
Preferred Stock Investment Agreement shall remain in full force and
effect and is hereby ratified and confirmed.
2.2 COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
[Remainder of page intentionally left blank]
- 4 -
<PAGE> 5
<TABLE>
<CAPTION>
ANNEX A
ANNEX A TO EXHIBIT A TO SCHEDULE A TO ESCROW AGREEMENT
DETERMINATION OF BID FINANCING CONDITION
<S> <C> <C>
1. Purchase price payable for Satellite DARS License ...................................... $_____
2. Net proceeds from First Closing and Second Closing:
(a)
(i) Gross proceeds from First Closing and Second Closing (if $_____
any)..................................................................
(ii) Less: Financing fees, deal expenses and 2% funding fee on
First Closing......................................................... $_____
(iii) Net Proceeds from sale of Preferred Shares............................ $_____
(b) Gross proceeds from all other financings for which CDRD
has binding commitments:
(i) (A) From such financings that are pari passu to the
Preferred Shares............................................. $_____
(B) From such financings that are junior to the
Preferred Shares............................................. $_____
(C) Total gross proceeds from all other such financings
((b)(i)(A) + (b)(i)(B))...................................... $_____
(ii) Less: Financing fees, funding fees and deal expenses for all
other such financings................................................. $_____
(iii) Net proceeds from all other such financings ((b)(i)(C) - $_____
(b)(ii))..............................................................
(c) Total net proceeds from all financings and commitments for
financings ((a)(iii) plus (b)(iii) ................................... $_____
(d) Total additional cash currently held by CDRD ......................... $_____
(e) Total funds available for payment of purchase price ((c)
plus (d))............................................................. $_____
</TABLE>
IF LINE 2(e) IS GREATER THAN OR EQUAL TO LINE 1, THE BID FINANCING CONDITION IS
MET.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
CD RADIO INC.
By:
---------------------------
Name:
Title:
- 6 -
<PAGE> 7
<TABLE>
<CAPTION>
INVESTORS:
<S> <C>
Dated: March ___, 1997 THE VALUE REALIZATION FUND, L.P.
By: Canpartners Investments III, L.P.
By: Canyon Capital Management, L.P.
By: Canpartners Incorporated
By:
------------------------------------
its
Dated: March ___, 1997 GRS PARTNERS II
By:
--------------------------------------------
its Account Manager
Dated: March ___, 1997 THE CANYON VALUE REALIZATION FUND, (CAYMAN)
LTD.
By:
--------------------------------------------
its Account Manager
Dated: March ___, 1997 CERBERUS PARTNERS, L.P.
By:
--------------------------------------------
General Partner Cerberus Associates, L.P.
General Partner Cerberus Partners, L.P.
Dated: March ___, 1997 THE COPERNICUS FUND, LP
By: DDJ Copernicus, LLC
By:
------------------------------------
its Member
Dated: March ___, 1997 THE GALILEO FUND, LP
By: DDJ Galileo, LLC
By:
------------------------------------
its Member
</TABLE>
- 7 -
<PAGE> 8
<TABLE>
<S> <C>
Dated: March ___, 1997 DICKSTEIN & CO., L.P.
By: Dickstein Partners, L.P.
By: Dickstein Partners, Inc.
By:
------------------------------------
its
Dated: March ___, 1997 DICKSTEIN INTERNATIONAL LIMITED
By: Dickstein Partners, Inc.
By:
------------------------------------
its
Dated: March ___, 1997 GLOBAL BERMUDA LIMITED PARTNERSHIP
By: Global Capital Management, Inc.
By:
------------------------------------
its Authorized Signatory
Dated: March ___, 1997 LAKESHORE INTERNATIONAL, LIMITED
By: Global Capital Management, Inc.
By:
------------------------------------
its Authorized Signatory
Dated: March ___, 1997 ELLIOTT ASSOCIATES, L.P.
By:
---------------------------------------------
its General Partner
Dated: March ___, 1997 WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc. as Attorney-in-fact
By:
------------------------------------
its
Dated: March ___, 1997 EVEREST CAPITAL INTERNATIONAL, LTD.
By: Everest Capital, Ltd., Investment Manager
By:
------------------------------------
its
</TABLE>
- 8 -
<PAGE> 9
<TABLE>
<S> <C>
Dated: March ___, 1997 EVEREST CAPITAL FUND, L.P.
By: Everest Capital, Ltd., General Partner
By:
------------------------------------
its
Dated: March ___, 1997 THE JAY GOLDMAN MASTER LIMITED PARTNERSHIP
By:
---------------------------------------------
its General Partner
Dated: March ___, 1997 GRACE BROTHERS, LTD.
By:
---------------------------------------------
its General Partner
Dated: March ___, 1997 MAINSTAY VP SERIES FUND, INC., ON BEHALF OF ITS
HIGH YIELD CORPORATE BOND PORTFOLIO
By: Mackay-Shields Financial Corporation
its Investment Advisor
By:
---------------------------------------------
name:
its:
Dated: March ___, 1997 THE MAINSTAY FUNDS, ON BEHALF OF ITS HIGH
YIELD CORPORATE BOND FUND SERIES
By: Mackay-Shields Financial Corporation
its Investment Advisor
By:
---------------------------------------------
name:
its:
Dated: March ___, 1997 THE RAVICH REVOCABLE TRUST OF 1989
By:
---------------------------------------------
its Trustee
</TABLE>
- 9 -
<PAGE> 10
<TABLE>
<S> <C>
Dated: March ___, 1997 SCOGGIN CAPITAL MANAGEMENT
By:
-------------------------------------------
its General Partner
By:
-------------------------------------------
its
By:
-------------------------------------------
its
Dated: March ___, 1997 SCOGGIN INTERNATIONAL FUND, LTD.
By:
---------------------------------------------
its General Partner
Dated: March ___, 1997 TCW SHARED OPPORTUNITY FUND II
By: TCW Investment Management Company, its
Investment Adviser
By:
------------------------------------
its
By:
------------------------------------
its
Dated: March ___, 1997 LIBERTYVIEW PLUS FUND
By:
---------------------------------------------
its
Dated: March ___, 1997 LIBERTYVIEW LLC FUND
By: Liberty View Capital Management, Inc.
By:
------------------------------------
its
</TABLE>
- 10 -
<PAGE> 11
<TABLE>
<S> <C>
Dated: March ___, 1997 PARESCO, INC.
By:
---------------------------------------------
its
Dated: March ___, 1997 NAVESINK INVESTMENT FUND, LDC
By:
---------------------------------------------
its
Dated: March ___, 1997 STONEHILL OFFSHORE PARTNERS LIMITED
By: Stonehill Advisors LLC, as Agent
By:
------------------------------------
its:
Dated: March ___, 1997 STONEHILL INVESTMENT CORP., FOR AN ON BEHALF
OF STONEHILL PARTNERS, L.P., GRS PARTNERS III
AND AURORA LIMITED PARTNERSHIP
By:
---------------------------------------------
its:
Dated: March ___, 1997 HERTA AND PAUL AMIR DEVELOPMENT FAMILY
TRUST
By:
---------------------------------------------
its Trustee
Dated: March ___, 1997 THE WOLENS FAMILY TRUST
By:
---------------------------------------------
its Trustee
</TABLE>
- 11 -
<PAGE> 12
<TABLE>
<S> <C>
Dated: March ___, 1997 LONGVIEW PARTNERS
By:
---------------------------------------------
its General Partner
By:
---------------------------------------------
its General Partner
Dated: March ___, 1997 CUMBERLAND PARTNERS
By:
---------------------------------------------
its General Partner
By:
---------------------------------------------
its
Dated: March ___, 1997 JMG CAPITAL PARTNERS, L.P.
By: JMG Capital Management, Inc.
By:
------------------------------------
its General Partner
</TABLE>
- 12 -
<PAGE> 13
ADDITIONAL INVESTORS:
Dated: , 1997 [ADDITIONAL INVESTOR NAME]
-------------------
By
-------------------------
Its
Investor's address:
<TABLE>
<S> <C>
For purposes of Section 3.6 of this Agreement, the following
percentage limitation shall be applicable:
[ ] 4.99% [ ] 9.99% [ ] no limitation
If no box is marked, no limitation shall be applicable.
CD RADIO INC.
By:
---------------------------------------------
David Margolese,
Chairman and Chief Executive Officer
------------------------------------------------
Aggregate Number of Shares of Preferred Stock Agreed to be
Issued and Sold
</TABLE>
<PAGE> 1
EXHIBIT 11.1
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net loss.............................................. $(4,064,767) $(2,107,349) $(2,830,595)
=========== =========== ===========
Weighted average common shares outstanding............ 8,109,168 9,224,431 9,642,048
Net common shares issuable upon exercise of
outstanding options issued within one year of
initial public offering............................. 288,500
----------- ----------- -----------
Weighted average common shares outstanding............ 8,397,668 9,224,431 9,642,048
=========== =========== ===========
Net loss per common and common share equivalent....... $ (0.48) $ (0.23) $ (0.29)
=========== =========== ===========
</TABLE>
40
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements on
Form S-8 (File No. 33-92588, File No 33-95118 and File No. 333-15085) of CD
Radio Inc. and Subsidiary of our report dated March 26, 1997 on our audits of
the consolidated financial statements of CD Radio Inc. and Subsidiary as of
December 31, 1995 and 1996, and 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 this amendment on Form 10-K/A.
COOPERS & LYBRAND L.L.P.
Washington, DC
May 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,583,562
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,592,930
<PP&E> 382,084
<DEPRECIATION> 213,344
<TOTAL-ASSETS> 5,065,463
<CURRENT-LIABILITIES> 151,292
<BONDS> 0
0
0
<COMMON> 10,300
<OTHER-SE> 4,888,076
<TOTAL-LIABILITY-AND-EQUITY> 5,065,463
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,930,138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,268
<INCOME-PRETAX> (2,830,595)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,930,138)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,830,595)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
