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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1997
REGISTRATION NO. 333-34767
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CD RADIO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 52-1700207
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
SIXTH FLOOR, 1001-22ND STREET, N.W.
WASHINGTON, D.C. 20037
202-296-6192
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID MARGOLESE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CD RADIO INC.
SIXTH FLOOR, 1001-22ND STREET, N.W.
WASHINGTON, D.C. 20037
202-296-6192
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
LEONARD V. QUIGLEY DAVID J. BEVERIDGE
MITCHELL S. FISHMAN SHEARMAN & STERLING
PAUL, WEISS, RIFKIND, WHARTON & GARRISON 599 LEXINGTON AVENUE
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10019-6064 212-848-4000
212-373-3000
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
If the securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten public offering in the Unites States and
Canada of 2,240,000 shares (the 'U.S. Prospectus'), and one to be used in a
concurrent underwritten public offering outside the United States and Canada of
560,000 shares (the 'International Prospectus'). The two prospectuses are
identical except for the front and back cover pages and the section entitled
'Underwriting' and the inclusion of the section entitled 'Certain United States
Federal Tax Consequences to Non-United States Holders of Common Stock' in the
International Prospectus. The form of U.S. Prospectus is included herein and is
followed by the alternate pages to be used in the International Prospectus. Each
of the alternate pages for the International Prospectus included herein is
labeled 'International Prospectus -- Alternate Page.' Final forms of each
Prospectus will be filed with the Securities and Exchange Commission under Rule
424(b) under the Securities Act of 1933.
<PAGE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 20, 1997
PROSPECTUS
2,800,000 SHARES
[LOGO]
COMMON STOCK
- ----------------------------------------------------------
All of the shares of common stock, par value $.001 per share (the 'Common
Stock'), offered hereby are being offered by CD Radio Inc. (the 'Company'). Of
the 2,800,000 shares of Common Stock offered hereby, 2,240,000 shares are being
offered in the United States and Canada (the 'U.S. Offering') and 560,000 shares
are being offered outside the United States and Canada (the 'International
Offering' and, together with the U.S. Offering, the 'Stock Offerings'). The
public offering price per share and the underwriting discount per share will be
identical for both Stock Offerings. See 'Underwriting.'
The Stock Offerings are one component of a financing transaction which
includes an offer to exchange (the 'Exchange Offer') shares of the Company's
10 1/2% Series C Convertible Preferred Stock (the 'Series C Preferred Stock')
for shares of the Company's outstanding 5% Delayed Convertible Preferred Stock
(the '5% Preferred Stock') and an underwritten public offering of Units (the
'Units') consisting of the Company's Senior Discount Notes due 2007 (the
'Notes') and warrants (the 'Warrants') to purchase additional Notes (the 'Units
Offering' and, together with the Stock Offerings, the 'Offerings'). Separate
registration statements have been filed for each of the Exchange Offer and the
Units Offering, and such offers have been, and will be, made by separate
prospectuses. On November 20, 1997 the Exchange Offer was consummated and shares
of Series C Preferred Stock were exchanged for all of the outstanding shares
of 5% Preferred Stock. The consummation of the Stock Offerings is not
conditioned upon the consummation of the Units Offering but is conditioned
upon the consummation of the Exchange Offer and, after giving effect to the
Stock Offerings, there having occurred one or more Qualifying Offerings
(as defined herein) yielding gross proceeds in an aggregate cash amount
of at least $100 million.
Since October 24, 1997, the Company's Common Stock has traded on the Nasdaq
National Market under the symbol 'CDRD.' On November 19, 1997, the closing bid
price of the Common Stock as reported on the Nasdaq National Market was $19 5/16
per share.
SEE 'RISK FACTORS' BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(3)..................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Underwriting.'
(2) Before deducting expenses payable by the Company estimated to be
$ .
(3) The Company has granted to the U.S. Underwriters and the International
Managers options, exercisable within 30 days of the date hereof, to purchase
up to an additional 336,000 and 84,000 shares of Common Stock, respectively,
solely to cover over-allotments, if any. If such options are exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
'Underwriting.'
------------------------
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1997.
------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
C.E. UNTERBERG, TOWBIN
------------------------
The date of this Prospectus is , 1997.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
<PAGE>
Inside front cover
Photograph of freeway traffic and CD Radio logo
Caption: CD Radio
50 Channels of Programming
National Satellite Coverage
Commercial-Free Music
CD Quality Sound
Photographs of two satellites, the miniature satellite dish antenna and
the radio card.
Caption: National satellite coverage
Local contracted to build
Arianespace launch service provider
Silver-dollar sized satellite dish
Adhesive rear window mount
Wireless transmission to radio card
Plug and play radio card
Inserts into existing cassette slot
Activation 888-CD-RADIO
Programming Formats
Symphonic Classic Rock Soft Rock
Chamber Music 50's Oldies Singers & Songs
Opera 60's Oldies Beautiful Instrumentals
Today's Country Folk Rock Album Rock
Traditional Country Latin Ballads Alternative Rock
Contemporary Jazz Latin Rhythms New Age
Classic Jazz Reggae Broadway's Best
Blues Rap Gospel
Big Band/Swing Dance Children's Entertainment
Top of the Charts Urban Contemporary World Beat
THE CD RADIO DELIVERY SYSTEM
Page 3
Schematic diagram of the CD Radio delivery system.
Caption: (1) National Broadcast Studio
(2) CD Radio Satellite
(3) Satellite Dish Antenna
(4) Radio Card
CERTAIN PERSONS PARTICIPATING IN THE STOCK OFFERINGS MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH
THE STOCK OFFERINGS, MAY BID FOR AND PURCHASE COMMON STOCK IN THE OPEN MARKET
AND MAY IMPOSE PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES SEE
'UNDERWRITING.'
IN CONNECTION WITH THE STOCK OFFERINGS AND THE EXCHANGE OFFER, CERTAIN
UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE 'UNDERWRITING.'
3
<PAGE>
<PAGE>
ILLUSTRATIVE CHANNEL LISTINGS
The following channel list (which employs terminology common to the music
industry) has been prepared by the Company to illustrate the manner in which the
Company's music programming might be marketed. The Company intends to vary
channel formats from time to time to reflect the results of its market research
and subscriber tastes.
<TABLE>
<S> <C>
1. Symphonic
Presenting the full range of the classical repertoire, with
complete works from great composers -- Beethoven, Mozart,
Handel, Copland -- performed by world-class artists and
orchestras, including the New York Philharmonic Orchestra,
Itzhak Perlman, Wynton Marsalis and Yo-Yo Ma.
2. Chamber Music
The lighter side of classical music, featuring chamber music
from small ensembles, as well as solo performances. Composers
like Vivaldi, Telemann and Liszt performed by Ruth Laredo, the
Juilliard String Quartet, Julian Bream and Jean-Pierre Rampal.
3. Opera
Full-length operatic masterpieces from Verdi, Wagner and
Puccini, along with arias and songs, showcasing the world's
great vocal artists, including Luciano Pavarotti, Dawn Upshaw,
the Hilliard Ensemble, Placido Domingo and Cecilia Bartoli.
4. Today's Country
The honest 90's sound of today's stars, including Tim McGraw,
Leann Rimes, Vince Gill, Alan Jackson, Garth Brooks, Pam Tillis
and Bryan White.
5. Traditional Country
Classic country hits from legends like Merle Haggard, Conway
Twitty, Waylon Jennings, Loretta Lynn and George Jones.
6. Contemporary Jazz
The smooth instrumental sounds of David Sanborn, Kenny G, Larry
Carlton, Dave Koz and Bob James, mixed with the vocal stylings
of Manhattan Transfer, Al Jarreau and Michael Franks.
7. Classic Jazz
Mainstream jazz at its finest. Features the artistry of legends
like Miles Davis, Oscar Peterson, Thelonious Monk, Sarah Vaughan
and Dave Brubeck and performers following in the tradition like
Dianne Schuur and Branford Marsalis.
8. Blues
The Blues from A to Z -- from legends like Muddy Waters and
Howlin' Wolf to John Lee Hooker, Etta James, B.B. King, Robert
Cray, Buddy Guy and exciting new artists like Keb' Mo', Duke
Robillard and Jonny Lang.
9. Big Band/Swing
From the great bands of the 30s and 40s to bands today.
Featuring the sounds of Artie Shaw, Tommy Dorsey, Glenn Miller,
Benny Goodman, Harry James, Duke Ellington and Count Basie.
10. Top of the Charts
Today's hottest US hits. No Doubt, Mariah Carey, Spice Girls.
11. Classic Rock
Classic tracks and deep album cuts from the legends of rock,
including the Who, the Beatles, the Rolling Stones, Led
Zeppelin, The Doors, Eric Clapton, Neil Young, Jimi Hendrix and
Jethro Tull.
12. 50's Oldies
Sock hops and going steady. Tune in and experience it all over
again with Chuck Berry, Little Richard and Elvis Presley.
13. 60's Oldies
Put the top down and cruise to the sounds of the sixties. The
solid gold sounds of Motown, the British Invasion and Surfer
Rock.
14. Folk Rock
Singer-songwriters and bands with thoughtful lyrics and
melodies, including Joni Mitchell, Lyle Lovett, James Taylor,
Shawn Colvin, Chris Isaak, Tori Amos and Indigo Girls.
15. Latin Ballads
Emotive romantic sounds from Julio Iglesias, Rocio Durcal,
Roberto Carlos, Ana Gabriel, Gloria Estefan and Jon Secada.
<CAPTION>
16. Latin Rhythms
Move to the music of Ruben Blades, Albita, Juan Luis Guerra
and the legendary Tito Puente.
17. Reggae
Reggae from legends like Bob Marley & the Wailers, Peter
Tosh and Third World to new sounds from Steel Pulse, UB40,
Shaggy, Ziggy Marley, Maxi Priest, Aswad and Lady Saw.
18. Rap
Pure rap from the masters of the genre, including Puff
Daddy, Fugees, DJ Kool, Freak Nasty, Warren G and M.C. Lyte.
19. Dance
Techno, club and pop remixes from around the world make this
one of the hottest spots on the dial.
20. Urban Contemporary
The soulful sounds of Toni Braxton, Luther Vandross, Keith
Sweat and Mary J. Blige.
21. Soft Rock
Mainstream pop hits from artists like Celine Dion, Phil
Collins, Gloria Estefan and George Michael.
22. Singers & Songs
The greats sing the standards, with legends like Frank
Sinatra, Nat King Cole, Tony Bennett and Barbra Streisand.
23. Beautiful Instrumentals
Melodic relaxing orchestrations from Richard Clayderman,
Paul Mauriat, Zamfir, James Last, Roger Williams and James
Galway.
24. Album Rock
Mainstream rock from veteran bands and new artists,
including Aerosmith, Collective Soul, Dave Matthews Band and
John Mellencamp.
25. Alternative Rock
Modern rock from such diverse bands as Beck, Live, Stone
Temple Pilots and Smashing Pumpkins.
26. New Age
Sounds that soothe and transport. Relax with Jim Brickman,
Kitaro and Yanni.
27. Broadway's Best
The Great White Way shines with all your favorites from the
past and today's hot new shows. Rodgers and Hammerstein,
Marvin Hamlisch and Andrew Lloyd Webber.
28. Gospel
Soulful gospel sounds of joy. Mahalia Jackson, Al Green and
the Winans.
29. Children's Entertainment
Entertaining songs and storytelling for younger
listeners. Fred Penner, Raffi and Tom Chapin.
30. World Beat
Spanning continents, select sounds from all over the world:
Gipsy Kings, Cheb Khaled, The Chieftains, Zap Mama,
Ladysmith Black Mambazo and Youssou N'Dour.
</TABLE>
The artists named herein do not endorse the Company or the securities being
offered hereby.
4
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<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the 'Commission'). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at its regional offices located at Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661-2511 and 13th Floor, 7 World Trade Center, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such reports, proxy statements and other information
concerning the Company also can be inspected and copied at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006, which supervises the Nasdaq National Market on which the
Company's Common Stock is traded. The Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's web site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
'Registration Statement') under the Securities Act of 1933, as amended (the
'Securities Act'), with respect of the securities covered by this Prospectus.
This Prospectus, which forms part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and such
securities, reference is hereby made to such Registration Statement, including
the exhibits filed therewith. The Registration Statement and the exhibits
thereto can be obtained by mail from or inspected and copied at the public
reference facilities maintained by the Commission as provided in the prior
paragraph.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K, as amended by the Annual
Report on Form 10-K/A, for the year ended December 31, 1996.
2. The Company's Quarterly Report on Form 10-Q, as amended by the
Quarterly Report on Form 10-Q/A, for the period ended March 31,
1997.
3. The Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1997.
4. The Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997.
5. The Company's Current Report on Form 8-K dated April 10, 1997.
6. The Company's Current Report on Form 8-K dated May 2, 1997.
7. The Company's Current Report on Form 8-K dated June 17, 1997.
8. The Company's Current Report on Form 8-K dated July 8, 1997.
9. The Company's Current Report on Form 8-K dated August 19, 1997.
10. The Company's Current Report on Form 8-K dated October 7, 1997.
11. The Company's Current Report on Form 8-K dated October 22, 1997.
12. The Company's Current Report on Form 8-K dated November 19, 1997.
13. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, as amended, filed pursuant to
Section 12(b) of the Exchange Act.
14. Issuer Tender Offer Statement on Form 13E-4.
15. Consent Solicitation Statement on Schedule 14A, dated October 23,
1997.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the Stock
Offerings shall be deemed to be incorporated by
5
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<PAGE>
reference in and to be a part of this Prospectus from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in the Registration Statement containing this Prospectus or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the request of such person, a copy of any or all
of the documents incorporated herein by reference (other than exhibits, unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to: Secretary, CD Radio Inc., Sixth
Floor, 1001 22nd Street, N.W., Washington D.C. 20037.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the 'Reform Act'), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made in
this Prospectus. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such as
'will likely result,' 'are expected to,' 'will continue,' 'is anticipated,'
'estimated,' 'intends,' 'plans,' 'projection' and 'outlook') are not historical
facts and may be forward-looking and, accordingly, such statements involve
estimates, assumptions and uncertainties which could cause actual results to
differ materially from those expressed in the forward-looking statements.
Accordingly, any such statements are qualified in their entirety by reference
to, and are accompanied by, the factors discussed throughout this Prospectus,
and particularly in the risk factors set forth herein under 'Risk Factors.'
Among the key factors that have a direct bearing on the Company's results of
operations are the potential risk of delay in implementing the Company's
business plan; increased costs of construction and launch of necessary
satellites; dependence on satellite construction and launch contractors; risk of
launch failure; unproven market and unproven applications of existing
technology; and the Company's need for additional substantial financing. These
and other factors are discussed herein under 'Risk Factors,' 'Management's
Discussion and Analysis of Financial Condition and Results of Operations,'
'Business' and elsewhere in this Prospectus.
The risk factors described herein could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements of the
Company made by or on behalf of the Company and investors, therefore, should not
place undue reliance on any such forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
6
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus.
Prospective investors should carefully consider the factors set forth herein
under the caption 'Risk Factors' and are urged to read this Prospectus in its
entirety. Unless otherwise indicated, the information in this Prospectus does
not give effect to the exercise of the Underwriters' over-allotment option and
references herein to the 'Company' refer to CD Radio Inc. and, where
appropriate, its subsidiary, Satellite CD Radio, Inc.
THE COMPANY
CD Radio Inc. was founded in 1990 to pioneer and commercialize a compact
disc quality, multi-channel radio service broadcast directly from satellites to
vehicles ('satellite radio'). In October 1997, the Company was granted one of
two licenses ('FCC Licenses') from the Federal Communications Commission (the
'FCC') to build, launch and operate a national satellite radio broadcast system.
The Company has begun construction of two satellites that it plans to launch
into geosynchronous orbit to broadcast its radio service throughout the United
States. The Company's service, which will be marketed under the brand name 'CD
Radio,' is expected to consist of 30 channels of commercial-free, compact disc
quality music programming and 20 channels of news, sports and talk programming.
CD Radio will be broadcast over a frequency band (the 'S-band') that will
augment traditional AM and FM radio bands. Under its FCC license, the Company
has the exclusive use of a 12.5 megahertz portion of the S-band for this
purpose. The Company currently expects to commence CD Radio broadcasts in late
1999 at a subscription price of $10 per month.
The Company is positioning itself as an entertainment company and
accordingly plans to design and originate programming on each of its 30 music
channels. Each channel will be operated as a separate radio station with a
distinct format. Certain music channels will offer continuous music while others
will have program hosts, depending on the type of music programming. CD Radio
will offer a wide range of music categories, such as:
Symphonic
Chamber Music
Opera
Today's Country
Traditional Country
Contemporary Jazz
Classic Jazz
Blues
Big Band/Swing
Top of the Charts
Classic Rock
50's Oldies
60's Oldies
Folk Rock
Latin Ballads
Latin Rhythms
Reggae
Rap
Dance
Urban Contemporary
Soft Rock
Singers & Songs
Beautiful Instrumentals
Album Rock
Alternative Rock
New Age
Broadway's Best
Gospel
Children's Entertainment
World Beat
THE CD RADIO OPPORTUNITY
The Company believes that there is a significant market for music and other
radio programming delivered through advanced radio technology. While television
technology has advanced steadily -- from black and white to color, from
broadcast to cable, and from ordinary to high-definition television -- the last
major advance in radio technology was the introduction of FM broadcasts. CD
Radio will provide a new generation of radio service, offering a wide variety of
music formats available on demand, nearly seamless signal coverage throughout
the United States and commercial-free, compact disc quality music programming.
The Company's planned multiplicity of formats currently is not available to
motorists in any market within the United States.
CD Radio is primarily a service for motorists. The Yankee Group, a market
research organization, estimates that there will be approximately 198 million
registered private motor vehicles in the United States by the end of 1999, when
the Company expects to commence broadcasting. At present, approximately 89% of
all private vehicles have a radio that could easily be utilized to receive
7
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<PAGE>
CD Radio's broadcasts, with this number estimated to be approximately 182
million vehicles in 1999, and approximately 199 million in 2004. CD Radio
initially will target a number of demographic groups among the drivers of
these vehicles, including 110 million commuters, 34 million of whom spend
between one and two hours commuting daily, three million truck drivers and
three million owners of recreational vehicles. According to a 1996 market
study, although almost all vehicles contain either a cassette or compact
disc player, 87% of automobile commuters listened to the radio an average
of 50 minutes a day while commuting.
The Company believes that the ability to offer a wide variety of musical
formats simultaneously throughout the United States will enable it to tap
significant unmet consumer demand for specialized music programming. The
economics of the existing advertiser supported local radio industry dictate that
radio stations generally program for the greatest potential audience. Even in
the largest metropolitan areas, station formats are limited. Nearly half of all
commercial radio stations in the United States offer one of only three formats:
country, adult contemporary and news/talk, and the next three most prevalent
formats account for another 30% of all stations. Although niche music categories
such as classical, jazz, rap, gospel, oldies, soundtracks, new age, children's
and others accounted for approximately 27% of sales of recorded music in 1996,
such formats generally are unavailable on existing radio stations in many
markets. Even in New York City, the nation's largest radio market, there are no
radio stations devoted solely to such programming as opera, blues, chamber
music, soundtracks, reggae, children's programming and many others. CD Radio's
wide choice of formats is expected to appeal to a large number of currently
underserved listeners.
In addition, due to the limited coverage area of conventional radio
broadcasting, listeners often travel beyond the range of any single station.
Unlike conventional FM stations, which have an average range of only
approximately 30 miles before reception fades, CD Radio's signal is designed to
cover the entire continental United States, enabling listeners almost always to
remain within its broadcast range. The Company's satellite delivery system is
designed to permit CD Radio to be received by motorists in all outdoor locations
where a vehicle has an unobstructed line-of-sight with one of the Company's
satellites or is within range of one of the Company's terrestrial repeating
transmitters.
The ability to broadcast nationwide will also allow the Company to serve
currently underserved radio markets. In the United States, there are more than
45 million people aged 12 and over living in areas with such limited radio
station coverage that the areas are not monitored by The Arbitron Company, a
broadcast industry ratings organization ('Arbitron'). Of these, the Company
believes that approximately 22 million people receive five or fewer FM
stations, 1.6 million receive only one FM station and at least one million
people receive no FM stations. This segment of the population also has a
limited choice of radio music formats and is one of CD Radio's primary target
markets.
The Company also believes that CD Radio will have a competitive advantage
over conventional radio stations because its music channels will be
commercial-free. In contrast, conventional radio stations interrupt their
broadcasts with up to 18 minutes of commercials in every hour of music
programming, and most stations also frequently interrupt programming with news,
promotional announcements, public service announcements and miscellaneous
information. The Company believes that consumers dislike frequent radio
commercial interruptions and that 'station surfing' to avoid them is common.
THE CD RADIO SERVICE
CD Radio will offer motorists: (i) a wide range of finely focused music
formats; (ii) nearly seamless signal coverage throughout the continental United
States; (iii) commercial-free music programming; and (iv) plug and play
convenience.
Wide Choice of Programming. Each of CD Radio's 30 music channels will have
a distinctive format, such as opera, reggae, classic jazz and children's
entertainment, intended to cater to specific subscriber tastes. In most markets,
radio broadcasters target their programming to broad audience segments. Even
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in the largest metropolitan markets the variety of station formats generally is
limited, and many of the Company's planned formats are unavailable.
'Seamless' Signal Coverage. CD Radio will be available throughout the
continental United States, enabling listeners almost always to be within its
broadcast range. The Company expects its nearly seamless signal will appeal to
motorists who frequently travel long distances, including truck drivers and
recreational vehicle owners, as well as commuters and others who outdrive the
range of their FM signals. In addition, the Company expects its broadcasts will
appeal to the 45 million consumers who live in areas that currently receive only
a small number of FM stations.
Commercial-Free Music Programming. The Company will provide commercial-free
music programming. The Company's market research indicates that a principal
complaint of radio listeners concerning conventional broadcast radio is the
frequency of commercials. Because CD Radio, unlike most commercial AM and FM
stations, will be a subscription and not an advertiser supported service, its
music channels will not contain commercials.
Plug and Play Convenience. Consumers will be able to receive CD Radio
broadcasts by acquiring an adapter (a 'radio card') and an easily attachable,
silver dollar-sized satellite dish antenna. Listeners will not be required to
replace their existing car radios and will be able to use the radio card by
plugging it into their radio's cassette or compact disc slot. CD Radio listeners
using a radio card will be able to push a button to switch between AM, FM and CD
Radio. Radio cards will have a visual display that will indicate the channel and
format selected, as well as the title, recording artist and album title of the
song being played. Radio cards will also be portable and will be able to be
moved from car to car. Radio card activation will be accomplished directly via
satellite by calling the Company's customer service center at 888-CD-RADIO.
THE CD RADIO DELIVERY SYSTEM
The CD Radio delivery system will consist of three principal components:
(i) the satellites; (ii) the receivers; and (iii) the national broadcast studio.
The Satellites. The Company has designed the CD Radio delivery system to
transmit an identical signal from two satellites placed in geosynchronous orbit
at 80[d] W and 110[d] W longitude. The Company believes that these two
satellites will provide nearly continuous, 'seamless' signal coverage throughout
the continental United States. When the line-of-sight to one satellite is
obstructed, the line-of-sight to the other generally will be available. In
certain urban areas with significant line-of-sight obstructions,
the Company intends to install terrestrial repeating transmitters that will
rebroadcast its signals and improve the quality of reception.
There currently are no commercial satellites in orbit capable of
transmitting radio signals on S-band frequencies to the United States. In order
to provide CD Radio the Company must build and launch its own satellites. The
Company has entered into a contract with Space Systems/Loral, Inc. ('Loral'), a
subsidiary of Loral Space & Communications Ltd. ('Loral Space'), to build three
satellites, one of which the Company intends to hold as a spare, and which
grants an option to the Company to purchase an additional satellite (the 'Loral
Satellite Contract'). The Company also has contracted for two launch slots (the
'Arianespace Launch Contract') with Arianespace S.A. ('Arianespace'), a leading
supplier of satellite launch services.
The Receivers. Subscribers to CD Radio will not need to replace their
existing AM/FM car radios. Instead they will be able to receive CD Radio in
their vehicles using a radio card similar in size to a cassette tape or compact
disc that has been designed to plug easily into the cassette or compact disc
slot of existing car radios. The radio card uses proprietary technology
developed by the Company. In addition to radio cards, the Company expects that
consumers will be able to receive CD Radio using a new generation of radios
capable of receiving S-band as well as AM and FM signals ('S-band radios').
In addition to a radio card or S-band radio, a vehicle must be equipped
with an antenna in order to receive CD Radio. The Company has designed a battery
powered, miniature silver dollar-sized satellite dish antenna, the base of which
has an adhesive backing so that consumers will be able to easily attach
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the satellite dish antenna to a car's rear window. The base houses a wireless
transmitter that will relay the CD Radio signal to the vehicle's radio card or
S-band radio. The satellite dish antenna also uses proprietary technology
developed by the Company.
The Company expects that radio cards, S-band radios and miniature satellite
dish antennas will be manufactured by one or more consumer electronics
manufacturers and sold at retail outlets that sell consumer electronics, and
that the miniature satellite dish antennas will be sold together with the radio
cards or S-band radios. The Company believes that, when manufactured in
quantity, S-band radios will be incrementally more expensive than today's car
radios. The Company currently expects that the radio card together with the
miniature satellite dish antenna will be sold at a retail price of approximately
$200. Because subscribers will be able to use the radio card in almost all
existing vehicles, the Company believes that the availability of plug and play
radio cards will be of prime importance to its market penetration for a number
of years.
The Company does not intend to manufacture or distribute radio cards,
S-band radios or miniature satellite dish antennas. The Company has entered into
non-binding memoranda of understanding with two major consumer electronics
manufacturers, and has commenced discussions with several other such
manufacturers, regarding the manufacture of radio cards, S-band radios and
miniature satellite dish antennas for retail sale in the United States.
The National Broadcast Studio. The Company plans to originate its 50
channels of programming from a national broadcast studio (the 'National
Broadcast Studio') to be located in the New York metropolitan region. The
National Broadcast Studio will house the Company's music library, facilities for
programming origination, programming personnel and program hosts, as well as
facilities to uplink programming to the satellites, to activate or deactivate
service to subscribers and to perform the tracking, telemetry and control of the
orbiting satellites.
PROGRESS TO DATE
The Company was formed in May 1990 and at that time proposed that the FCC
create a satellite radio broadcast service and also filed an application with
the FCC for a license to provide such a service. Since that time, the Company
has:
<TABLE>
<S> <C>
1993 Contracted with Loral for construction of its satellites
Contracted with Arianespace for launch of two of its satellites
1994 Completed an initial public offering of its Common Stock
1995 Completed development of its proprietary miniature satellite dish antenna
1996 Designed the radio card receiver
1997 Received one of two FCC national satellite radio broadcast licenses
Completed a $135 million private placement of 5% Preferred Stock
Commenced construction of two satellites
Completed receipt of satellite broadcast patents
Arranged $105 million of vendor financing with Arianespace Finance S.A.
Recruited its key programming, marketing and financial management team
Completed a strategic sale of $25 million of Common Stock to Loral Space
</TABLE>
See 'Business -- Progress to Date and Significant Development Milestones.'
CONCURRENT OFFERINGS
The Stock Offerings are part of a financing transaction, which includes the
Units Offering and the Exchange Offer, that is intended to raise capital to
partially finance the construction and launch of the Company's satellites and
for general corporate purposes. Pursuant to the terms of the Exchange Offer, the
Company has offered to exchange shares of its Series C Preferred Stock for up to
all of the outstanding shares of its 5% Preferred Stock. On November 20, 1997
the Exchange Offer was consummated and shares of Series C Preferred Stock were
exchanged for
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all of the outstanding shares of 5% Preferred Stock.
The Company expects that the Offerings will result in net
proceeds to the Company of approximately $191.8 million: $49.0 million from the
Stock Offerings (based on an assumed offering price of $19.3125 per share, the
closing price of the Company's Common Stock at November 19, 1997) and $142.8
million from the Units Offering. The Company will receive no proceeds from the
Exchange Offer. See 'Use of Proceeds.' The consummation of the Stock Offerings
is conditioned upon there having occurred one or more Qualifying Offerings (as
defined herein) after giving effect to the Offerings yielding gross
proceeds in an aggregate cash amount of at least $100 million.
There can be no assurance that the Units Offering will be completed.
RISK FACTORS
The Company's ability to meet its objectives will depend on several
factors, including the timely receipt of necessary governmental approvals,
obtaining additional financing, constructing and launching two satellites into
orbit, developing and manufacturing radio cards, S-band radios and miniature
satellite dish antennas by consumer electronics manufacturers, the rapid
creation of an organization and the management of growth. The Company estimates
that it will require approximately $647.6 million to develop and commence
commercial operation of CD Radio by the end of 1999. Of this amount, the Company
has raised approximately $266.6 million to date. After giving effect to the
Offerings, the Company will have raised approximately $470.7 million of funds,
leaving anticipated additional cash needs of approximately $176.9 million to
fund its operations through 1999. The Company anticipates additional cash
requirements of approximately $100.0 million to fund its operations through the
year 2000. The Company expects to finance the remainder of its funding
requirements through the issuance of debt or equity securities or a combination
thereof. See 'Risk Factors' for a discussion of important factors that should be
considered by prospective purchasers in the Stock Offerings.
------------------------
The Company was incorporated in the State of Delaware as Satellite CD
Radio, Inc. on May 17, 1990. On December 7, 1992, the Company's name was changed
to CD Radio Inc., and the Company formed a wholly-owned subsidiary, Satellite CD
Radio, Inc., that is the holder of record of the Company's FCC License. The
Company's executive offices are located at Sixth Floor, 1001 22nd Street, N.W.,
Washington, D.C. 20037, its telephone number is 202-296-6192 and its Internet
address is www.cdradio.com.
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THE STOCK OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the Company
U.S. Offering........................... 2,240,000 shares
International Offering.................. 560,000 shares
Total.............................. 2,800,000 shares
Common Stock outstanding after the Stock
Offerings.................................. 15,377,844 shares(1)
Use of Proceeds.............................. The net proceeds of the Stock Offerings, together with the net
proceeds of the Units Offering, will be used to partially finance
the construction and launch of the Company's satellites and for
working capital and other general corporate purposes.
Nasdaq National Market Symbol................ CDRD
Dividend Policy.............................. The Company has never declared or paid any cash dividends on its
capital stock and does not anticipate paying cash dividends in the
foreseeable future. See 'Price Range of Common Stock' and
'Dividend Policy.'
</TABLE>
- ------------
(1) Based on the number of shares outstanding at September 30, 1997. Excludes
(i) 2,013,000 shares of Common Stock issuable upon the exercise of certain
outstanding and unexercised options as of September 30, 1997 (of which
1,652,000 shares are subject to currently exercisable options), (ii)
2,000,000 shares of Common Stock issuable upon the exercise of warrants
issuable by the Company as of September 30, 1997, and (iii) 9,562,713 shares
of Common Stock issuable upon conversion of Series C Preferred Stock,
assuming a Common Stock price of $19 5/16 per share. See 'Description of
Capital Stock.'
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SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data for the Company set forth below
with respect to the statements of operations for the years ended December 31,
1994, 1995 and 1996 and with respect to the balance sheets at December 31, 1995
and 1996 are derived from the consolidated financial statements of the Company,
audited by Coopers & Lybrand L.L.P., independent accountants, incorporated
herein by reference. The summary consolidated financial data for the Company,
with respect to the balance sheets at December 31, 1992, 1993 and 1994 and with
respect to the statement of operations data for the years ended December 31,
1992 and 1993, are derived from the Company's audited consolidated financial
statements, which are not incorporated herein by reference. The financial
information as of and for the nine months ended September 30, 1996 and 1997 is
derived from unaudited consolidated financial statements incorporated herein by
reference. In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
that are necessary for a fair presentation of the financial position and results
of operations for these periods. The selected consolidated financial data should
be read in conjunction with the consolidated financial statements and related
notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss..................................... (1,551) (6,568) (4,065) (2,107) (2,831) (1,871) (1,489)
Net loss per share of Common Stock........... (.23) (.79) (.48) (.23) (.29) (.20) (4.97)(1)
Weighted average shares of Common Stock and
Common Stock equivalents outstanding....... 6,715 8,284 8,398 9,224 9,642 9,441 10,760
Deemed dividend on 5% Preferred Stock........ -- -- -- -- -- -- $(51,975)
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents.................... $ 1,883 $ 777 $ 3,400 $ 1,800 $ 4,584 $ 1,371 $29,386
Designated cash(2)........................... -- -- -- -- -- -- 66,677
Working capital (deficit).................... 1,399 (250) 2,908 1,741 4,442 1,293 29,871
Total assets................................. 2,292 1,663 3,971 2,334 5,065 1,874 148,430
Deficit accumulated during the development
stage...................................... (2,965) (9,533) (13,598) (15,705) (18,536) (16,909) (72,000)
Stockholders' equity......................... 1,791 505 3,431 1,991 4,898 1,486 32,265
Book value per share......................... .48 2.57
</TABLE>
- ------------
(1) Includes a deemed dividend on the Company's 5% Preferred Stock of $52.0
million, or $4.83 per share. The deemed dividend relates to the discount
feature associated with the 5% Preferred Stock, computed in accordance with
the Commission's position on accounting for preferred stock which is
convertible at a discount to the market price.
(2) Represents proceeds of the offering of the 5% Preferred Stock which were
classified as designated cash reflecting the balance due to the FCC for the
Company's FCC License. The Company paid this amount to the FCC in October
1997.
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following factors should be considered carefully in evaluating the Company and
its business before making an investment in the shares of Common Stock offered
hereby. This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of certain
events could differ materially from those projected in the forward-looking
statements due to a number of factors, including those set forth below and
elsewhere in this Prospectus. See 'Special Note Regarding Forward-Looking
Statements.'
EXPECTATION OF CONTINUING LOSSES; NEGATIVE CASH FLOW
The Company is a development stage company and its proposed service, CD
Radio, is in an early stage of development. Since its inception, the Company's
activities have been concentrated on raising capital, obtaining required
licenses, developing technology, strategic planning and market research. From
its inception on May 17, 1990 through September 30, 1997, the Company has had no
revenues and has incurred aggregate net losses of approximately $20.0 million,
including net losses of approximately $2.8 million during the year ended
December 31, 1996 and $1.5 million during the nine months ended September 30,
1997. The Company does not expect to generate any revenues from operations until
late 1999 or 2000 at the earliest, and expects that positive cash flow from
operations will not be generated until late 2000 at the earliest. The ability of
the Company to generate revenues and achieve profitability will depend upon a
number of factors, including the timely receipt of all necessary FCC
authorizations, the successful and timely construction and deployment of its
satellite system, the development and manufacture of radio cards, S-band radios
and miniature satellite dish antennas by consumer electronics manufacturers, the
timely establishment of its National Broadcast Studio and the successful
marketing and consumer acceptance of CD Radio. There can be no assurance that
any of the foregoing will be accomplished, that CD Radio will ever commence
operations, that the Company will attain any particular level of revenues or
that the Company will achieve profitability.
NEED FOR SUBSTANTIAL ADDITIONAL FINANCING
The Company estimates that it will require approximately $647.6 million to
develop and commence commercial operation of CD Radio by the end of 1999. Of
this amount, the Company has raised approximately $266.6 million to date. After
giving effect to the Offerings, the Company will have raised approximately
$470.7 million of funds, leaving anticipated additional cash needs of
approximately $176.9 million to fund its operations through 1999. The Company
anticipates additional cash requirements of approximately $100.0 million to
fund its operations through the year 2000. The Company expects to finance the
remainder of its funding requirements through the issuance of debt or equity
securities or a combination thereof. Additional funds, however, would be
required in the event of delays, cost overruns, launch failure or other
adverse developments. Furthermore, if the Company were to exercise its option
under the Loral Satellite Contract to purchase and deploy an additional
satellite, substantial additional funds would be required. See 'Use
of Proceeds.' The Company currently does not have sufficient financing
commitments to fund all of its capital needs, and there can
be no assurance that the Company will be able to obtain additional financing on
favorable terms, if at all, or that it will be able to do so on a timely basis.
The AEF Agreements (as defined herein) contain, the indenture governing the
Notes (the 'Indenture') will contain and documents governing any other future
indebtedness are likely to contain provisions that limit the ability of the
Company to incur additional indebtedness. The Company has substantial near-term
funding requirements related to the construction and launch of its satellites.
The Company is committed to make aggregate payments of $277.1 million under the
Loral Satellite Contract and of $176.0 million under the Arianespace Launch
Contract. Under the Loral Satellite Contract, payments are to be made in 22
installments, which commenced in April 1997. Payments due under the Arianespace
Launch Contract commence November 1997 for the first launch, and February 1998
for the second launch. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Funding Requirements.' Failure to secure the
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necessary financing on a timely basis could result in delays and increases in
the cost of satellite construction or launch or other activities necessary to
put CD Radio into operation, could cause the Company to default on its
commitments to its satellite construction or satellite launch contractors, its
creditors or others, could render the Company unable to put CD Radio into
operation and could force the Company to discontinue operations or seek a
purchaser for its business. The issuance by the Company of additional equity
securities could cause substantial dilution of the interest in the Company of
purchasers of the shares of Common Stock offered hereby.
POSSIBLE DELAYS AND ADVERSE EFFECT OF DELAY ON FINANCING REQUIREMENTS
The Company currently expects to begin offering CD Radio in late 1999. The
Company's ability to meet that objective will depend on several factors. For
both of the two satellites required for the CD Radio service to be launched and
in operation by the end of 1999, Loral will be required to deliver the second
satellite three months prior to the delivery date specified in the contract,
which cannot be assured. See 'Business -- The CD Radio Delivery System -- The
Satellites -- Satellite Construction.' Furthermore, the launch of both
satellites will have to occur within the early months of the launch periods
reserved with Arianespace, which also cannot be assured. See 'Business -- The CD
Radio Delivery System -- The Satellites -- Launch Services.' A significant delay
in the planned development, construction, launch and commencement of operation
of the Company's satellites would have a material adverse effect on the Company.
Other delays in the development or commencement of commercial operations of CD
Radio may also have a material adverse effect on the Company. Any such delays
could result from a variety of causes, including delays associated with
obtaining additional FCC authorizations, coordinating use of spectrum with
Canada and Mexico, inability to obtain necessary financing in a timely manner,
delays in or modifications to the design, development, construction or testing
of satellites, the National Broadcast Studio or other aspects of the CD Radio
system, changes of technical specifications, delay in commercial availability of
radio cards, S-band radios or miniature satellite dish antennas, failure of the
Company's vendors to perform as anticipated or a delayed or unsuccessful
satellite launch or deployment. During any period of delay, the Company would
continue to have significant cash requirements, including capital expenditures,
administrative and overhead costs, contractual obligations and debt service
requirements that could materially increase the aggregate amount of funding
required to permit the Company to commence operating CD Radio. Additional
financing may not be available on favorable terms or at all during periods of
delay. Delay also could cause the Company to be placed at a competitive
disadvantage in relation to any competitor that succeeds in beginning operations
earlier than the Company. See ' -- Unavailability of Radio Cards, S-band Radios
and Miniature Satellite Dish Antennas,' ' -- Continuing Oversight by the FCC,'
'Business -- The CD Radio Delivery System -- The Receivers' and
'Business -- Government Regulations -- Communications Laws.'
RELIANCE ON UNPROVEN APPLICATIONS OF TECHNOLOGY
CD Radio is designed to be broadcast from two satellites in geosynchronous
orbit that transmit identical signals to radio cards or S-band radios through
miniature satellite dish antennas. This design involves new applications of
existing technology which have not been deployed and there can be no assurance
that the CD Radio system will work as planned. In addition, radio cards, S-band
radios and miniature satellite dish antennas are not currently available. In
certain areas with high concentrations of tall buildings and other obstructions,
such as large urban areas, or in tunnels, signals from both satellites will be
blocked and CD Radio reception will be adversely affected. In urban areas, the
Company plans to install terrestrial repeating transmitters to rebroadcast CD
Radio; however, certain areas with impediments to satellite line-of-sight may
still experience 'dead zones.' Although management believes that the technology
developed by the Company will allow the CD Radio system to operate as planned,
there can be no assurance that it will do so. See ' -- Unavailability of Radio
Cards, S-band Radios or Miniature Satellite Dish Antennas,' 'Business -- The CD
Radio Delivery System' and 'Business -- Technology and Patents.'
15
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DEPENDENCE UPON SATELLITE AND LAUNCH CONTRACTORS
The Company's business will depend upon the successful construction and
launch of the satellites which will be used to transmit CD Radio. The Company
will rely upon its satellite vendor, Loral, for the construction and timely
delivery of these satellites. Failure by Loral to deliver functioning satellites
in a timely manner could materially adversely affect the Company's business.
Although the Loral Satellite Contract provides for certain late delivery
penalties, Loral will not be liable for indirect or consequential damages or
lost revenues or profits resulting from late delivery or other defaults. Title
and risk of loss for the first and second satellites are to pass to the Company
at the time of launch. The satellites are warranted to be in accordance with the
performance specifications in the Loral Satellite Contract and free from defects
in materials and workmanship at the time of delivery, which for the first two
satellites will be deemed to occur at the time of arrival of the satellites at
the launch base. After delivery, no warranty coverage applies if the satellite
is launched. See 'Business -- The CD Radio Delivery System -- The
Satellites -- Satellite Construction.'
The Company is dependent on its satellite launch vendor, Arianespace, for
the construction of launch vehicles and the successful launch of the Company's
satellites. Failure of Arianespace to launch the satellites in a timely manner
could materially adversely affect the Company's business. The Arianespace Launch
Contract entitles Arianespace to postpone either of the Company's launches for a
variety of reasons, including technical problems, lack of co-passenger(s) for
the Company's launch or the need to conduct a replacement launch for another
customer, a launch of a scientific satellite whose mission may be degraded by
delay, or a launch of another customer's satellite whose launch was postponed.
Although the Arianespace Launch Contract provides liquidated damages for delay,
depending on the length of the delay, and entitles the Company to terminate the
agreement for delay exceeding 12 months, there can be no assurance that these
remedies will adequately mitigate any damage to the Company's business caused by
launch delays. See ' -- Possible Delays and Adverse Effect of Delay on Financing
Requirements.' The liability of Arianespace in the event of a launch failure is
limited to providing a replacement launch in the case of a total launch failure
or paying an amount based on lost satellite capacity in the case of a partial
launch failure. See 'Business -- The CD Radio Delivery System -- The
Satellites -- Launch Services.'
SATELLITE LAUNCH RISKS
Satellite launches are subject to significant risks, including launch
failure, satellite destruction or damage during launch and failure to achieve
proper orbital placement. Launch failure rates may vary depending on the
particular launch vehicle and contractor. Although past experience is not
necessarily indicative of future performance, Arianespace has advised the
Company that as of November 13, 1997, 87 of 92 Arianespace launches (or
approximately 94.6%) have been completed successfully since May 1984. See
'Business -- The CD Radio Delivery System -- The Satellites -- Launch Services.'
However, the Ariane 5, the particular launch vehicle intended for the launches
of the Company's satellites, has had only two launches, one of which was a
failure. In the event of a significant delay in the Ariane 5 program, the
Company has the right to request launch on an Ariane 4 launch vehicle. There is
no assurance that Arianespace's launches of the Company's satellites will be
successful. Satellites also may fail to achieve a proper orbit or be damaged in
space. See ' -- Limited Life of Satellites; In-orbit Failure.' As part of its
risk management program, the Company plans to construct a third, backup
satellite and to obtain insurance covering a replacement launch to the extent
required to cover risks not assumed by Arianespace under the Arianespace Launch
Contract. See ' -- Insurance Risks.' The launch of a replacement satellite would
delay the commencement or continuation of the Company's commercial operations
for a period of at least several months, which could have a material adverse
effect on the demand for the Company's services and on its revenues and results
of operations. See 'Business -- The CD Radio Delivery System -- The
Satellites -- Launch Services.'
UNCERTAIN MARKET ACCEPTANCE
There is currently no satellite radio service such as CD Radio in
commercial operation in the United States. As a result, the extent of the
potential demand for such a service and the degree to which the Company's
proposed service will meet that demand cannot be estimated with certainty, and
there
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can be no assurance that there will be sufficient demand for CD Radio to enable
the Company to achieve significant revenues or cash flow or profitable
operations. The success of CD Radio in gaining market acceptance will be
affected by a number of factors beyond the Company's control, including the
willingness of consumers to pay subscription fees to obtain satellite radio
broadcasts, the cost, availability and consumer acceptance of radio cards,
S-band radios and miniature satellite dish antennas, the marketing and pricing
strategies of competitors, the development of alternative technologies or
services and general economic conditions. See 'Business -- The Radio Market,'
'Business -- The CD Radio Service,' 'Business -- Marketing Strategy,'
'Business -- The CD Radio Delivery System' and 'Business -- Competition.'
LIMITED LIFE OF SATELLITES; IN-ORBIT FAILURE
A number of factors will affect the useful lives of the Company's
satellites, including the quality of construction, the expected gradual
environmental degradation of solar panels, the amount of fuel on board and the
durability of component parts. Random failure of satellite components could
result in damage to or loss of a satellite. In rare cases, satellites could also
be damaged or destroyed by electrostatic storms or collisions with other objects
in space. If the Company is required to launch the spare satellite, due to
failure of the launch or in-orbit failure of one of the operational satellites,
its operational timetable would be delayed for approximately six months or more.
The launch or in-orbit failure of two satellites would require the Company to
arrange for additional satellites to be built and could delay the commencement
or continuation of the Company's operations for three years or more. The
Company's satellites are expected to have useful lives of approximately 15
years, after which their performance in delivering CD Radio is expected to
deteriorate. There can be no assurance, however, of the specific longevity of
any particular satellite. The Company's operating results would be adversely
affected in the event the useful life of its initial satellites is significantly
shorter than 15 years.
INSURANCE RISKS
Pursuant to the Loral Satellite Contract and the Arianespace Launch
Contract, the Company is the beneficiary of certain limited warranties with
respect to the services provided under each agreement. However, these limited
warranties do not cover a substantial portion of the risks inherent in satellite
launches or in-orbit operations, and the Company will have to obtain insurance
to adequately protect against such risks.
The Arianespace Launch Contract contains a provision entitling the Company
to a replacement launch in the event of a launch failure caused by the launch
vehicle used to launch the Company's satellites. In such event, the Company
would utilize the spare satellite that it is having constructed. Thus, the
Company does not intend to purchase additional insurance for launch failure of
the launch vehicle. The Company intends to insure against other contingencies,
including a failure during launch caused by factors other than the launch
vehicle and/or a failure involving the second or third satellite in a situation
in which the spare satellite has been used to replace the first or second
satellite. Any adverse change in insurance market conditions may result in an
increase, which may be substantial, in the insurance premiums paid by the
Company. There is no assurance that launch insurance will be available or, if
available, that it can be obtained at a cost or on terms acceptable to the
Company.
If the launch of either of the Company's two satellites is a full or
partial failure or if, following launch, either of the satellites does not
perform to specifications, there may be circumstances in which insurance will
not fully reimburse the Company for its expenditures with respect to the
applicable satellite. In addition, the Company has not acquired insurance that
would reimburse the Company for business interruption, loss of business and
similar losses which might arise from such events or from delay in the launch of
either of the satellites. Any insurance obtained by the Company also will likely
contain certain exclusions and material change conditions that are customary in
the industry. See 'Business -- The CD Radio Delivery System -- The
Satellites -- Risk Management and Insurance.'
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RISK ASSOCIATED WITH CHANGING TECHNOLOGY
The industry in which the Company operates is characterized by rapid
technological advances and innovations. There is no assurance that one or more
of the technologies utilized or under development by the Company will not become
obsolete, or that its services will be in demand at the time they are offered.
The Company will be dependent upon technologies developed by third parties to
implement key aspects of its proposed system, and there can be no assurance that
more advanced technologies will be available to the Company on a timely basis or
on reasonable terms or that more advanced technologies will be used by the
Company's competitors and that such technologies will be available to the
Company. In addition, unforeseen problems in the development of the Company's
satellite radio broadcasting system may occur that could adversely affect
performance, cost or timely implementation of the system and could have a
material adverse effect on the Company.
UNAVAILABILITY OF RADIO CARDS, S-BAND RADIOS OR MINIATURE SATELLITE DISH
ANTENNAS
The Company's business strategy requires that subscribers to CD Radio
purchase radio cards or S-band radios as well as the associated miniature
satellite dish antennas in order to receive the service. See 'Business -- The CD
Radio Delivery System.' Neither the radio cards, S-band radios nor miniature
satellite dish antennas currently are available, and the Company is unaware of
any manufacturer currently developing such products. The Company does not intend
to manufacture or distribute radio cards, S-band radios or miniature satellite
dish antennas. The Company has entered into non-binding memoranda of
understanding with two major consumer electronics manufacturers, and has
commenced discussions with several other such manufacturers, regarding the
manufacture of radio cards, S-band radios and miniature satellite dish antennas
for retail sale in the United States. The Company currently intends to select
one manufacturer of these products on an exclusive basis for the first year of
CD Radio broadcasts. There can be no assurance, however, that these discussions
or memoranda of understanding will result in a binding commitment on the part of
any manufacturer to produce radio cards, S-band radios and miniature satellite
dish antennas in a timely manner and at an affordable price so as to permit the
widespread introduction of CD Radio in accordance with the Company's business
plan or that sufficient quantities of radio cards, S-band radios and miniature
satellite dish antennas will be available to meet anticipated consumer demand.
The failure to have one or more consumer electronics manufacturers develop these
products for commercial sale in a timely manner, at an affordable price and with
mass market nationwide distribution would have a material adverse effect on the
Company's business. In addition, the FCC, in its order granting the FCC License,
conditioned the Company's license on certification by the Company that its final
receiver design is interoperable with respect to the final receiver design of
the other licensee, which has proposed to use a significantly different
transmission technology from that of the Company. The Company believes that it
can design an interoperable receiver, but there can be no assurance that this
effort will be successful or result in a commercially feasible receiver. See
'Business -- The CD Radio Delivery System,' 'Business -- Marketing Strategy,'
and 'Business -- Technology and Patents.'
NEED TO OBTAIN RIGHTS TO PROGRAMMING
In connection with its music programming, the Company will be required to
negotiate and enter into royalty arrangements with performing rights societies,
such as The American Society of Composers, Authors and Publishers ('ASCAP'),
Broadcast Music, Inc. ('BMI') and SESAC, Inc. ('SESAC'). These organizations
collect royalties and distribute them to songwriters and music publishers.
Copyright users negotiate a fee with these organizations based on a percentage
of advertising and/or subscription revenues. Broadcasters currently pay a
combined total of approximately 3% of their revenues to the performing rights
societies. The Company also will be required to negotiate similar arrangements,
pursuant to the Digital Performance Right in Sound Recordings Act of 1995 (the
'Digital Recording Act'), with the owners of the sound recordings. The
determination of certain royalty arrangements with the owners of sound
recordings under the Digital Recordings Act currently are subject to arbitration
proceedings. The Company believes that it will be able to negotiate royalty
arrangements with these organizations and the owners of sound recordings, but
there can be no assurance as to the terms of any such royalty arrangements
ultimately negotiated or established by arbitration.
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DEVELOPMENT OF BUSINESS AND MANAGEMENT OF GROWTH
The Company has not yet commenced CD Radio broadcasts. The Company expects
to experience significant and rapid growth in the scope and complexity of its
business as it proceeds with the development of its satellite radio system and
the commencement of CD Radio. Currently, the Company has only ten employees and
does not have sufficient staff to program its broadcast service, manage
operations, control the operation of its satellites, handle sales and marketing
efforts or perform finance and accounting functions. Although the Company has
recently retained experienced executives in several of these areas, the Company
will be required to hire a broad range of additional personnel before its
planned service begins commercial operations. Growth, including the creation of
a management infrastructure and staffing, is likely to place a substantial
strain on the Company's management and operational resources. The failure to
develop and implement effective systems or to hire and train sufficient
personnel for the performance of all of the functions necessary to the effective
provision of its service and management of its subscriber base and business, and
the failure to manage growth effectively, would have a material adverse effect
on the Company.
CONTINUING OVERSIGHT BY THE FCC
In order to offer CD Radio, the Company was required to obtain a license
from the FCC to launch and operate its satellites. The Company was a winning
bidder in the April 1997 FCC auction for an FCC license to build, launch and
operate a national satellite radio broadcast service (the 'FCC License'), and
the FCC's International Bureau issued such a license to the Company on October
10, 1997 (the 'IB Order'). Although the FCC License is effective immediately,
for a period of 30 days following the grant of the FCC License certain parties
could petition either the International Bureau or the full FCC to reconsider the
decision to grant the FCC License to the Company. An application for review by
the full Commission was filed by one of the low-bidding applicants in the
auction. This petition requests, among other things, that the Commission adopt
restrictions on foreign ownership, which were not applied in the IB Order, and,
on the basis of the Company's ownership, overrule the IB Order. If this petition
is denied, the complaining party may file an appeal with the U.S. Court of
Appeals, which must find that the decision of the FCC was not supported by
substantial evidence, or was arbitrary, capricious or unlawful in order to
overturn the grant of the Company's FCC License. Although the Company believes
the FCC will uphold the IB Order, the Company cannot predict the ultimate
outcome of any proceedings relating to this petition or any other proceedings
that may be filed. See 'Business -- Government Regulation -- Communications
Laws.'
In order to ensure compliance with the transfer of control rule
restrictions contained in the Communications Act of 1934, as amended (the
'Communication Act'), any future assignments or transfers of control of the
Company's license must be approved by the FCC. There can be no assurance that
the FCC would approve any such transfer or assignment.
The term of the FCC License with respect to each satellite is eight years,
commencing from the date each satellite is declared operational after having
been inserted into orbit. Upon the expiration of the term with respect to each
satellite, the Company will be required to apply for a renewal of the relevant
license. Although the Company believes that the FCC will grant such renewals
absent significant misconduct on the part of the Company, there can be no
assurance that such renewals in fact will be obtained.
The CD Radio system is designed to permit CD Radio to be received by
motorists in all outdoor locations where the vehicle has an unobstructed
line-of-sight with one of the Company's satellites. However, in certain areas
with high concentrations of tall buildings, such as urban cores, or in tunnels,
signals from both satellites will be blocked and reception will be adversely
affected. Therefore, the Company plans to install terrestrial repeating
transmitters to rebroadcast CD Radio in certain areas. The FCC has not yet
established rules governing the application procedure for obtaining
authorizations to construct and operate terrestrial repeating transmitters. The
Company cannot predict the outcome of this process. In addition, in connection
with the installation and operation of the terrestrial repeating transmitters,
the Company will need to obtain the rights to use the roofs of certain
structures where the repeating transmitters will be installed. There can be no
assurance that the Company can obtain such roof rights on acceptable terms or in
appropriate locations for the operation of CD Radio. Also, the
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FCC Licensing Rules (as defined herein) require that the Company complete
frequency coordination with Canada and Mexico. There can be no assurance that
the Company will be able to coordinate use of this spectrum or will be able to
do so in a timely manner.
Changes in law, FCC regulations or international agreements relating to
communications policy generally or to matters relating specifically to the
services to be offered by the Company could affect the Company's ability to
retain the FCC License and obtain or retain other approvals required to provide
CD Radio or the manner in which CD Radio would be offered or regulated. See
'Business -- Government Regulation.'
The IB Order determined that as a private carrier, the Company is not
subject to the current provisions of the Communications Act restricting
ownership in the Company by non-U.S. private citizens or organizations. The
Executive Branch of the U.S. government has expressed interest in changing this
policy, which could lead to restrictions on foreign ownership of the Company's
shares in the future. The IB Order stated that its finding that the Company is
not subject to the foreign ownership restrictions of the Communications Act is
subject to being revisited in a future proceeding The pending application for
review of the IB Order brings the question of foreign ownership restrictions
before the full FCC.
The FCC has indicated that it may in the future impose public service
obligations, such as channel set-asides for educational programming, on
satellite radio licensees. The Company cannot predict whether the FCC will
impose public service obligations or the impact that any such obligations, if
imposed, would have on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the services of David Margolese,
Chairman and Chief Executive Officer, who is responsible for the Company's
operations and strategic planning. The loss of the services of Mr. Margolese
could have a material adverse effect upon the business and prospects of the
Company. See 'Business -- Government Regulation' and 'Management.'
APPLICATION OF EXPORT CONTROL REGULATIONS
Shipment of the Company's satellites to territory outside the United States
is subject to U.S. export control regulation. Because Arianespace, the Company's
satellite launch vendor, intends to launch the Company's satellites from an
Arianespace launch facility in French Guiana, a department of France, export
licenses will be required under U.S. export control regulations. There can be no
assurance, however, that the required export licenses will be obtained.
RISK OF SIGNAL THEFT
The CD Radio signal, like all broadcasts, is subject to the risk of piracy.
Although the Company plans to use encryption technology to mitigate signal
theft, the Company does not believe that any such technology is infallible.
Accordingly, there can be no assurance that theft of the CD Radio signal will
not occur. Signal theft, if widespread, could have a material adverse effect on
the Company.
COMPETITION
The Company will be seeking market acceptance of its proposed service in a
new, untested market and will compete with established conventional radio
stations, which do not charge subscription fees or require the purchase of radio
cards or S-band radios and associated miniature satellite dish antennas to
receive their services. Many radio stations also offer information programming
of a local nature such as local news or traffic reports which the Company will
be unable to offer. In addition, the Company expects that, prior to the
commercial launch of CD Radio, some traditional FM radio broadcasting stations
will begin to transmit digital, compact disc quality signals. The Company also
expects to compete directly with American Mobile Radio Corporation ('AMRC'), a
subsidiary of American Mobile Satellite Corporation ('AMSC'), which is the
holder of the other FCC License. AMSC, which is owned in part by the Hughes
Electronics Corporation subsidiary of General Motors Corporation, has
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financial, management and technical resources that greatly exceed those of the
Company. See 'Business -- Competition.' In addition, the FCC could grant new
licenses which would enable further competition to broadcast satellite radio.
Finally, there are many portions of the electromagnetic spectrum that are
currently licensed for other uses and certain other portions for which licenses
have been granted by the FCC without restriction as to use, and there can be no
assurance that these portions of the spectrum could not be utilized for
satellite radio broadcasting in the future. Although any such licensees would
face cost and competition barriers, there can be no assurance that there will
not be an increase in the number of competitors in the satellite radio industry
or any assurance that one or more competitors will not design a satellite radio
broadcast system that is superior to the Company's system, either of which
events could have a material adverse effect on the Company. See 'Business --
Competition.'
UNCERTAIN PATENT PROTECTION
The Company has been granted certain U.S. patents covering various features
of satellite radio technology including, among other features, signal diversity
and memory reception. There can be no certainty that the Company's system or
products will be covered by the Company's patents. If the Company's system or
products are not covered by the Company's patents, others may duplicate the
Company's system or products without liability to the Company. In addition,
there can be no assurance that the Company's U.S. patents will not be
challenged, invalidated or circumvented by others. Litigation, which could
result in substantial cost to the Company, may be necessary to enforce the
Company's patents or may occur to determine the scope and validity of other
parties' proprietary rights, and there can be no assurance of success in any
such litigation. There can be no assurance that there are no patents, or pending
patent applications which will later mature into patents, or inventions
developed earlier which will later mature into patents, of others which may
block the Company's ability to operate its system or license its technology. The
earliest of the Company's patents is due to expire, upon payment of all
necessary fees, on April 10, 2012. See 'Business -- Technology and Patents.'
NO DIVIDENDS
The Company has not declared or paid any dividends on its Common Stock
since its inception, and does not currently anticipate paying any such
dividends. The AEF Agreements contain and the Indenture will contain provisions
that limit the Company's ability to pay dividends.
LIMITED PUBLIC MARKET FOR COMMON STOCK
The Common Stock is traded on the Nasdaq National Market. There can be no
assurance that an active public market will continue to exist for the Common
Stock or as to the liquidity of any such market, the ability of holders of the
Common Stock to sell their securities or the price at which such holders would
be able to sell. Such price may be influenced by many factors, including, but
not limited to, investor perception of the Company and its industry and general
economic and market conditions.
VOLATILITY OF STOCK PRICE
The trading price of the Common Stock has been volatile, and it may
continue to be so. Such trading price could be subject to wide fluctuations in
response to announcements of business and technical developments by the Company
or its competitors, quarterly variations in operating results, and other events
or factors, including expectations by investors and securities analysts and the
Company's prospects. In addition, stock markets have experienced extreme price
volatility in recent years. This volatility has had a substantial effect on the
market prices of development stage companies, at times for reasons unrelated to
their operating performance. Such broad market fluctuations may adversely affect
the price of the Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue up to
50,000,000 shares of preferred stock (the 'Preferred Stock') in one or more
series and to determine the price, rights, preferences and privileges of those
shares without any further vote or action by the stockholders. Of that amount,
8,000,000 shares have been designated as 5% Preferred Stock and 7,000,000 shares
of Preferred Stock
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have been designated Series C Preferred Stock. In the Exchange Offer, all of the
outstanding shares of 5% Preferrred Stock were tendered for 1,846,799 shares of
Series C Preferred Stock (which constitute all of the issued and
outstanding shares of preferred stock of the Company). In addition, the Company
has adopted a stockholders rights plan and in connection with the stockholders
rights plan, 300,000 shares of Preferred Stock have been designated Series B
Preferred Stock. Any issuance of Preferred Stock, including Preferred Stock with
voting and conversion rights, as well as the Series C Preferred Stock which are
convertible into shares of Common Stock, may adversely affect the voting power
of the holders of Common Stock. The stockholders rights plan and any issuance of
Preferred Stock may be deemed to have anti-takeover effects and may delay, deter
or prevent a change in control of the Company that a stockholder might consider
to be in his or her best interest. The Company may also become subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law.
The effect of these provisions could have the effect of delaying or preventing a
change of control of the Company or adversely affect the market price of the
Company's Common Stock. Furthermore, the severance provisions of employment
agreements with certain members of the Company's management provide for payments
that could discourage an attempted change in control of the Company.
Any change in the composition of the Company's ownership after Arianespace
Finance S.A. ('AEF') has determined that the Tranche A Loans are eligible for
Conversion (as defined below), which could reasonably be expected to have a
Material Adverse Effect (as defined in the AEF Agreements), would constitute a
default under the AEF Agreements. Therefore, upon the occurrence of such change
in the Company's ownership, AEF would have the right to accelerate its loans to
the Company and the Company may be required to prepay all of its outstanding
obligations under the AEF Agreements. See 'Description of Certain
Indebtedness -- Vendor Financing.' There can be no assurance that the Company
will satisfy the conditions for Conversion. However, any other financing
obtained by the Company to repay or refinance the Tranche A Loans likely would
contain restrictions on significant changes in the Company's stock ownership.
Upon the occurrence of any Change of Control (as defined in the Indenture),
or a Change in Control (as defined in the Series C Preferred Stock certificate
of designations), the Company will be required to make an offer to purchase the
Notes, after issuance thereof, and the Series C Preferred Stock. If such an
offer is made, there can be no assurance that the Company will have available
funds sufficient to pay the purchase price for any or all of the Notes and the
Series C Preferred Stock that might be delivered by holders of the Notes or the
Series C Preferred Stock seeking to accept the offer. After the issuance of the
Notes the failure of the Company to make or consummate the Change of Control
offer or to pay the purchase price for the Notes when due will give the trustee
under the Indenture and the holders of the Notes the right to require the
Company to prepay all of its outstanding indebtedness and other obligations
under the Notes. The failure of the Company to make or consummate the offer to
purchase or pay the purchase price for the Series C Preferred Stock when due
will give the holders of a majority of the Series C Preferred Stock the right,
voting as a separate class, to elect a number of directors of the Company equal
to the lesser of two directors and the number of directors constituting at least
25% of the Board of Directors of the Company.
In addition, a change in control of the Company could require FCC approval.
See 'Business -- Regulation.'
CONTROL BY EXISTING STOCKHOLDERS
As of September 30, 1997, the executive officers and directors of the
Company beneficially owned, or had voting power with respect to, approximately
42.0% of the outstanding Common Stock, and upon consummation of the Stock
Offerings, such executive officers and directors are expected to beneficially
own, or have voting power with respect to, approximately 32.7% of the
outstanding Common Stock (assuming none of the executive officers, directors,
any grantor under a voting trust granting voting power over shares of Common
Stock purchased by such grantor or such grantor's affiliates to any of such
executives or directors, or such grantor's affiliates purchases any shares of
Common Stock in the Stock Offerings). This concentration of ownership will
enable such stockholders, either acting alone or
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together with other existing stockholders, to exert considerable influence over
the management and policies of the Company. Such a concentration of ownership
may have the effect of delaying, deferring or preventing a change of control.
INVESTMENT COMPANY ACT OF 1940
On July 22, 1997, the Company filed an application with the Securities and
Exchange Commission for an order declaring that the Company is not an
'investment company' as that term is defined in the Investment Company Act of
1940, as amended (the '1940 Act'). The 1940 Act defines an investment company to
include a company that owns or proposes to acquire 'investment securities' (as
that term is defined in the 1940 Act) exceeding 40% of the value of such
company's assets (exclusive of U.S. government securities and cash items).
Because the Company had temporarily invested the proceeds from its recent public
and private offerings in investment securities prior to their expenditure, the
Company could have fallen within the definition of an investment company.
Investment companies must be registered and are subject to extensive regulation
by the Commission under the 1940 Act.
The filing of the application gave the Company an automatic 60-day
exemption (the final day of which was September 19, 1997) from the provisions of
the 1940 Act pending a final determination of the merits of its application.
Because the Commission has not yet acted on the Company's application, the
Company has now invested in U.S. government securities at least that proportion
of its assets as the Company believes will be sufficient to avoid any
determination that it is an 'investment company' within the meaning of the 1940
Act.
If the requested relief is ultimately denied, the Company may be required
to register as an investment company or, in the alternative, to invest a
substantial portion of the proceeds from the sale of the Common Stock offered
hereby in U.S. government securities, pending expenditure of such proceeds by
the Company for its corporate purposes.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Stock Offerings, the Company will have
15,377,844 shares of Common Stock outstanding, assuming no exercise of (i) the
Underwriters' over-allotment option and (ii) outstanding options. Of these
shares, 9,695,896 shares will be freely tradeable without restriction under the
Securities Act unless such shares are purchased in the Stock Offerings by
'affiliates' of the Company, as such term is defined in Rule 144 under the
Securities Act (the 'Affiliates'). Of the remaining 6,381,988 shares of Common
Stock, 3,547,488 shares are 'restricted securities' as that term is defined in
Rule 144 under the Securities Act (the 'Restricted Shares'). Restricted Shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act. Up to 1,642,000 of the Restricted Shares held by the directors
and certain officers of the Company will be eligible for sale, subject to the
restrictions of Rule 144, upon expiration of certain lock-up agreements entered
into between each of such directors and officers of the Company and the
underwriters of the Stock Offering (the 'Lock-up Agreements'), which shall
expire, with respect to a Lock-up Agreement concerning 1,600,000 of such shares,
on a cumulative basis as to 25% of such 1,600,000 shares at the expiration of
each of the 15th, 18th, 21st and 24th month following August 26, 1997, and, with
respect to Lock-up Agreements concerning the remaining 42,000 shares, 180 days
after the effective date of the Stock Offerings. The remaining 1,905,488
Restricted Shares will not become eligible for resale until August 1998, and
then only pursuant to the restrictions under Rule 144. In addition, the
Company's largest stockholder has entered into a lock-up agreement relating to
2,834,500 shares lasting for a period ending, on a cumulative basis, as to 25%
of the shares of Common Stock owned by such holder, on the expiration of the
15th, 18th, 21st and 24th month following August 26, 1997. As such shares become
free of such lock-up, they will be eligible for sale without restriction.
The Company is unable to predict the effect that sales made under Rule 144,
pursuant to future registration statements, or otherwise, may have on any then
prevailing market price for shares of the Common Stock. Nevertheless, sales of a
substantial amount of Common Stock in the public market, or the perception that
such sales could occur, could adversely affect market prices.
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USE OF PROCEEDS
The net proceeds to the Company from the Stock Offerings are estimated to
be approximately $49.0 million ($56.4 million if the Underwriters'
over-allotment option is exercised in full) (based on an assumed offering price
of $19 5/16 per share, the closing price of the Company's Common Stock at
November 19, 1997) after deducting estimated underwriting discounts and
estimated expenses relating thereto. Concurrently with the sale of the shares of
Common Stock, the Company intends to complete the Units Offering having
consummated the Exchange Offer on November 20, 1997. The net proceeds to the
Company from the Units Offering are estimated to be approximately $142.8
million after deducting estimated underwriting discounts and estimated
expenses of the Units Offering. The Company will receive no proceeds from
the Exchange Offer.
The Company expects to use the net proceeds of the Offerings to partially
finance the construction and launch of the Company's satellites. The remainder
of the net proceeds of the Offerings will be used for general corporate
purposes, including marketing and working capital.
The Company estimates that it will require approximately $647.6 million to
develop and commence commercial operation of CD Radio by the end of 1999. Of
this amount, the Company has raised approximately $266.6 million to date. After
giving effect to the Offerings, the Company will have raised $470.7 million of
funds, leaving anticipated additional cash needs of approximately $176.9 million
to fund its operations through 1999. The Company anticipates additional cash
requirements of approximately $100.0 million to fund its operations through
the year 2000. The Company expects to finance the remainder of its funding
requirements through the issuance of debt or equity securities or a combination
thereof. There can be no assurance, however, that the Company's cash
requirements will not increase or that such funds will be sufficient. In
addition, although the Company's business plan is
based upon the deployment of two satellites and the construction of a third
spare satellite, it has the right to exercise an option under the Loral
Satellite Contract to acquire an additional satellite. If the Company elects to
exercise this option, substantial additional funds would be required and the
Company would have to obtain additional regulatory approvals. Deployment of an
additional satellite also could result in a delay in the introduction of CD
Radio. Any decision to deploy a three satellite system would have to be made
prior to the launch of the Company's first satellite. The Company intends to
seek additional financing through the issuance of debt or equity securities in
the public or private markets. However, there can be no assurance that the
Company will be able to obtain additional financing on favorable terms, or at
all, or that such financing will be available in a timely manner. See 'Risk
Factors -- Need for Substantial Additional Financing.'
SOURCES AND USES OF FUNDS BY CD RADIO
The following table describes the estimated sources and uses of funds by
the Company from its inception through the end of 1999 when CD Radio is targeted
to commence commercial operations. The projection of total sources and total
uses of funds is forward looking and could vary, perhaps substantially, from
actual results, due to events outside the Company's control, including
unexpected costs and unforeseen delays.
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PRE-OPERATIONAL PERIOD(1)
<TABLE>
<CAPTION>
SOURCES OF FUNDS
- ----------------------------------------------------------------------------------------------------------
<S> <C>
(IN MILLIONS)
-------------
Funds Committed to Date:
Net proceeds from equity investments prior to the FCC auction(2).................... $ 21.6
Net proceeds from issuance of 5% Preferred Stock(3)................................. 120.5
Net proceeds from sale of Common Stock to Loral Space(4)............................ 24.5
Vendor financing(5)................................................................. 100.0
-------------
Total to Date.................................................................. 266.6
Gross proceeds of the Offerings.......................................................... 204.1
-------------
Pro forma funds to date.................................................................. 470.7
Net future funds(6)...................................................................... 176.9
-------------
Total pre-operational sources.................................................. $ 647.6
-------------
-------------
<CAPTION>
USES OF FUNDS
<S> <C>
CD Radio system:
Satellite contract(7)............................................................... $ 246.8
Launch services and insurance(8).................................................... 191.1
Ground segment(9)................................................................... 47.3
-------------
Subtotal....................................................................... 485.2
FCC License.............................................................................. 83.3
Operating expenses and working capital(10)............................................... 60.6
Net cash interest expense(11)............................................................ 2.2
Estimated fees and expenses of the Offerings and the Exchange Offer...................... 16.3
-------------
Total pre-operational uses..................................................... $647.6
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-------------
</TABLE>
- ------------
(1) Assumes that CD Radio will commence commercial operations in December 1999.
The Company anticipates that it will require total net future funds of
$176.9 million following the Offerings to finance additional expenses
through 1999. The Company anticipates additional funding requirements of
$100.0 million to fund its operations through year end 2000. Many factors,
including the Company's ability to generate significant revenues, could
affect this estimate. See 'Risk Factors' and 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'
(2) Includes (i) proceeds from sales of Common Stock and units of $14.5
million, (ii) proceeds from exercise of warrants of $4.6 million, (iii)
proceeds from exercise of options of $0.2 million, (iv) issuance of Common
Stock in satisfaction of notes and interest of $1.4 million and (v)
issuance of Common Stock for services rendered of $0.9 million.
(3) In April 1997, the Company issued a total of 5,400,000 shares of 5%
Preferred Stock for aggregate consideration of $135 million in a private
placement transaction. The net proceeds to the Company after fees payable
to the placement agent and the Company's financial advisor and related
expenses were approximately $120.5 million.
(4) On August 5, 1997, the Company completed the sale of 1,905,488 shares of
Common Stock to Loral Space for aggregate consideration of $25 million,
less fees of $0.5 million.
(5) The Company has available up to $105 million under the AEF Vendor Financing
to finance a portion of the costs of launching two satellites, and $20
million of deferred payments under the Loral Satellite Contract. Under the
AEF Agreements not more than $80 million may be converted into term loans
that mature beyond the launch date of the satellites. The granting of the
Stock Pledge may require the consent of the lender under the AEF Agreements
before the Company may borrow thereunder. In addition, the Company may be
unable to comply with certain conditions of conversion or to comply with
the covenants of such term loans if converted, in which case the Company
will need to refinance the amounts outstanding under the AEF Agreements.
See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity' and 'Description of Certain
Indebtedness -- Vendor Financing.'
(6) The Company currently expects to satisfy its future funding requirements
through the incurrence of additional debt and/or the issuance of additional
equity securities in the public or private markets. Although the Company
believes that it will be able to meet its additional funding requirements,
there can be no assurance that such financing will be available on
favorable terms, on a timely basis, or not at all. Among other things, any
financing is subject to market conditions at the time of any proposed
financing. See 'Risk Factors -- Need for Substantial Additional Financing'
and 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
(footnotes continued on next page)
25
<PAGE>
<PAGE>
(footnotes continued from previous page)
(7) As of September 30, 1997, the Company had incurred $31.1 million of this
amount. See 'Risk Factors -- Dependence upon Satellite and Launch
Contractors.' The amount shown excludes $29.8 million related to the
purchase of the Company's ground spare (third) satellite which is payable
subsequent to December 31, 1999. The total contract amount of $277.1
million assumes a one-time inflation adjustment (estimated by Loral to be
2%) for the period from November 1996 to September 1997.
(8) Includes $176 million for launch services and an estimated $15.1 million
for insurance. As of September 30, 1997, the Company had incurred $3.5
million of the launch services amount. See 'Risk Factors -- Dependence on
Satellite and Launch Contractors' and 'Business -- The CD Radio Delivery
System -- The Satellites.'
(9) Includes an estimated $6.7 million for the National Broadcast Studio, $38.2
million for terrestrial repeaters and $2.4 million for corporate office
capital expenditures.
(10) Includes cumulative historical operating expenses through September 30,
1997 of $23.1 million, and projected operating expenses from October 1,
1997 through the end of the pre-operational period of $39.8 million.
(11) Includes estimated cash interest expense of $17.1 million, less cash
interest income of $14.9 million, based on assumed interest rates, cash
balances, borrowing levels and the timing, amount and structure of future
financings.
PRICE RANGE OF COMMON STOCK
The Common Stock began trading on the Nasdaq SmallCap Market on September
13, 1994 under the symbol 'CDRD' and traded there until October 24, 1997, when
it began trading on the Nasdaq National Market. The following table sets forth
the high and low prices for the Common Stock, as reported by the Nasdaq SmallCap
Market or Nasdaq National Market, as applicable for the periods indicated below.
The prices set forth below reflect interdealer quotations, without retail
markups, markdowns, fees or commissions and do not necessarily reflect actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994
Third Quarter (commencing September 13, 1994)..................................... $4 1/2 $3 3/4
Fourth Quarter.................................................................... 3 7/8 1 5/8
1995
First Quarter..................................................................... 4 5/8 1 7/8
Second Quarter.................................................................... 3 15/16 2 5/8
Third Quarter..................................................................... 4 5/8 2 15/16
Fourth Quarter.................................................................... 4 3/8 2 15/16
1996
First Quarter..................................................................... 9 1/8 2 15/16
Second Quarter.................................................................... 13 3/4 7 1/8
Third Quarter..................................................................... 9 5/8 6 3/4
Fourth Quarter.................................................................... 8 1/2 3 7/16
1997
First Quarter..................................................................... 8 3 9/16
Second Quarter.................................................................... 20 1/4 10 3/4
Third Quarter..................................................................... 20 14
Fourth Quarter (through November 19, 1997)........................................ 25 1/4 18 13/16
</TABLE>
On November 19, 1997, the closing bid price of the Common Stock on the
Nasdaq National Market was $19 5/16 per share. On September 30, 1997, there were
approximately 105 record holders of the Common Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain earnings, if any, for use in its business and does
not anticipate paying any cash dividends in the foreseeable future. The AEF
Agreements contain, and the Indenture will contain, provisions that limit the
Company's ability to pay dividends on the Common Stock.
26
<PAGE>
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock at
September 30, 1997 was approximately $65.0 million, or $2.87 per share. Pro
forma net tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets (including amounts that represent
deposits and designated cash for the Company's FCC License), divided by the
number of shares of Common Stock outstanding as of September 30, 1997, assuming
conversion of each outstanding share of 5% Preferred Stock into approximately
1.9297 shares of Common Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the Stock Offerings and the pro forma net tangible book value per share
of Common Stock immediately after completion of the Stock Offerings. After
giving effect to the sale of the 2,800,000 shares of Common Stock being offered
by the Company hereby and after deducting underwriting discounts and commissions
and estimated offering expenses payable by the Company, the pro forma net
tangible book value at September 30, 1997 would have been approximately $114.0
million, or $5.03 per share. This represents an immediate increase in pro forma
net tangible book value of $2.16 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $14.28 per share to
purchasers of Common Stock in the Stock Offerings as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Initial public offering price per share......................................................... $19.31
Pro forma net tangible book value per share at September 30, 1997.......................... $2.87
Increase per share attributable to new investors........................................... 2.16
-----
Pro forma net tangible book value per share after the Stock Offerings........................... 5.03
------
Pro forma net tangible book value dilution per share to new investors........................... $14.28
------
------
</TABLE>
The following table sets forth, as of September 30, 1997, the number of
shares of Common Stock purchased from the Company (assuming conversion of each
share of 5% Preferred Stock into approximately 1.9297 shares of Common Stock),
the total consideration paid and the average price per share paid by existing
stockholders and the new investors purchasing shares in the Stock Offerings
(after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- ---------
(IN (IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 22,656 89.6% $166,600 77.3% $ 7.35
New investors...................................... 2,800 11.0 48,978 22.7 $ 17.49
------------ ------- ------------ ------- ---------
Total......................................... 25,456 100.0% $215,578 100.0%
------------ ------- ------------ -------
------------ ------- ------------ -------
</TABLE>
The foregoing assumes no exercise of stock options outstanding at September
30, 1997. At September 30, 1997, there were outstanding stock options to
purchase an aggregate of 1,733,000 shares of Common Stock.
27
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of the Company
as of September 30, 1997 (i) on an historical basis; (ii) as adjusted for
payment by the Company of the balance due to the FCC for the FCC License in
October 1997 and the Exchange Offer (effective November 17, 1997 100% of the
outstanding shares of the 5% Delayed Convertible Stock had been exchanged for
shares of 10 1/2% Series C Convertible Preferred Stock) after deducting Dealer
Manager fees and other estimated expenses; and (iii) as adjusted for the
estimated net proceeds from the sale of 2,800,000 shares of Common Stock
pursuant to the Stock Offerings (at an assumed offering price of $19 5/16 per
share, the closing price of the Company's Common Stock at November 19, 1997,
after deducting the underwriting discounts and commissions and estimated
offering expenses) and the sale of Units for net proceeds of $142.8 million
pursuant to the Units Offering.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------------
AS ADJUSTED
FOR THE AS FURTHER
EXCHANGE ADJUSTED FOR
ACTUAL OFFER THE OFFERINGS
----------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents.............................................. $ 29,386 $ 25,393 $ 217,122
Designated cash(1)..................................................... 66,667 -- --
----------- ----------- -------------
Total cash and cash equivalents........................................ $ 96,053 $ 25,393 $ 217,122
----------- ----------- -------------
----------- ----------- -------------
Senior Discount Notes(2)............................................... $ -- $ -- $ 150,000
5% Delayed Convertible Preferred Stock, 4,988,781 shares issued and
outstanding, actual(3)............................................... 116,083 -- --
10 1/2% Series C Convertible Preferred Stock, no par value, 1,846,799
shares issued and outstanding, as adjusted and as further
adjusted(4).......................................................... -- 184,632 184,632
Common Stock, $.001 par value; 12,577,884 shares issued and
outstanding, actual and as adjusted; and 15,377,884 shares issued and
outstanding, as further adjusted(4).................................. 13 13 15
Additional paid in capital............................................. 104,252 48,259 97,235
Deficit accumulated during the development stage....................... (72,000) (88,549) (88,549)
----------- ----------- -------------
Total capitalization(5)........................................... $ 148,348 $ 144,355 $ 343,333
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
- ------------
(1) Represents proceeds of the offering of the 5% Preferred Stock which have
been classified as designated cash reflecting the balance due to the FCC for
the Company's FCC License. The Company paid this amount to the FCC in
October 1997.
(2) In accordance with generally accepted accounting principles, a portion of
the issue price of the Units will be allocated to the Warrants to reflect
their fair market value at the date of issuance.
(3) All capitalization excludes warrants issuable by the Company as of September
30, 1997 to purchase 486,000 shares of 5% Preferred Stock.
(4) All capitalization excludes: (i) options outstanding as of September 30,
1997 to purchase 2,013,000 shares of Common Stock, of which 1,652,000 shares
are subject to currently exercisable options, and (ii) warrants issuable as
of September 30, 1997 to purchase 2,000,000 shares of Common Stock.
(5) Total capitalization does not include any amounts for the AEF Agreements (as
defined herein).
28
<PAGE>
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected consolidated financial data for the Company set forth below
with respect to the statements of operations for the years ended December 31,
1994, 1995 and 1996 and with respect to the balance sheets at December 31, 1995
and 1996 are derived from the consolidated financial statements of the Company,
audited by Coopers & Lybrand L.L.P., independent accountants, incorporated
herein by reference. The selected consolidated financial data for the Company
with respect to the balance sheets at December 31, 1992, 1993 and 1994 and with
respect to the statement of operations data for the years ended December 31,
1992 and 1993, are derived from the Company's audited consolidated financial
statements, which are not incorporated herein by reference. The financial
information as of and for the nine months ended September 30, 1996 and 1997 is
derived from unaudited consolidated financial statements incorporated herein by
reference. In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
that are necessary for a fair presentation of the financial position and results
of operations for these periods. The selected consolidated financial data should
be read in conjunction with the consolidated financial statements and related
notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
FOR THE
NINE
MONTHS
ENDED
SEPTEMBER
FOR THE YEAR ENDED DECEMBER 31, 30,
------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996
------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues......................................... $ -- $ -- $ -- $ -- $ -- $ --
Net loss................................................... (1,551) (6,568) (4,065) (2,107) (2,831) (1,871
Net loss per share of Common Stock......................... (.23) (.79) (.48) (.23) (.29) (.20)
Weighted average shares of Common
Stock and Common Stock equivalents
outstanding.............................................. 6,715 8,284 8,398 9,224 9,642 9,441
Deemed dividend on 5% Preferred Stock...................... -- -- -- -- -- --
<CAPTION>
FOR THE NINE
MONTHS ENDING
SEPTEMBER 30
---------------
1997
--------
<S> <<C>
STATEMENT OF OPERATIONS DATA:
Operating revenues......................................... $ --
Net loss................................................... (1,489)
Net loss per share of Common Stock......................... (4.97)(1)
Weighted average shares of Common
Stock and Common Stock equivalents
outstanding.............................................. 10,760
Deemed dividend on 5% Preferred Stock...................... $(51,975)
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER
AS OF DECEMBER 31, 30,
-------------------------------------------------- --------
1992 1993 1994 1995 1996 1996
------- ------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................................... $ 1,883 $ 777 $ 3,400 $ 1,800 $ 4,584 $ 1,371
Designated cash(2).......................................... -- -- -- -- -- --
Working capital (deficit)................................... 1,399 (250) 2,908 1,741 4,442 1,293
Total assets................................................ 2,292 1,663 3,971 2,334 5,065 1,874
Deficit accumulated during the development stage............ (2,965) (9,533) (13,598) (15,705) (18,536) (16,909)
Stockholders' equity........................................ 1,791 505 3,431 1,991 4,898 1,486
Book value per share........................................ .48
<CAPTION>
AS OF
SEPTEMBER 30
---------------
1997
--------
<S> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................................... $ 29,386
Designated cash(2).......................................... 66,677
Working capital (deficit)................................... 29,871
Total assets................................................ 148,430
Deficit accumulated during the development stage............ (72,000)
Stockholders' equity........................................ 32,265
Book value per share........................................ 2.57
</TABLE>
- ------------
(1) Includes a deemed dividend on the Company's 5% Preferred Stock of $52.0
million, or $4.83 per share. The deemed dividend relates to the discount
feature associated with the 5% Preferred Stock, computed in accordance with
the Commission's position on accounting for preferred stock which is
convertible at a discount to the market price.
(2) Represents proceeds of the offering of the 5% Preferred Stock which were
classified as designated cash reflecting the balance due to the FCC for the
Company's FCC License. The Company paid this amount to the FCC in October
1997.
29
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of certain
events could differ materially from those projected in the forward-looking
statements due to a number of factors, including those set forth under 'Risk
Factors' and elsewhere in this Prospectus. See 'Special Note Regarding
Forward-Looking Statements.'
OVERVIEW
The Company was organized in May 1990 and is in its development stage. The
Company's principal activities to date have included technology development,
pursuing regulatory approval for CD Radio, market research, design, development,
contract negotiations with satellite and launch vehicle contractors, technical
efforts with respect to standards and specifications, strategic planning and
securing adequate financing for working capital and capital expenditures. The
Company does not expect to derive any revenues from operations prior to the
commercial launch of CD Radio, which is expected to occur no earlier than the
end of 1999. The Company has incurred substantial losses to date and expects to
incur substantial losses until at least a year after the commercial launch of CD
Radio. In addition, the Company will require substantial additional capital to
complete development and commence commercial operations of CD Radio. There can
be no assurance that CD Radio will ever commence operations, that the Company
will attain any particular level of revenues or that the Company will achieve
profitability.
Upon commencing commercial operations, the Company expects its primary
source of revenues to be monthly subscription fees. The Company currently
anticipates that its subscription fee will be approximately $10 per month to
receive CD Radio broadcasts, with a one time, modest activation fee per
subscriber. To receive CD Radio, subscribers will need to purchase a radio card
or S-band radio together with the associated miniature satellite dish antenna.
The Company does not intend to manufacture these products and thus will not
receive any revenues from their sale. Although the Company holds patents
covering various features of its satellite broadcasting system, which system
includes, among other features, certain technology to be used in the radio
cards, S-band radios and miniature satellite dish antennas, the Company expects
to license its technology to manufacturers at no charge. As the number of
subscribers to CD Radio increases, the Company also may derive revenues from
payments from producers of sports, news and talk programming for providing
national distribution of their programming to subscribers.
The Company expects that the operating expenses associated with commercial
operations will consist primarily of costs to acquire programming; costs to
maintain and operate its satellite broadcasting system and National Broadcasting
Studio; and sales, general and administrative costs. Costs to acquire
programming are expected to include payments to build and maintain an extensive
music library and royalty payments for broadcasting music (calculated based on a
percentage of revenues). Sales, general and administrative costs are expected to
consist primarily of advertising costs, salaries of executives, studio
personnel, program hosts, administrators, technical staff, rent and other
administrative expenses. The Company expects that the number of its employees
will increase from 11 to approximately 100 by the time it commences commercial
operations.
In addition to funding initial operating losses, the Company will require
funds for working capital, interest and financing costs on borrowings and
capital expenditures. The Company's interest expense will increase significantly
as a result of its financing plan. However, a substantial portion of its planned
indebtedness will not require cash payments of interest and principal for some
time.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
The Company recorded net losses of $1,489,000 and $1,872,000 for the nine
months ended September 30, 1997 and 1996, respectively, and $654,000 and
$667,000 for the three months ended September 30, 1997 and 1996, respectively.
The Company's total operating expenses were $4,357,000 and $1,921,000 for the
nine months ended September 30, 1997 and 1996, respectively, and were
30
<PAGE>
<PAGE>
$2,230,000 for the three months ended September 30, 1997 compared to $682,000
for the three months ended September 30, 1996.
Legal, consulting and regulatory fees increased for the nine months ended
September 30, 1997 to $2,603,000 from $979,000 for the nine months ended
September 30, 1996, and increased to $1,357,000 from $372,000 for the three
months ended September 30, 1997 and 1996, respectively. These levels of
expenditures are the result of increased activity since winning an auction for a
national satellite radio broadcast license conducted by the FCC in April 1997.
Research and development costs were $43,000 and $77,000 for the nine months
ended September 30, 1997 and 1996, respectively, and $8,000 and $24,000 for the
three months ended September 30, 1997 and 1996, respectively. The Company
completed the majority of such activities in 1994.
Other general and administrative expenses increased for the nine months
ended September 30, 1997 to $1,711,000 from $866,000 for the nine months ended
September 30, 1996 and to $865,000 from $285,000 for the three months ended
September 30, 1997 and 1996, respectively. General and administrative expenses
are expected to continue to increase as the Company continues to develop its
business. The Company also incurred a non-cash charge of $240,000 for the nine
month period ended September 30, 1996, attributable to the recognition of
compensation expense in connection with stock options issued to officers of the
Company.
The increase in interest income to $2,873,000 for the nine months ended
September 30, 1997, from $62,000 in the nine months ended September 30, 1996 and
to $1,575,000 from $17,000 for the three months ended September 30, 1997 and
1996, respectively, was the result of a higher average cash balance during 1997.
The cash and cash equivalents on hand were primarily obtained from the 5%
Preferred Stock offering and the sale of Common Stock to Loral Space in 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
The Company recorded net losses of $2,831,000 ($.29 per share) and
$2,107,000 ($.23 per share) for the years ended December 31, 1996 and 1995,
respectively. The Company's total operating expenses were $2,930,000 in 1996
compared to $2,230,000 in 1995.
Legal, consulting and regulatory fees increased in 1996 to $1,582,000 from
$1,046,000 in 1995, as the result of increased efforts to obtain the FCC
License.
Research and development costs were $117,000 in 1996, compared with
$122,000 in 1995. Non-recurring costs associated with the design and development
of the CD Radio demonstration system were substantially completed in 1993. Costs
incurred in subsequent years relate to the operations of the demonstration
system, including leasing satellite time, taking transmission measurements, and
testing multipath fading.
Other general and administrative expenses increased in 1996 to $1,231,000
from $1,062,000 in 1995. The increase is due to the Company requiring general
administrative support for the effort to obtain the FCC License.
Interest income decreased to $113,000 in 1996 from $143,000 in 1995 as a
result of the Company having a higher average cash balance in 1995. Proceeds
relating to the exercise of stock warrants were not received until late 1996
and, therefore, did not generate a significant amount of interest income.
Interest expense decreased from $20,000 in 1995 to $13,000 in 1996 as a result
of the Company repaying a promissory note due to an officer of the Company in
1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
The Company recorded net loss of $2,107,000 ($.23 per share) and $4,065,000
($.48 per share) for the years ended December 31, 1995 and 1994, respectively.
The Company's total operating expenses were $2,230,000 in 1995 compared to
$4,076,000 in 1994.
31
<PAGE>
<PAGE>
Legal, consulting and regulatory fees decreased from $1,245,000 in 1994 to
$1,046,000 in 1995 as the Company continued to reduce costs while awaiting
action by the FCC on the Company's application for an FCC License.
Other general and administrative expenses also decreased from $2,455,000 in
1994 to $1,062,000 in 1995 reflecting a reduction of costs such as payroll, rent
and compensation expense in connection with issuance of stock options.
The Company completed the majority of the research and development
necessary for product development prior to FCC licensing by 1994 which was
reflected in the decrease of research and development costs from $375,000 in
1994 to $122,000 in 1995.
The increase in interest income from $51,000 in 1994 to $143,000 in 1995
was the result of a higher average cash balance in 1995. The cash and cash
equivalents on hand were originally obtained from the Company's initial public
offering in September 1994, which raised $4.8 million.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of approximately
$29,870,000 compared to $4,442,000 at December 31, 1996. The increase in working
capital was primarily the result of remaining cash proceeds from the offering of
5% Preferred Stock and the sale of Common Stock to Loral Space in 1997.
FUNDING REQUIREMENTS
The Company is a development stage company and as such will require
substantial amounts of continued outside financing to acquire and develop its
assets and commence commercial operations. The Company estimates that it will
require approximately $647.6 million to develop and commence commercial
operation of CD Radio by the end of 1999. Of this amount, the Company has raised
approximately $266.6 million to date. After giving effect to the Offerings, the
Company will have raised approximately $470.7 million, leaving anticipated
additional cash needs of approximately $176.9 million to fund its operations
through 1999. The Company anticipates additional cash requirements of
approximately $100.0 million to fund its operations through the year 2000.
The Company expects to finance the remainder of its funding requirements
through the issuance of debt or equity securities or a combination thereof.
Furthermore, if the Company were to exercise its option under the Loral
Satellite Contract to purchase and deploy an additional satellite, substantial
additional funds would be required. See 'Use of Proceeds.'
In April 1997, the Company was the winning bidder in an FCC auction for one
of two national satellite broadcast licenses with a winning bid of $83.3
million, of which $16.7 million was paid as a deposit. The Company paid the
balance due the FCC in October 1997 and was awarded the FCC License on October
10, 1997.
To build and launch the satellites necessary for the operations of CD
Radio, the Company has entered into the Loral Satellite Contract and the
Arianespace Launch Contract. The Loral Satellite Contract provides for Loral to
construct for the Company three satellites, two of which the Company intends to
launch and the third of which will be kept in reserve as a spare, and for an
option to be granted to the Company to purchase a fourth satellite. Under the
Arianespace Launch Contract, Arianespace has agreed to launch two of the
Company's satellites into orbit. See 'Business -- The CD Radio Delivery
System -- The Satellites.' The Company is committed to make aggregate payments
of $277.1 million under the Loral Satellite Contract and of $176.0 million under
the Arianespace Launch Contract. Under the Loral Satellite Contract, with the
exception of a payment made at the time of the signing of the Loral Satellite
Contract in March 1993, payments are to be made in 22 installments commencing in
April 1997 and ending in November 2000, the expected delivery date for the third
satellite. Approximately half of these payments are contingent on Loral meeting
specified milestones in the manufacture of the three satellites. In addition,
Loral has agreed to defer a total of $20.0 million of the contract price, which
is to be paid in four equal installments of $5.0 million commencing November
2001 until March 2003. See ' -- Sources of Funding.' Amounts due under the
Arianespace Launch
32
<PAGE>
<PAGE>
Contract, except for payments made prior to the execution of the Arianespace
Launch Contract, are payable on various dates between November 1997 and July
1999 for the first launch, and, for the second launch, are payable on various
dates between February 1998 and the earlier of October 1999, or ten days prior
to the second launch.
The Company also will require funds for construction of its National
Broadcast Studio, working capital, interest on borrowings, acquisition of
programming, financing costs and operating expenses until some time after the
commencement of commercial operations of CD Radio. The Company's interest
expense will increase significantly as a result of its financing plan; however,
a substantial portion of its planned indebtedness will not require immediate
cash payments. The Notes are not expected to require cash payments until 2003.
Interest on funds borrowed by the Company under the AEF Agreements is deferred
until repayment of such amounts.
SOURCES OF FUNDING
The Company historically has funded its operations through equity capital.
As of September 30, 1997, the Company had received a total of $166.6 million in
equity capital and had no outstanding indebtedness. A significant portion of the
Company's equity capital was received in April 1997 as a result of the Company's
issuance of 5,400,000 shares of 5% Preferred Stock for aggregate net proceeds of
$120.5 million in a private placement transaction. These proceeds were used
primarily to finance the payment of the purchase price for the FCC License and
for working capital.
On July 22, 1997, the Company entered into two loan agreements
(collectively the 'AEF Agreements') with AEF, a subsidiary of Arianespace, to
finance approximately $105 million of the estimated $176 million price of the
launch services to be provided by Arianespace (the 'AEF Vendor Financing').
Under these agreements, the Company is able to borrow funds to meet the progress
payments due to Arianespace for the construction of each launch vehicle and
other launch costs (the 'Tranche A Loans'). The Company has the opportunity upon
satisfying a variety of conditions specified in the AEF Agreements to extend the
term of the Tranche A Loans. If the term is not extended, or if the Company is
unable to comply with the terms and covenants of such extended loans, the
Company will be required to repay the Tranche A Loans in full, together with
accrued interest and all fees and other amounts due, approximately three months
before the applicable launch date, which will be prior to the time CD Radio
commences commercial operations. There can be no assurance that the Company will
have sufficient funds to make such repayment.
The AEF Agreements impose restrictions on the Company's ability to incur
additional indebtedness, make investments or permit liens on certain assets of
the Company, other than liens in favor of AEF. If AEF determines that the
Tranche A Loans are eligible for conversion into term loans, the Company will
also be subject to provisions restricting its ability to change its capital
structure or organizational documents or to merge, consolidate or combine with
another entity. If the Tranche A Loans are converted, the Company's obligations
to AEF will be secured by a lien on specified assets of the Company, including
the satellites and, to the extent permitted by applicable law, the FCC License.
In addition, the Indenture permits indebtedness under the AEF Agreements to be
secured on a pari passu basis with the Notes by a first priority security
interest in the Pledged Stock. See 'Description of Certain
Indebtedness -- Vendor Financing.'
Pursuant to a Multiparty Agreement among the Company, AEF and Arianespace
in connection with the AEF Agreements, if the Company is unable to obtain
sufficient financing to complete the construction and launch of the satellites,
or if the Company terminates the Arianespace Launch Contract, the Company will
be required to pay Arianespace a termination fee ranging from 5% to 40% of the
launch services price, based on the proximity of the date of termination to the
scheduled launch date. The termination fee will be payable prior to the time the
Company commences commercial operations and there can be no assurance that the
Company will have sufficient funds to pay this fee.
The Loral Satellite Contract provides for payments to be made in
installments commencing in April 1997 and ending in November 2000, subject to
achievement by Loral of certain milestones in the manufacture of the satellites.
Loral has agreed to defer payment of $20.0 million from two milestone payments
due in June and September of 1998. The deferred amount will be paid in four
installments of
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$5.0 million, with the first payment to be made 27 months after the delivery of
the first satellite, the second payment to be made 27 months after delivery of
the second satellite, the third payment to be made 365 days after the first
payment date and the fourth payment to be made 365 days after the second payment
date.
In the event of a satellite or launch failure, the Company will be required
to pay Loral the full deferred amount for the affected satellite no later than
120 days after the date of the failure. If the Company should elect to put a
satellite into ground storage, rather than having it shipped to the launch site,
the full deferred amount for the affected satellite will become due within 60
days of such election.
As a condition to the deferred payments, the Company has agreed to provide
Loral a security interest in the properties and assets of the Company and its
subsidiaries, of substantially the same nature and quality, and of substantially
equivalent value relative to the amount of the secured obligations, and on the
same terms and covenants, as the Company has provided or may provide to any
other party under any and all of its loan, credit and other similar agreements.
There currently is no such security interest. The Indenture permits indebtedness
under the Loral Satellite Contract to be secured on a pari passu basis with the
Notes by a first priority security interest in the Pledged Stock.
After giving effect to the Offerings and the AEF Agreements, the Company
expects it will require an additional $176.9 million in financing through 1999.
However, there can be no assurance that the Company's actual cash requirements
will not increase. Potential sources of additional financing include the sale of
debt or equity securities in the public or private markets. There can be no
assurance that the Company will be able to obtain additional financing on
favorable terms, or at all, or that it will be able to do so in a timely
fashion. The AEF Agreements contain, the Indenture will contain and documents
governing any indebtedness incurred in the future are expected to contain
provisions limiting the ability of the Company to incur additional indebtedness.
The issuance by the Company of additional equity securities could cause
substantial dilution of the interest in the Company of purchasers of the shares
of Common Stock offered hereby. If additional financing were not available on a
timely basis, the Company would be required to delay satellite and/or launch
vehicle construction in order to conserve cash to fund continued operations,
which would cause delays in the commencement of operations and increased costs.
See 'Risk Factors -- Need for Substantial Additional Funding.'
The amount and timing of the Company's actual cash requirements will depend
upon numerous factors, including costs associated with the construction and
deployment of its satellite system and the rate of growth of its business
subsequent to commencing service, costs of financing and the possibility of
unanticipated costs. Additional funds would be required in the event of delay,
cost overruns, launch failure, launch services or satellite system change
orders, or any shortfalls in estimated levels of operating cash flow, or to meet
unanticipated expenses.
As a result of the issuance of the Notes and the Warrants and the expected
incurrence of significant additional indebtedness required to meet its capital
requirements, the Company will have substantial indebtedness. The Company's
ability to meet all of its debt service obligations when due may require it
to refinance its then outstanding indebtedness. No assurance can be given that
the Company will be able to generate sufficient cash flow to service its
indebtedness or be able to refinance indebtedness. The AEF Agreements contain,
the Indenture will contain, and debt instruments governing any future
indebtedness of the Company are expected to contain, restrictions on, among
other things, the ability of the Company to incur additional indebtedness.
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BUSINESS
This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of certain
events could differ materially from those projected in the forward-looking
statements due to a number of factors, including those set forth under 'Risk
Factors' and elsewhere in this Prospectus. See 'Special Note Regarding
Forward-Looking Statements.'
GENERAL
CD Radio Inc. was founded in 1990 to pioneer and commercialize a compact
disc quality, multi-channel radio service broadcast directly from satellites to
vehicles. In October 1997, the Company was granted one of two licenses from the
FCC to build, launch and operate a national satellite radio broadcast system.
The Company has begun construction of two satellites that it plans to launch
into geosynchronous orbit to broadcast its radio service throughout the United
States. The Company's service, which will be marketed under the brand name 'CD
Radio,' is expected to consist of 30 channels of commercial-free, compact disc
quality music programming and 20 channels of news, sports and talk programming.
CD Radio will be broadcast over a frequency band, the 'S-band', that will
augment traditional AM and FM radio bands. Under its expected FCC license, the
Company has the exclusive use of a 12.5 megahertz portion of the S-band for this
purpose. The Company currently expects to commence CD Radio broadcasts in late
1999 at a subscription price of $10 per month.
The Company is positioning itself as an entertainment company and
accordingly plans to design and originate programming on each of its 30 music
channels. Each channel will be operated as a separate radio station, with a
distinct format. Certain music channels will offer continuous music while others
will have program hosts, depending on the type of music programming. CD Radio
will offer a wide range of music categories, such as:
Symphonic
Chamber Music
Opera
Today's Country
Traditional Country
Contemporary Jazz
Classic Jazz
Blues
Big Band/Swing
Top of the Charts
Classic Rock
50's Oldies
60's Oldies
Folk Rock
Latin Ballads
Latin Rhythms
Reggae
Rap
Dance
Urban Contemporary
Soft Rock
Singers & Songs
Beautiful Instrumentals
Album Rock
Alternative Rock
New Age
Broadway's Best
Gospel
Children's Entertainment
World Beat
The Company's 50 music and non-music stations will be housed at the
National Broadcast Studio. The National Broadcast Studio will contain the
Company's music library, facilities for programming origination, programming
personnel and program hosts, as well as facilities to uplink programming to the
satellites, to activate or deactivate service to subscribers and to perform the
tracking, telemetry and control of the orbiting satellites.
THE CD RADIO OPPORTUNITY
The Company believes that there is a significant market for music and other
radio programming delivered through advanced radio technology. While television
technology has advanced steadily -- from black and white to color, from
broadcast to cable, and from ordinary to high-definition television -- the last
major advance in radio technology was the introduction of FM broadcasts. CD
Radio will provide a new generation of radio service, offering a wide variety of
music formats available on demand, 'seamless' signal coverage throughout the
United States and commercial-free, compact disc quality music programming. The
Company's planned multiplicity of formats currently is not available to
motorists in any market within the United States.
CD Radio is primarily a service for motorists. The Yankee Group, a market
research organization, estimates that there will be approximately 198 million
registered private motor vehicles in the United States by the end of 1999, when
the Company expects to commence broadcasting. At present, approximately 89% of
all private vehicles have a radio that could easily be utilized to receive
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CD Radio's broadcasts, with this number estimated to be approximately 182
million vehicles in 1999, and approximately 199 million in 2004. CD Radio will
initially target a number of demographic groups among the drivers of these
vehicles, including 110 million commuters, 34 million of whom spend between one
and two hours commuting daily, three million truck drivers and three million
owners of recreational vehicles, among other groups.
According to Arbitron, in 1996, despite the fact that almost all vehicles
contain either a cassette or compact disc player, 87% of automobile commuters
listened to the radio an average of 50 minutes a day while commuting. According
to the Radio Advertising Bureau, each week radio reaches approximately 95% of
all Americans over the age of 12, with the average listener spending more than
three hours per weekday and more than five hours per weekend listening to the
radio. More than 40% of all radio listening is done in cars. In addition, in
1996, approximately 79% of total radio listening was to FM stations, which
primarily provides music programming, as compared with AM stations which devote
a greater proportion of their programming to talk and news.
The Company believes that its ability to offer a wide variety of musical
formats simultaneously throughout the United States will enable it to tap
significant unmet consumer demand for specialized musical programming. The
economics of the existing advertiser supported radio industry dictate that
conventional radio stations generally program for the greatest potential
audience. Even in the largest metropolitan areas, station formats are limited.
Nearly half of all commercial radio stations in the United States offer one of
only three formats: country, adult contemporary and news/talk, and the next
three most prevalent formats account for another 30% of all stations. Although
niche music categories such as classical, jazz, rap, gospel, oldies,
soundtracks, new age, children's programming and others accounted for
approximately 27% of sales of recorded music in 1996, such formats generally are
unavailable on existing radio stations in many markets. Even in New York City,
the nation's largest radio market, there are no radio stations devoted solely to
such programming as opera, blues, chamber music, soundtracks, reggae, children's
programming and many others. CD Radio's wide choice of formats is expected to
appeal to a large number of currently underserved listeners.
In addition, the limited coverage area of conventional radio broadcasting
means that listeners often travel beyond the range of any single station. Unlike
conventional FM stations, which have an average range of only approximately 30
miles before reception fades, CD Radio's signal is designed to cover the entire
continental United States enabling listeners almost always to remain within its
broadcast range. The Company's satellite delivery system is designed to permit
CD Radio to be received by motorists in all outdoor locations where the vehicle
has an unobstructed line-of-sight with one of the Company's satellites or is
within range of one of the Company's terrestrial repeating transmitters.
The ability to broadcast nationwide will also allow the Company to serve
currently underserved radio markets. In the United States, there are more than
45 million people aged 12 and over living in areas with such limited radio
station coverage that the areas are not monitored by Arbitron. Of these, the
Company believes approximately 22 million people receive five or fewer FM
stations, 1.6 million receive only one FM station and at least one million
people receive no FM stations. This segment of the population also has a limited
choice of radio music formats and is one of CD Radio's primary target markets.
The Company also believes that CD Radio will have a competitive advantage
over conventional radio stations due to its music channels being
commercial-free. In contrast, conventional radio stations interrupt their
broadcasts with up to 18 minutes of commercials in every hour of music
programming, and most stations also frequently interrupt programming with news,
promotional announcements, public service announcements and miscellaneous
information. The Company believes that consumers dislike frequent radio
commercial interruptions and that 'station surfing' to avoid them is common.
PROGRESS TO DATE AND SIGNIFICANT DEVELOPMENT MILESTONES
The following chart sets forth the Company's past and projected development
milestones. There can be no assurance that the Company will be able to meet any
of its projections for 1998 or 1999, including completion of construction of its
National Broadcast Studio, completion of its satellite launches, or commencement
of its commercial operations in late 1999 as planned. See 'Risk Factors --
Possible Delays and Adverse Effect of Delay on Financing Requirements.'
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<TABLE>
<S> <C>
1990: CD Radio Inc. incorporated
Proposed FCC create satellite radio service and filed license application
1991: Conducted stationary service simulation
Conducted nationwide focus groups
1992: Satellite radio spectrum allocated at WARC-92
Conducted radio manufacturer discussions
1993: Contracted with Loral for construction of its satellites
Contracted with Arianespace for launch of two of its satellites
Conducted additional nationwide focus groups
1994: Completed an initial public offering of its Common Stock
1995: Completed Loral satellite design
Filed orbital slot registrations
Completed development of its proprietary miniature satellite dish antenna
1996: Designed the radio card receiver
1997: Won auction for FCC license
Received one of two FCC national satellite radio broadcasting licenses
Completed a $135 million private placement of 5% Preferred Stock
Commenced construction of two satellites
Completed receipt of satellite broadcast patents
Arranged $105 million of vendor financing with Arianespace Finance S.A.
Recruited its key programming, marketing and financial management team
Completed a strategic sale of $25 million of Common Stock to Loral Space
Executed radio manufacturer memoranda of understanding
1998: Select radio card manufacturer
Select non-music channel content providers
Complete significant satellite construction milestones
Begin terrestrial repeating transmitter build-out
1999: Complete construction of National Broadcast Studio
Begin commercial production of radio cards
Complete satellite launches
Test markets
Begin commercial operations
</TABLE>
THE CD RADIO SERVICE
CD Radio will offer motorists (i) a wide choice of finely focused music
formats; (ii) nearly seamless signal coverage throughout the continental United
States; (iii) commercial-free music programming; and (iv) plug and play
convenience.
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Wide Choice of Programming. Each of CD Radio's 30 music channels will have
a distinctive format, such as opera, reggae, classic jazz and children's
entertainment, intended to cater to specific subscriber tastes. In most markets,
radio broadcasters target their programming to broad audience segments. Even in
the largest metropolitan markets the variety of station formats generally is
limited, and many of the Company's planned formats are unavailable.
'Seamless' Signal Coverage. CD Radio will be available throughout the
continental United States, enabling listeners almost always to be within its
broadcast range. The Company expects its nearly seamless signal will appeal to
motorists who frequently travel long distances, including truck drivers and
recreational vehicle owners, as well as commuters and others who outdrive the
range of their FM signals. In addition, the Company expects its broadcasts will
appeal to the 45 million consumers who live in areas that currently receive only
a small number of FM stations.
Commercial-Free Music Programming. The Company will provide commercial-free
music programming. The Company's market research indicates that a principal
complaint of radio listeners concerning conventional broadcast radio is the
frequency of commercials. Because CD Radio, unlike most commercial AM and FM
stations, will be a subscription and not an advertiser-supported service, its
music channels will not contain commercials.
Plug and Play Convenience. Consumers will be able to receive CD Radio
broadcasts by acquiring a radio card and an easily attachable, silver
dollar-sized satellite dish antenna. Listeners will not be required to replace
their existing car radios and will be able to use the radio card by plugging it
into their radio's cassette or compact disc slot. CD Radio listeners using a
radio card will be able to push a button to switch between AM, FM and CD Radio.
Radio cards will be portable and will be able to be moved from car to car. Radio
card activation will be accomplished directly via satellite by calling the
Company's customer service center at 888-CD-RADIO.
The Company intends to offer 30 channels of commercial-free, all-music
programming and 20 additional channels of other formats that do not require
compact disc quality audio, such as all-news, all-sports and all-talk
programming. Each music channel will have a distinctive format, intended to
cater to specific subscriber tastes. The Company expects the initial
subscription fee for CD Radio, which will entitle subscribers to receive all CD
Radio channels, will be $10 per month.
The Company intends to recruit program managers from the recording,
broadcasting and entertainment industries to manage the development of daily
programming for each CD Radio channel. In order to be accessible to these
industries, the Company plans to locate its programming operations and the
National Broadcast Studio in the New York metropolitan region. Program managers
also will coordinate the Company's continuing market research to measure
audience satisfaction, refine channel definitions and themes and select program
hosts for those channels that have hosts.
Music programming will be selected from the Company's music library. The
Company intends to create an extensive music library which will consist of a
deep range of recorded music in each genre broadcast. In addition to updating
its music library with new recordings as they are released, the Company will
seek to acquire recordings that in certain cases are no longer commercially
available.
The Company believes that CD Radio will provide an opportunity for the
recording industry to expose and promote new releases and artists to targeted
listener groups nationwide. The Company plans to solicit promotional copies of
new recordings, and contemplates showcasing these releases as part of a service
to be developed for record companies. The Company intends to work with the
recording industry and performing artists to develop innovative programming
formats.
In connection with its music programming, the Company will be required to
negotiate and enter into royalty arrangements with performing rights societies,
such as ASCAP, BMI and SESAC. These organizations collect royalties and
distribute them to songwriters and music publishers. Copyright users negotiate a
fee with these organizations based on a percentage of revenues. Broadcasters
currently pay a combined total of approximately 3% of their revenues to the
performing rights societies. The Company also will be required to negotiate
similar arrangements, pursuant to the Digital Recordings Act, with the owners of
the sound recordings. The determination of certain royalty arrangements with the
owners of sound recordings under the Digital Recordings Act currently are
subject to arbitration proceedings. The Company believes that it will be able to
negotiate satisfactory royalty arrangements
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with the above organizations and the owners of sound recordings, but there can
be no assurance as to the terms of any such royalty arrangements ultimately
negotiated or established by arbitration.
In addition to its music channels, the Company expects to offer 20 channels
of news, sports and talk programming. The Company does not intend to produce the
programming for these non-music channels. The Company believes, based on its
discussions to date, that there is sufficient interest on the part of providers
of news, sports and talk programming in CD Radio to permit the Company to offer
a variety of non-music programming. News, talk and sports programming obtained
from third party sources will include commercial advertising. To date, the
Company has not reached any understandings or entered into any agreements with
respect to the supply of such programming.
MARKETING STRATEGY
The Company plans to offer a high quality broadcast service with targeted
music formats, nearly seamless signal coverage throughout the continental United
States, commercial-free music programming and compact disc quality fidelity. The
Company's marketing strategy for CD Radio has three interrelated components: (i)
the strategy for creating consumer awareness of CD Radio, (ii) the strategy for
generating subscriptions to CD Radio and (iii) the strategy for generating
purchases of radio cards and S-band radios and their associated miniature
satellite dish antennas.
CREATING CONSUMER AWARENESS
The Company believes that the introduction of CD Radio will have high news
value, which it expects will result in significant national and local publicity
prior to and during the initial launch of the service. In addition, the Company
plans to engage in extensive marketing, advertising and promotional activities
to create consumer awareness of CD Radio. This includes an ongoing major
advertising campaign funded principally by the Company, together with expected
significant manufacturer and retailer cooperative advertising. A major national
umbrella campaign will utilize a full mix of media, including network and cable
television, radio, print and billboard.
GENERATING SUBSCRIPTIONS TO CD RADIO
The Company also intends to focus its initial efforts on a number of
demographic groups that it believes represent potential target markets for CD
Radio, including commuters, niche music listeners, truck drivers, recreational
vehicle owners, consumers in areas with sparse radio coverage and operators of
rental car fleets. In addition, the Company intends to aggressively target early
adopters of new technologies, who it believes are likely to have a high level of
interest in CD Radio.
Commuters. Of the 110 million commuters, the Company has identified 34
million as highly addressable by virtue of their commute times averaging between
one and two hours daily. To reach these commuters, the Company plans to purchase
radio advertising spots on stations with frequent traffic reports, purchase
outdoor billboard advertising on long commute roads and place inserts in
gasoline credit card bills.
Niche Music Listeners. Niche music categories, such as classical, jazz,
rap, gospel, soundtracks, oldies and children's programming, constitute
approximately 27% of the market for recorded music sales. To reach niche music
listeners, the Company intends to work with the recording industry to include
print material about CD Radio inside niche music compact disc packaging, place
print advertising in specialty music magazines targeted to niche music listeners
and members of fan clubs, conduct direct mailings to specialized music mailing
lists of record clubs and sponsor and advertise at certain music events.
Truck Drivers. According to the U.S. Department of Transportation, there
are approximately three million professional truck drivers in the United States,
of whom approximately 1.1 million are long-distance haulers. The Company intends
to place sampling displays at truck stops and to advertise in publications and
on internet sites which cater to truck drivers.
Recreational Vehicle Owners. There are approximately three million
recreational vehicles in the United States. The Company plans to advertise in
magazines targeted to recreational vehicle
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enthusiasts, conduct direct mailings targeted to these individuals and place
sampling displays at recreational vehicle dealerships.
Sparse Radio Zones. More than 45 million people aged 12 and over live in
areas with such limited radio station coverage that the areas are not monitored
by Arbitron. The Company believes that of these people, approximately 22 million
people receive five or fewer FM stations, 1.6 million receive only one FM
station and at least one million people receive no FM stations. To reach these
consumers, the Company plans to utilize local newspaper advertisements during
the Company's initial launch period and target direct mailings to music
enthusiasts in these areas.
Rental Car Fleets. The Company intends to conduct a major promotional
effort with car rental companies to provide CD Radio in the approximately 1.4
million rental cars in the United States. The Company has begun discussions with
car rental companies in this regard.
SALES OF RADIO CARDS AND S-BAND RADIOS
Consumers will receive CD Radio through radio cards or S-band radios and
associated miniature satellite dish antennas. Although the Company does not
intend to manufacture or distribute radio cards, S-band radios or miniature
satellite dish antennas, their availability will be critical to the Company
because they are the only means by which to receive CD Radio. Accordingly, the
Company has devised strategies to make radio cards and S-band radios together
with their associated miniature satellite dish antennas widely available to
consumers.
Sales of Radio Cards. The Company believes that the availability of radio
cards will be critical to the Company's market penetration for a number of years
following the introduction of CD Radio. The Company expects that radio cards
will be sold at retail outlets and mass merchandisers that sell consumer
electronics. The retail price of the radio card together with the miniature
satellite dish currently is expected to be approximately $200.
Sales of S-band Radios. Distribution of S-band radios is an important
element in the Company's marketing strategy. In 1996, U.S. consumers spent
approximately $3 billion on autosound equipment for aftermarket installation in
their vehicles, which the Company believes included approximately 4.6 million
new AM/FM radios. The Company believes that this autosound equipment market is
comprised largely of young, music oriented early adopters of new technology and
that, in the course of purchasing a new car radio, some of these consumers would
select one with built-in S-band capability. The Company expects S-band radios to
be sold at retail outlets that sell consumer electronics, as well as at
autosound specialty dealers. Like existing autosound equipment, S-band radios
will require installation by the retailer or a third party.
The Company's long term objective is to promote the adoption of S-band
radios as standard equipment or a factory-installed option in every vehicle sold
in the United States. The Company, however, expects sales of radio cards and
S-band radios through the consumer electronics retail distribution system to be
the primary distribution channel for receivers capable of receiving CD Radio for
many years.
SUBSCRIPTION AND BILLING
The Company intends to contract out customer service and billing functions
to a national teleservices company, whose functions will include the handling of
orders from subscribers, establishing and maintaining customer accounts, inbound
telemarketing, billing and collections.
Access to the Company's customer service center will be via the Company's
toll-free number, 888-CD-RADIO, with all interaction with subscribers being
conducted under the CD Radio name. Payment to the Company's selected
teleservices company is expected to be based on transaction volumes, and the
Company plans to charge subscribers a modest one-time activation fee to cover
certain transaction costs. The Company will require payment for CD Radio with a
national credit or debit card.
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THE CD RADIO DELIVERY SYSTEM
The Company has designed the CD Radio delivery system to transmit an
identical signal from two satellites placed in geosynchronous orbit. The two
satellite system will permit CD Radio to provide 'seamless' signal coverage
throughout the continental United States. This means that listeners will almost
always be within the broadcast range of CD Radio, unlike current FM radio
broadcasts, which have an average range of only approximately 30 miles. The CD
Radio system is designed to provide clear reception in most areas despite
variations in terrain, buildings and other obstructions. The system is designed
to enable motorists to receive CD Radio in all outdoor locations where the
vehicle has an unobstructed line-of-sight with one of the Company's satellites
or is within range of one of the Company's terrestrial repeating transmitters.
The portion of the S-band located between 2320 MHz and 2345 MHz has been
allocated by the FCC exclusively for national satellite radio broadcasts, and
will augment traditional AM and FM radio bands. This portion of the spectrum was
selected because there are virtually no other users of this frequency band in
the United States, thus minimizing potential signal interference. In addition,
this frequency band is relatively immune to weather related attenuation, which
is not the case with higher frequencies.
The Company expects to use 12.5 MHz of bandwidth in the 7025.0-7075.0 MHz
band (or some other suitable frequency) for uplink transmissions from the
National Broadcast Studio to the Company's satellites. Downlink transmission
from the satellites to subscribers' radio cards or S-band radios will use 12.5
MHz of bandwidth in the 2320-2332.5 MHz frequency band.
The CD Radio delivery system will consist of three principal components:
(i) the satellites; (ii) the receivers; and (iii) the National Broadcast Studio.
THE SATELLITES
Satellite Design. The Company's satellites are of the Loral FS-1300 model
series. This family of satellites has a total in-orbit operation time of 270
years, and to date more than 62 such satellites have been built or ordered,
including 24 that are currently in production. The satellites are designed to
have a useful life of approximately 15 years. To ensure the durability of its
satellites, the Company has selected components and subsystems that have a
demonstrated track record on operational FS-1300 satellites, such as N-STAR,
INTELSAT VII and TELSTAR. In addition, a full series of ground tests will be
performed on each of the Company's satellites prior to launch in order to detect
assembly defects and avoid premature satellite failure.
The satellites will utilize a three-axis stabilized design. Each satellite
will contain an active attitude and position control subsystem; a telemetry,
command and ranging subsystem; a thermal control subsystem and an electrical
power subsystem. Power will be supplied by silicon solar arrays and, during
eclipses, by nickel-hydrogen batteries. Each satellite after deployment will be
27.2 meters long, 8.65 meters wide and 3.8 meters tall.
Simple Design ('Bent Pipe'). The Company's satellites will incorporate a
repeater design which will act essentially as a 'bent pipe,' relaying received
signals directly to the ground. The Company's satellites will not contain
on-board processors or switches. All of the Company's processing operations will
be on the ground where they are accessible for maintenance and continuing
technological upgrade without the need to launch replacement satellites.
Spread Spectrum (Code Division Multiplex). The Company's radio transmission
system will utilize Code Division Multiplex ('CDM') and spread spectrum
technology which permits a large number of program channels to utilize a single
radio frequency band. The system, incorporating CDM and spread spectrum
modulation, combined with multiple satellite coverage and terrestrial repeating
transmitters, is designed to provide a high capacity, high quality service.
Signal Diversity. The Company believes that two satellites are the minimum
number required to provide nearly seamless signal coverage throughout the
continental United States. The Company plans to position its two satellites in
complementary orbital locations so as to achieve efficient signal diversity and
thereby mitigate service interruptions which can result from signal blockage and
fading. The
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Company currently expects that its two satellites will be placed in a
geosynchronous orbit at equatorial crossings of 80[d] W and 110[d] W longitude.
Each of the Company's satellites will broadcast the same signal. The Company's
transmission design also incorporates the use of a memory reception buffer
contained within radio cards and S-band radios, designed to work in conjunction
with signal diversity. The Company has been granted patents on its satellite
broadcasting system, which incorporate a multi-satellite design and memory
reception features.
As with any wireless broadcast service, the Company expects to experience
occasional 'dead zones' where the service from one satellite will be interrupted
by nearby tall buildings, elevations in topography, tree clusters, highway
overpasses and similar obstructions; however, in most such places the Company
expects subscribers will continue to receive a signal from its other satellite.
In certain areas with high concentrations of tall buildings, such as urban
cores, or in tunnels, however, signals from both satellites will be blocked and
reception will be adversely affected. In such urban areas, the Company plans to
install terrestrial repeating transmitters to rebroadcast its satellite signals,
improving the quality of reception. The FCC has not yet established rules
governing such terrestrial repeaters, and the Company cannot predict the outcome
of the FCC's current rule making on this subject. See 'Business -- Government
Regulation.' The Company also will need to obtain the rights to use of roofs of
certain structures where the repeaters will be installed. There can be no
assurance that the Company can obtain such roof rights on acceptable terms or in
appropriate locations for the operation of CD Radio.
Satellite Construction. The Company has entered into the Loral Satellite
Contract, pursuant to which Loral is building three satellites, two of which the
Company intends to launch and one of which it intends to keep in reserve as a
spare. Loral has agreed to deliver the first satellite to the launch site in
Kourou, French Guiana by August 11, 1999, to deliver the second satellite to the
launch site five months after the delivery of the first satellite and to deliver
the third satellite to a Company designated storage site within eleven months of
delivery of the second satellite. Loral has also agreed to endeavor to
accelerate delivery of the second satellite to October 1999 and of the third
satellite to April 2000. There can be no assurance, however, that Loral will be
able to meet such an accelerated schedule. Although the Loral Satellite Contract
provides for certain late delivery payments, Loral will not be liable for
indirect or consequential damages or lost revenues or profits resulting from
late delivery or other defaults. Under the Loral Satellite Contract, the Company
has an option to order, at any time prior to March 10, 1999, a fourth satellite
identical to the first three on preset price and delivery terms.
Title and risk of loss for the first and second satellites are to pass to
the Company at the time of launch. Title for the third satellite is to pass to
the Company at the time of shipment of the satellite to the designated storage
site. The satellites are warranted to be in accordance with the performance
specifications in the Loral Satellite Contract and free from defects in
materials and workmanship at the time of delivery. After delivery, no warranty
coverage applies, unless a satellite is not launched, in which case the warranty
extends two years from the date of delivery. In the event of any delay in the
construction of the satellites that is caused by the Company, the Loral
Satellite Contract provides that the terms of the contract will be equitably
adjusted.
Following the launch of each satellite, Loral will conduct in-orbit
performance verification. In the event that such testing shows that a satellite
is not meeting the satellite performance specifications contained in the Loral
Satellite Contract, Loral and the Company have agreed to negotiate an equitable
reduction in the final payment to be made by the Company for the affected
satellite.
Launch Services. The Company entered into the Arianespace Launch Contract
for two satellite launches with Arianespace on July 22, 1997. The initial launch
period for the first launch extends from August 1, 1999 to January 31, 2000. The
initial launch period for the second launch extends from October 1, 1999 to
March 31, 2000. These initial launch periods will be reduced to three-month
periods at least twelve months prior to the start of the respective initial
launch periods. One-month launch slots will be selected for each of the launches
at least eight months prior to the start of the respective shortened launch
periods. Launch dates will be selected for each of the launches at least four
months prior to the start of the respective launch periods. The Company is
entitled to accelerate the second launch by shipping the satellite to the launch
base and preparing the satellite for launch at the next available launch
opportunity.
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If the Company's satellites are not available for launch during the
prescribed periods, the Company will arrange to launch the satellites on the
first launch dates available after the satellites are completed. While the
Company has been able to reschedule its reserved launch dates with Arianespace
in the past, there can be no assurance that it will be able to do so in the
future. If the Company postpones a launch for more than 12 months, or postpones
a launch within 12 months of a scheduled launch, postponement fees may be
charged under the terms of the Arianespace Launch Contract.
Satellite launches are subject to significant risks, including satellite
destruction or damage during launch or failure to achieve proper orbital
placement. Launch failure rates vary depending on the particular launch vehicle
and contractor. Arianespace, one of the world's leading commercial satellite
launch service companies, has advised the Company that as of November 13, 1997,
87 of 92 Arianespace launches (approximately 94.6%) have been completed
successfully since May 1984. See 'Risk Factors -- Dependence upon Satellites,'
'Risk Factors -- Dependence upon Satellite and Launch Contractors' and 'Risk
Factors -- Satellite Launch Risks.' However, the Ariane 5, the particular launch
vehicle being planned for the launch of the Company's satellites, has had only
two launches, one of which was a failure. There is no assurance that
Arianespace's launches of the Company's satellites will be successful. If the
third qualification flight of the Ariane 5 launch vehicle results in a failure,
or if for any reason there have not been at least two successful Ariane 5
launches prior to each of Company's scheduled launches, or if Arianespace
postpones one of Company's launches for more than six months due to a delay in
the development of the Ariane 5 program, then, under the terms of the
Arianespace Launch Contract, the Company has the right to require Arianespace to
negotiate in good faith an amendment to the Arianespace Launch Contract to
provide for launches using the Ariane 4 launch vehicle, with launch dates on the
first available Ariane 4 launch opportunities after the scheduled launch dates,
unless the Company agrees to earlier launch dates.
Assuming use of an Ariane 5 launch vehicle, if a Company satellite is lost
or destroyed during launch, or if, due to an anomaly occurring during launch
caused by the launch vehicle or a co-passenger satellite, a Company satellite
loses more than 50% of its operational capacity, Arianespace has agreed to
perform a replacement launch at no cost. If, under the same circumstances, the
Company satellite loses more than 20% but not more than 50% of its operational
capacity, Arianespace is required to pay Company an amount based on the percent
of lost capacity. If the Company purchases launch insurance on the commercial
market, these percentages will be amended to match those contained in the
insurance policy. If, following launch, a satellite should fail for any reason,
including reasons unrelated to the launch, within 27 months after launch, the
Company is entitled to purchase at the then applicable price a replacement
launch from Arianespace with a one-month launch slot that falls within ten
months of the request for the replacement launch.
The Company will rely upon Arianespace for the timely launch of the
satellites. Failure of Arianespace to launch the satellites in a timely manner
could materially adversely affect the Company's business. The Arianespace Launch
Contract entitles Arianespace to postpone either of Company's launches for a
variety of reasons, including technical problems, lack of co-passenger(s) for
the Company's launch, the need to conduct a replacement launch for another
customer, a launch of a scientific satellite whose mission may be degraded by
delay, or a launch of another customer's satellite whose launch was postponed.
Although the Arianespace Launch Contract provides liquidated damages for delay,
depending on the length of the delay, and entitles the Company to terminate the
agreement for delay exceeding 12 months, there can be no assurance that these
remedies will adequately mitigate any damage to the Company's business caused by
launch delays.
Under the terms of the Arianespace Launch Contract, the Company and
Arianespace each agree to bear any damage to property or bodily injury that it
or its associates may sustain caused by a launch or satellite failure.
Arianespace is required to take out launch and in-orbit insurance policies to
protect itself and the Company against liability for losses that third parties
may sustain caused by a launch vehicle or any satellite on the launch vehicle,
and to indemnify the Company against any such losses that exceed the limits of
the insurance policy.
Arianespace has assisted the Company in securing financing for the launch
service prices through its subsidiary, AEF. The Company and AEF have entered
into the AEF Agreements, which govern the provisions of such financing. See
'Description of Certain Indebtedness -- Vendor Financing.'
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Risk Management and Insurance. Two custom-designed, fully dedicated
satellites are required to broadcast CD Radio. The Company has selected a launch
service supplier that has achieved the most reliable launch record in its class
in the industry. Each of the Company's two operational satellites will be
launched separately. The Arianespace Launch Contract contains a provision
entitling the Company to a replacement launch in the event of a launch failure
caused by the Arianespace launch vehicle. In such event, the Company would
utilize the spare satellite that will be constructed. Thus, the Company does not
intend to insure for this contingency. The Company intends to insure against
other contingencies, including a failure during launch caused by factors other
than the launch vehicle and/or a failure involving the second satellite in a
situation in which the spare satellite has been used to replace the first
satellite. If the Company is required to launch the spare satellite due to
failure of the launch of one of the operational satellites, its operational
timetable would be delayed for approximately six months or more. The launch or
in-orbit failure of two satellites would require the Company to arrange for
additional satellites to be built and could delay the commencement or
continuation of the Company's operations for three years or more. See 'Risk
Factors -- Dependence upon Satellites,' 'Risk Factors -- Dependence upon
Satellite and Launch Contractors' and 'Risk Factors -- Satellite Launch Risks.'
Once properly deployed and operational, the historical risk of premature
total satellite failure has been less than 1% for U.S. geosynchronous commercial
communication satellites. Insurance against in-orbit failure is currently
available and typically is purchased after the satellite is tested in orbit and
prior to the expiration of launch insurance. In recent years, annual premiums
have ranged from 1.3% to 2.5% of coverage. After the Company has launched the
satellites and begun to generate revenues, the Company will evaluate the need
for business interruption insurance.
Satellites are designed to minimize the adverse effects of transmission
component failure through the incorporation of redundant components which
activate automatically or by ground command upon failure. If multiple component
failures occur as the satellite ages, and the supply of redundant components is
exhausted, the satellite generally will continue to operate, but at reduced
capacity. In that event, signal quality may be preserved by reducing the number
of channels broadcast until a replacement satellite can be launched.
Alternatively, the number of broadcast channels may be preserved by reducing the
signal quality until a replacement satellite can be launched.
THE RECEIVERS
Subscribers to CD Radio will not need to replace their existing AM/FM car
radios. Instead, they will be able to receive CD Radio in their vehicles using a
radio card that has been designed to plug easily into the cassette or compact
disc slot of their existing radio. Customers also will be able to receive CD
Radio using an S-band radio. CD Radio reception with either a radio card or an
S-band radio will be via a miniature silver dollar-sized satellite dish antenna
mounted on a small base housing a wireless transmitter that will relay the CD
Radio signal to the vehicle's radio card or S-band radio. Neither the radio
cards, S-band radios nor the miniature satellite dish antennas currently are
available and the Company is unaware of any manufacturer currently developing
such products.
The Company anticipates that radio cards will be easy to install because
they will require no wiring or other assembly and will be installed simply by
inserting the card into the radio's cassette or compact disc slot. Upon
insertion of the card into the radio, listeners will be able to switch between
AM, FM and CD Radio. The radio card can be removed by pushing the radio's
'eject' button. Radio cards are portable and will be able to be moved from car
to car, if desired. S-band radios will be capable of receiving AM, FM and S-band
radio transmissions. The Company anticipates that S-band radios will be similar
to conventional AM/FM radios in size and appearance. Like existing conventional
radios, a number of these radios may also incorporate cassette or compact disc
players.
In addition to a radio card or S-band radio, a vehicle must be equipped
with a miniature satellite dish antenna in order to receive CD Radio. To satisfy
this requirement, the Company has designed a miniature satellite dish antenna.
The battery powered satellite dish antenna is approximately the size and shape
of a silver dollar, measuring 2 in diameter and 1/8 thick. The base of the
satellite dish antenna will have an adhesive backing, so that consumers will be
able to easily attach the satellite dish antenna to a car's rear window.
Miniature satellite dish antennas will also be sold separately, so that
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consumers will be able to receive CD Radio in a vehicle that has a satellite
dish antenna attached to it simply by moving a radio card. The radio card, the
S-band radio and the satellite dish antenna all use proprietary technology
developed by the Company.
The Company's miniature satellite dish antenna design is substantially
'non-directional,' meaning it does not need to be pointed directly at a
satellite in order to receive CD Radio broadcasts. All that is required is that
the satellite dish antenna be positioned upward on an unobstructed line-of-sight
with one of the Company's satellites or be within range of a terrestrial
repeating transmitter. The satellite dish antenna will be mounted on a small
base housing a solar recharging battery and wireless transmitter that will relay
the CD Radio signal to a vehicle's radio card or S-band radio. The CD Radio
system is designed to permit CD Radio to be received by motorists in all outdoor
locations where the vehicle has an unobstructed line-of-sight with one of the
Company's satellites. In certain areas with high concentrations of tall
buildings, such as urban cores, or in tunnels, signals from both satellites will
be blocked and reception will be adversely affected. In such cases, the Company
plans to install terrestrial repeating transmitters to broadcast CD Radio.
A radio card or S-band radio tuned to CD Radio will have a visual display
that will indicate the channel and format selected, as well as the title,
recording artist and album title of the song being played. In order to reduce
fraud, each radio card and S-band radio will contain a security circuit with an
electronically encoded identification number. Upon verification of subscriber
billing information, the Company will transmit a digital signal to activate the
radio's S-band operation. This feature will help the Company to protect against
piracy of the CD Radio signal. Through this feature, the Company can directly
via satellite discontinue CD Radio and deactivate radio cards or S-band radios
of subscribers who are delinquent in paying the monthly subscription fee.
The Company expects radio cards, S-band radios and miniature satellite dish
antennas to be sold through a variety of retail outlets, including consumer
electronics, car audio, department and music stores. The Company currently
expects that the radio card together with the satellite dish antenna can be sold
at a retail price of approximately $200. Radio card or S-band activation will be
accomplished directly via satellite by calling the Company's customer service
center at 888-CD-RADIO. The Company currently expects to begin offering CD Radio
in late 1999 at an initial subscription price of $10 per month.
The Company believes that, when manufactured in quantity, S-band radios
will be incrementally more expensive than today's car radios, while radio cards,
which will have no installation costs if the customer has a radio with a
cassette or compact disc slot, will be substantially less expensive. The Company
expects that the satellite dish antenna will be substantially less expensive
than the radio card for consumers wishing to purchase additional dish antennas
separately. The Company believes that the availability and pricing of plug and
play radio cards will be of prime importance to the Company's market penetration
for a number of years.
Neither the radio cards, S-band radios nor miniature satellite dish
antennas currently are available, and the Company is unaware of any manufacturer
currently developing such products. The Company has entered into non-binding
memoranda of understanding with two major consumer electronics manufacturers,
and has commenced discussions with several other such manufacturers, regarding
the manufacture of radio cards, S-band radios and miniature satellite dish
antennas for retail sale in the United States. The Company currently intends to
select one manufacturer to manufacture radio cards, S-band radios and miniature
satellite dish antennas for retail sale in the United States on an exclusive
basis for the first year of CD Radio broadcasts. There can be no assurance that
these discussions will result in a binding commitment on the part of any
manufacturer to produce radio cards, S-band radios and miniature satellite dish
antennas in a timely manner so as to permit the widespread introduction of CD
Radio in accordance with the Company's business plan or that sufficient
quantities of these will be available to meet anticipated consumer demand.
Failure to have at least one manufacturer develop and widely market radio cards
and the associated miniature satellite dish antennas, and to a lesser extent
S-band radios, at affordable prices, or to develop and widely market such
products upon the launch of CD Radio, would have a material adverse effect on
the Company's business. In addition, the IB Order conditions the Company's
license on certification by the Company that its final receiver design is
interoperable with respect to the final receiver design of the other licensee,
which has proposed to use a significantly different transmission technology from
that of the Company. The Company believes that it
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can design an interoperable receiver, but there can be no assurance that this
effort will be successful or result in a commercially feasible receiver.
THE NATIONAL BROADCAST STUDIO
The Company plans to originate its 50 channels of programming from its
National Broadcast Studio, to be located in the New York metropolitan region.
The National Broadcast Studio will house the Company's music library, facilities
for programming origination, programming personnel and program hosts, as well as
facilities to uplink programming to the satellites, to activate or deactivate
service to subscribers and to perform the tracking, telemetry and control of the
orbiting satellites.
The Company's music library will be located at the National Broadcast
Studio. The Company intends to create an extensive music library which will
consist of a deep range of recorded music. In addition to updating its music
library with new recordings as they are released, the Company will seek to
acquire recordings that in certain cases are no longer commercially available.
Programming will be originated at the National Broadcast Studio and
transmitted to the Company's two satellites for broadcast to CD Radio
subscribers. The Company expects that its broadcast transmissions will be
uplinked to its satellites at frequencies in the 7025.0-7075.0 MHz band. The
satellites will receive and convert the signal to the 2320.0-2332.5 MHz band.
The satellites then will broadcast the signal to the United States, at a power
sufficient to enable its receipt directly by the miniature satellite dish
antennas to be used by subscribers.
Service-related commands also will be relayed from the National Broadcast
Studio to the Company's satellites for retransmission to subscribers' radio
cards and S-band radios. These service-related commands include those required
to (i) initiate and suspend subscriber service, (ii) change the encryption
parameters in radio cards and S-band radios to reduce piracy of CD Radio and
(iii) activate radio card and S-band radio displays to show program-related
information.
Tracking, telemetry and control operations for the Company's orbiting
satellites also will be performed from the National Broadcast Studio. These
activities include controlling the routine station keeping, which involves
twice-monthly satellite orbital adjustments and the continuous monitoring of the
satellites.
The Company expects that the National Broadcast Studio, which will include
its executive offices, will be approximately 30,000 square feet in size. The
Company currently is searching for appropriate space to lease and has commenced
development of plans for its facility with a broadcast studio design firm.
DEMONSTRATIONS OF THE CD RADIO SYSTEM
In support of the Company's application for the FCC License, the Company
conducted a demonstration of its proposed radio service from November 1993
through November 1994. The demonstration involved the transmission of S-band
signals to a prototype S-band radio and miniature satellite dish antenna
installed in a car to simulate certain transmission techniques the Company
intends to employ. Because there currently are no commercial satellites in orbit
capable of transmitting S-band frequencies to the United States, the Company
constructed a terrestrial simulation of its planned system. For this purpose,
the Company selected a test range covering several kilometers near Washington,
D.C. which included areas shadowed by buildings, trees and overpasses. The
Company placed S-band transmitters on the rooftops of a number of tall buildings
in such a way as to simulate the signal power and angle of arrival of satellite
transmissions to be used for its proposed service. The Company also modified the
standard factory installed sound system of an automobile to create a radio
receiving AM, FM and S-band, and integrated the Company's satellite dish antenna
into the car roof. The demonstrations included the reception of 30 channels of
compact disc quality stereo music by the prototype radio while the car was
driven throughout the range. Prior to testing with orbiting satellites,
miniature satellite dish antennas and radio cards or S-band radios suitable for
commercial production, there can be no assurance that the CD Radio system will
function as intended. See 'Risk Factors -- Reliance on Unproven Technology.'
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COMPETITION
The Company expects to face competition from two principal sources: (i)
conventional AM/FM radio broadcasting, including, when available, terrestrial
digital radio broadcasting; and (ii) AMRC, the other holder of an FCC License.
The AM/FM radio broadcasting industry is very competitive. Radio stations
compete for listeners and advertising revenues directly with other radio
stations within their markets on the basis of a variety of factors, including
program content, on-air talent, transmitter power, assigned frequency, audience
characteristics, local program acceptance and the number and characteristics of
other radio stations in the market. Many of the Company's radio broadcasting
competitors have substantially greater financial, management and technical
resources than the Company.
Unlike the Company, the radio industry has a well established market for
its services and generally offers 'free' broadcast reception paid for by
commercial advertising rather than by a subscription fee. In addition, certain
AM and FM stations, such as National Public Radio, offer programming without
commercial interruption. Many radio stations also offer information programming
of a local nature, such as local news or traffic reports, which the Company will
be unable to offer. CD Radio will compete with conventional radio stations on
the basis of its targeted programming formats, nearly seamless signal coverage,
freedom from advertising and compact disc quality sound, features which are
largely unavailable on conventional broadcast radio.
The Company believes that cassettes and compact discs generally are used in
automobiles as supplements to radio rather than as substitutes, and that these
media are used primarily as backup when radio reception is unavailable or
unsatisfactory, or when desired programming is unavailable or unsatisfactory.
Cassettes and compact discs lack the convenience of radio, as well as the
spontaneity and freshness that characterize radio programming. According to a
1996 market study, although almost all vehicles contain either a cassette or
compact disc player, 87% of automobile commuters listened to the radio an
average of 50 minutes a day while commuting. Accordingly, the Company does not
view its service as directly competitive with these media.
Currently, radio stations broadcast by means of analog signals, as opposed
to digital transmission. The Company believes, however, that prior to the
commencement of CD Radio, terrestrial broadcasters may be able to place digital
audio broadcasts into the bandwidth occupied by current AM and FM stations and
simultaneously transmit both analog and digital signals on the AM and FM bands.
The limited bandwidth assigned to AM stations will result in lower quality
digital signals than can be broadcast by FM stations. As a result, the Company
expects that the use of this technology will permit digital AM sound quality to
approach monaural FM sound quality and permit digital FM broadcasts to approach
compact disc sound quality. In order to receive these digital AM/FM broadcasts,
listeners will need to purchase new digital radios which currently are not
commercially available. While the development of digital broadcasting would
eliminate one of the advantages of CD Radio over FM radio, the Company does not
believe it would affect broadcasters' ability to address the other advantages of
CD Radio. In addition, the Company views the growth of terrestrial digital
broadcasting as a positive force that would be likely to encourage radio
replacement and thereby facilitate the introduction of S-band radios.
Although certain existing satellite operators currently provide music
programming to customers at fixed locations, these operators are incapable of
providing CD Radio type service to vehicles as a result of some or all of the
following reasons: (i) these operators do not broadcast on radio frequencies
suitable for reception in a mobile environment; (ii) CD Radio type service
requires fully dedicated satellites; (iii) CD Radio type service requires a
custom satellite system design and (iv) CD Radio type service requires
regulatory approvals, which existing satellite operators do not have.
AMRC, a subsidiary of AMSC, is the other holder of an FCC License. AMRC, in
which WorldSpace, Inc. (a company that plans to provide satellite radio service
outside of the United States) has a 20% interest, and AMSC, which is owned in
part by the Hughes Electronics Corporation subsidiary of General Motors
Corporation, have financial, management and technical resources that greatly
exceed those of the Company. In addition, the FCC could grant new licenses which
would enable further competition to broadcast satellite radio. Finally, there
are many portions of the electromagnetic spectrum that are currently licensed
for other uses and certain other portions for which licenses have been granted
by the FCC without restriction as to use, and there can be no assurance that
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these portions of the spectrum could not be utilized for satellite radio
broadcasting in the future. Although any such licensees would face cost and
competition barriers, there can be no assurance that there will not be an
increase in the number of competitors in the satellite radio industry. See 'Risk
Factors -- Competition.'
TECHNOLOGY AND PATENTS
The Company has been granted certain U.S. patents (U.S. Patent Nos.
5,278,863; 5,319,673; 5,485,485; 5,592,471) on various features of satellite
radio technology. There can be no assurance, however, that any U.S. patent
issued to the Company will cover the actual commercialized technology of the
Company or will not be circumvented or infringed by others, or that if
challenged would be held to be valid. The Company has filed patent applications
covering CD Radio system technology in Argentina, Australia, Brazil, Canada,
China, France, Germany, India, Italy, Japan, South Korea, Mexico, the
Netherlands, Spain, Switzerland and the United Kingdom, and has been granted
patents in a number of these countries. There can be no assurance that
additional foreign patents will be awarded to the Company or, if any such
patents are granted, that the laws of foreign countries where the Company
receives patents will protect the Company's proprietary rights to its technology
to the same extent as the laws of the United States. Although the Company
believes that obtaining patent protection may provide benefits to the Company,
the Company does not believe that its business is dependent on obtaining patent
protection or successfully defending any such patents that may be obtained
against infringement by others.
Certain of the Company's know-how and technology are not the subject of
U.S. patents. To protect its rights, the Company requires certain employees,
consultants, advisors and collaborators to enter into confidentiality
agreements. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure. In
addition, the Company's business may be adversely affected by competitors who
independently develop competing technologies.
The Company's proprietary technology was developed by Robert D. Briskman,
the Company's co-founder, and was assigned to the Company. The Company believes
that Mr. Briskman independently developed the technology covered by the
Company's issued patents and that it does not violate the proprietary rights of
any person. There can be no assurance, however, that third parties will not
bring suit against the Company for patent infringement or for declaratory
judgment to have any patents which may be issued to the Company declared
invalid.
If a dispute arises concerning the Company's technology, litigation might
be necessary to enforce the Company's patents, to protect the Company's trade
secrets or know-how or litigation may occur to determine the scope of the
proprietary rights of others. Any such litigation could result in substantial
cost to, and diversion of effort by, the Company, and adverse findings in any
proceeding could subject the Company to significant liabilities to third
parties, require the Company to seek licenses from third parties or otherwise
adversely affect the Company's ability to successfully develop and market CD
Radio.
GOVERNMENT REGULATION
COMMUNICATIONS LAWS
As an operator of a privately owned satellite system, the Company is
subject to the regulatory authority of the FCC under the Communications Act. The
FCC is the government agency with primary authority in the United States over
satellite radio communications. The Company is currently subject to regulation
by the FCC principally with respect to (i) the licensing of its satellite
system; (ii) preventing interference with or to other users of radio
frequencies; and (iii) compliance with rules that the FCC has established
specifically for United States satellites and rules that the FCC has established
for providing satellite radio service.
On May 18, 1990, the Company proposed that the FCC establish a satellite
radio service and applied for an FCC License. On March 3, 1997, the FCC adopted
rules for the national satellite radio broadcast service (the 'FCC Licensing
Rules'). Pursuant to the FCC Licensing Rules, an auction was held among the
applicants on April 1 and 2, 1997. The Company was a winning bidder for one of
the two FCC Licenses with a bid of $83 million. AMRC was the other winning
bidder for an FCC License with a bid of $89 million. After payment of the full
amount by the Company, the FCC's International
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Bureau issued the FCC License to the Company on October 10, 1997. Although the
FCC License is effective immediately; however, for a period of 30 days following
the grant of the FCC License, those parties that had filed comments or petitions
to deny in connection with the Company's application for an FCC License could
petition the International Bureau to reconsider its decision to grant the FCC
License to the Company or request review of the decision by the full FCC. An
application for review by the full Commission was filed by one of the
low-bidding applicants in the auction. This petition requests, among other
things, that the Commission adopt restrictions on foreign ownership, which were
not applied in the IB Order, and, on the basis of the Company's ownership,
overrule the IB Order. Although the Company believes the FCC will uphold the IB
Order, the Company cannot predict the ultimate outcome of any proceedings
relating to this petition or any other proceeding that may be filed. If this
petition is denied, the complaining party may file an appeal with the U.S. Court
of Appeals which must find that the decision of the FCC was not supported by
substantial evidence, or was arbitrary, capricious or unlawful in order to
overturn the grant of the Company's FCC License.
Pursuant to the FCC Licensing Rules, the Company is required to meet
certain progress milestones. Licensees are required to begin satellite
construction within one year of the grant of the FCC License; to launch and
begin operating their first satellites within four years; and to begin operating
their entire system within six years. The IB Order states that failure to meet
those milestones will render the FCC License null and void. On May 6, 1997, the
Company notified the FCC that it had begun construction on the first of its
satellites. On March 27, 1997, a third party requested reconsideration of the
FCC Licensing Rules, seeking, among other things, that the time period allotted
for these milestones be shortened. The Company cannot predict the outcome of
this petition.
The term of the FCC License for each satellite is eight years, commencing
from the time each satellite is declared operational after having been inserted
into orbit. Upon the expiration of the term with respect to each satellite, the
Company will be required to apply for a renewal of the relevant FCC License.
Although the Company anticipates that, absent significant misconduct on the part
of the Company, the FCC Licenses will be renewed in due course to permit
operation of the satellites for their useful lives, and that a license would be
granted for any replacement satellites, there can be no assurance of such
renewal or grant.
Satellite orbit locations are registered internationally for each country.
International regulations at present allocate the S-Band for satellite
broadcasting only in the United States and India. Mexico has proposed in a
currently on-going World Radiotelecommunications Conference that the S-Band also
be allocated for satellite broadcasting in Mexico. The Company cannot predict
the outcome of this action. The Company does not anticipate difficulty in
obtaining international registration or renewing or extending such
registrations. There can be no assurance, however, that such registrations will
be obtained.
The spectrum allocated for satellite radio is used in Canada and Mexico for
terrestrial microwave links, mobile telemetry and other purposes. The United
States government must coordinate the United States' use of this spectrum with
the Canadian and Mexican governments before any United States satellite may
become operational. The Company has performed analyses which show that its
proposed use will not cause undue interference to most Canadian stations and can
be coordinated with others by various techniques. The FCC Licensing Rules
require that the licensees successfully complete detailed frequency coordination
with existing operations in Canada and Mexico, and the IB Order conditions the
FCC License on such coordination. There can be no assurance that the licensees
will be able to coordinate the use of this spectrum with Canadian or Mexican
operators or will be able to do so in a timely manner.
In order to operate its satellites, the Company also will have to obtain a
license from the FCC to operate its uplink facility. Normally, such approval is
sought after issuance of the FCC License. Although there can be no assurances
that such licenses will be granted, the Company does not expect difficulties in
obtaining a feeder link frequency and ground station approval in the ordinary
course.
In the future, any assignments or transfers of control of the FCC License
must be approved by the FCC. There can be no assurance that the FCC would
approve any such transfer or assignment.
The CD Radio system is designed to permit CD Radio to be received by
motorists in all outdoor locations where the vehicle has an unobstructed
line-of-sight with one of the Company's satellites. In certain areas with high
concentrations of tall buildings, such as urban cores, or in tunnels, signals
from
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both satellites will be blocked and reception will be adversely affected. In
such cases, the Company plans to install terrestrial repeating transmitters to
broadcast CD Radio. The FCC has not yet established rules governing the
application procedure for obtaining authorizations to construct and operate
terrestrial repeating transmitters. A rulemaking on the subject was initiated by
the FCC on March 3, 1997. The deadline for the public to file comments was June
13, 1997 and the deadline for filing reply comments was June 27, 1997. Several
comments were received by the FCC that sought to cause the FCC to consider
placing restrictions on the Company's ability to deploy its terrestrial
repeating transmitters. However, the Company believes that the FCC will neither
prohibit it from deploying such transmitters nor place unreasonable requirements
upon such deployment.
The Communications Act prohibits the issuance of a license to a foreign
government or a representative thereof, and contains limitations on the
ownership of common carrier, broadcast and certain other radio licenses by
non-U.S. citizens. Pursuant to the FCC Licensing Rules, the Company is regulated
as a private carrier. The IB Order determined that, as a private carrier, the
Company is not subject to the current provisions of the Communications Act
restricting ownership in the Company by non-U.S. private citizens or
organizations. The Executive Branch of the U.S. government has expressed
interest in changing this policy, which could lead to restrictions on foreign
ownership of the Company's shares in the future. The IB Order stated that its
finding that the Company is not subject to the foreign ownership restrictions of
the Communications Act is subject to being revisited in a future proceeding. The
pending application for review of the IB Order brings the question of foreign
ownership restrictions before the full FCC. As a private carrier, the Company is
free to set its own prices and serve customers according to its own business
judgment, without economic regulation.
The other holder of an FCC License has proposed to use a significantly
different transmission technology from that of the Company. The IB Order
conditions the Company's license on certification by the Company that its final
receiver design is interoperable with respect to the final receiver design of
the other licensee. The Company believes that it can design an interoperable
receiver, but there can be no assurance that this effort will be successful or
result in a commercially feasible receiver.
The foregoing discussion reflects the application of current communications
law, FCC regulations and international agreements to the Company's proposed
service in the United States. Changes in law, regulations or international
agreements relating to communications policy generally or to matters affecting
specifically the services proposed by the Company could adversely affect the
Company's ability to retain the FCC License and obtain or retain other approvals
required to provide CD Radio or the manner in which the Company's proposed
service would be regulated. Further, actions of the FCC are subject to judicial
review and there can be no assurance that if challenged, such actions would be
upheld.
OTHER REGULATORY MATTERS
The Company's business operations as currently contemplated may require a
variety of permits, licenses and authorizations from governmental authorities
other than the FCC, but the Company has not identified any such permit, license
or authorization that it believes could not be obtained in the ordinary course
of business.
PERSONNEL
As of October 1, 1997, the Company had 11 employees, of whom three were
involved in technology development, three in business development and five in
administration. In addition, the Company relies upon a number of consultants and
other advisors. By commencement of operations, the Company expects to have
approximately 100 employees. The extent and timing of the increase in staffing
will depend on the availability of qualified personnel and other developments in
the Company's business. None of the Company's employees is represented by a
labor union, and the Company believes that its relationship with its employees
is good.
PROPERTY
The Company's executive offices are located at Sixth Floor, 1001 22nd
Street, N.W., Washington, D.C. 20037, and are leased pursuant to a lease
agreement that will expire on October 31, 1998.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
50
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the directors,
executive officers and certain key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ---------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
David Margolese......................... 40 Chairman, Chief Executive Officer and Director
Robert D. Briskman...................... 65 Executive Vice President, Engineering and Operations and Director
Andrew J. Greenebaum.................... 35 Executive Vice President and Chief Financial Officer
Keno V. Thomas.......................... 39 Executive Vice President, Marketing
Joseph S. Capobianco.................... 48 Executive Vice President, Content
Paul Sharma............................. 49 Executive Director, Space Segment
Brian Stockwell......................... 61 Executive Director, Launch Services
Lawrence F. Gilberti(1)(2).............. 47 Director and Secretary
Peter K. Pitsch(1)...................... 45 Director
Jack Z. Rubinstein(1)................... 48 Director
Ralph V. Whitworth(1)(2)................ 41 Director
</TABLE>
- ------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers are elected by and
serve at the discretion of the Board of Directors.
David Margolese. Mr. Margolese was elected Chief Executive Officer of the
Company in November 1992 and Chairman in August 1993 and has served as a
director since August 1991. In 1991, Mr. Margolese founded a consortium with
AT&T Corp. and Hutchison Telecommunications Ltd., a subsidiary of Hutchison
Whampoa Limited, a diversified conglomerate based in Hong Kong, to bid for
Israel's national cellular telephone license and served as Chairman of this
consortium until June 1993. From 1987 until August 1991, Mr. Margolese was a
private investor. In 1982, Mr. Margolese co-founded Cantel Inc., Canada's
national cellular telephone company, and served as Vice President, RCC
Operations, until 1984. In 1980, Mr. Margolese co-founded Canadian Telecom Inc.,
a radio paging company, and served as that company's President until its sale in
1987.
Robert D. Briskman. Mr. Briskman has served as Executive Vice President,
Engineering and Operations and as a director of the Company since October 1991
and as President of Satellite CD Radio, Inc., a subsidiary of the Company, since
September 1994. In addition, Mr. Briskman served as Chief Executive Officer of
the Company from April to November 1992. From March 1991 to June 1992, Mr.
Briskman was President of Telecommunications Engineering Consultants, which
provided engineering and consulting services to the Company. From March 1986 to
March 1991, Mr. Briskman was Senior Vice President, Engineering and Operations
at Geostar Corporation, a satellite company, responsible for the development,
design, implementation and operation of a nationwide satellite message
communication service. Prior to 1986, Mr. Briskman held senior management
positions at Communications Satellite Corporation ('COMSAT'), a satellite
operator, where he was employed for over 20 years. Prior to joining COMSAT, Mr.
Briskman was a communications specialist with IBM and the National Aeronautics
and Space Administration. Mr. Briskman holds a bachelor's degree in engineering
from Princeton and a master's degree in electrical engineering from the
University of Maryland. He has published over 50 technical papers, holds a
number of U.S. patents, and is a Fellow of the Institute of Electrical and
Electronics Engineers and the American Institute of Aeronautics and
Astronautics.
Andrew J. Greenebaum. Mr. Greenebaum has served as Executive Vice President
and Chief Financial Officer of the Company since August 1997. From August 1989
to August 1997, he held a variety of senior management positions with The Walt
Disney Company. From March 1996 to August
51
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1997, Mr. Greenebaum was Vice President, Corporate Finance in charge of
corporate and project finance. From May 1995 to March 1996, he was Corporate
Strategic Planning Director, Corporate Development. From October 1992 to May
1995, he was Director, Corporate Finance and from April 1991 to October 1992, he
was Manager, Corporate Finance. From August 1989 to April 1991, he was a Senior
Treasury Analyst, Foreign Exchange. From October 1984 to June 1987, Mr.
Greenebaum was a financial analyst with L.F. Rothschild & Co., Inc., an
investment bank.
Keno V. Thomas. Mr. Thomas has served as Executive Vice President,
Marketing of the Company since April 1997. From July 1995 to April 1997, he was
an independent management consultant to the media and entertainment industry.
From January 1994 to July 1995, Mr. Thomas was Executive Vice President,
Marketing at DMX Inc., a cable radio company. From February 1992 to January
1994, he served as Vice President of Programming at DIRECTV, a satellite
television company. From December 1986 to February 1992, he held senior
management positions, including Vice President, International at ESPN
Enterprises, Inc., a cable television sports network. From May 1982 to December
1986, he held senior management positions, including Vice President, Marketing
at Times Mirror Cable, an operator of cable television systems and a subsidiary
of the Times Mirror Company.
Joseph S. Capobianco. Mr. Capobianco has served as Executive Vice
President, Content of the Company since April 1997. From 1981 to April 1997, he
was an independent consultant providing programming, production, marketing and
strategic planning consulting services to media and entertainment companies,
including Home Box Office, a cable television service and a subsidiary of Time
Warner Entertainment Company, L.P., and the ABC Radio Networks. From May 1990 to
February 1995, he served as Vice President of Programming at Music Choice, which
operates a 40-channel music service available to subscribers to DIRECTV, and is
partially owned by Warner Music Group Inc., Sony Music Entertainment Inc. and
EMI.
Paul Sharma. Mr. Sharma has served as Executive Director, Space Segment of
the Company since April 1997. From November 1988 to April 1997, he was an
independent consultant providing project management services for numerous major
satellite programs worldwide. From 1982 to 1988, he served as Deputy Projects
Director for the Direct Broadcast Satellite program at COMSAT, a satellite
operator.
Brian Stockwell. Mr. Stockwell has served as Executive Director, Launch
Services of the Company since April 1997. He has provided management consulting
services to the space industry since 1992. From June 1981 to January 1992, he
served as President of Willis Corroon Inspace, an aerospace insurance company.
From January 1979 to May 1981, he was Deputy Head of the Ariane Launch Vehicle
Program for the European Space Agency. Prior to that, he was Communications
Satellite Systems Manager with the European Space Agency from September 1969.
Lawrence F. Gilberti. Mr. Gilberti was elected Secretary of the Company in
November 1992 and has served as a director since September 1993. Since December
1992, he has been the Secretary and sole director of, and from December 1992 to
September 1994 was the President of, Satellite CD Radio, Inc. Mr. Gilberti has
been a partner in the law firm of Fischbein Badillo Wagner Harding since August
1994, and has provided legal services to the Company since 1992. From 1987 to
August 1994, Mr. Gilberti was an attorney with the law firm of Goodman Phillips
& Vineberg.
Peter K. Pitsch. Mr. Pitsch became a director of the Company in January
1995. Since September 1989, Mr. Pitsch has been the principal of Pitsch
Communications, a telecommunications law and economic consulting firm that has
rendered legal services to the Company since 1991. From April 1987 to August
1989, he served as Chief of Staff at the Federal Communications Commission. From
November 1981 to April 1987, he served as Chief of the Office of Plans and
Policy at the Federal Communications Commission. He is an adjunct fellow at the
Hudson Institute, Inc.
Jack Z. Rubinstein. Mr. Rubinstein became a director of the Company in
January 1995. Since May 1991, Mr. Rubinstein has been the General Partner of
Dica Partners, L.P., a hedge fund based in Hartsdale, New York. From September
1988 to October 1990, Mr. Rubinstein was a consultant to institutional clients
at Morgan Stanley & Co. Incorporated, an investment bank. From February 1978 to
September 1988, he was an Associate Director at Bear Stearns & Co. Inc., an
investment bank, responsible for corporate insider portfolio management.
52
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<PAGE>
Ralph V. Whitworth. Mr. Whitworth became a director of the Company in March
1994. Since April 1996, he has been a managing member at Relational Investors,
LLC, a financial management firm. In January 1997, Mr. Whitworth became a
partner of Batchelder & Partners, Inc., a financial advisory firm. From August
1988 to December 1996, he was President of Whitworth and Associates, a
Washington, D.C.-based consulting firm. Mr. Whitworth was President of United
Shareholders Association, a shareholders' association, from its founding in 1986
to 1993. From 1989 to 1992, he served as President of Development of United
Thermal Corporation, the owner of the district heating systems for the cities of
Baltimore, Philadelphia, Boston and St. Louis.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS
The following table sets forth the compensation for services rendered
during the three-year period ending December 31, 1996 for the executive officers
of the Company whose 1996 salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
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
Executive Vice President, 1995 100,000 -- 1,340 --
Engineering and Operations 1994 122,000 -- -- 192,500
</TABLE>
- ------------
(1) In October 1994, Mr. Margolese waived his base salary payable for the
three-month period ended December 31, 1994.
(2) The Company reimbursed Mr. Margolese for the following expenses incurred in
establishing residency in the United States: $18,521 for tax advice, $2,311
for moving expenses and $5,220 for real estate commissions.
DIRECTORS
Commencing in 1994, directors of the Company who are not full-time
employees of the Company were entitled to receive a director's fee of $20,000
per year for serving on the Company's Board of Directors. In June 1994, all
directors entitled to receive directors' fees agreed to forgo any payments for
their services as directors of the Company. Pursuant to the Company's 1994
Directors' Nonqualified Stock Option Plan (the 'Directors' Plan'), each director
who is not a full-time employee of the Company is entitled to an option to
purchase 15,000 shares of Common Stock upon becoming a director (or upon the
effective date of the plan in the case of non-employee directors who become
directors prior to the effective date) and to an automatic annual grant of an
option to purchase 10,000 shares of Common Stock. The exercise price for annual
grants is fair market value of the Company's Common Stock on the date of grant.
Prior to the implementation of the Directors' Plan, the Company from time to
time granted options to certain non-employee directors. See ' -- Employee and
Director Stock Options.' The Company reimburses each director for reasonable
expenses incurred in attending meetings of the Board of Directors.
The Company has retained Pitsch Communications to provide legal services to
the Company for a monthly retainer of $5,000. The retainer may be terminated by
either party at any time. The principal of Pitsch Communications, Peter K.
Pitsch, is a director of the Company. The monthly retainer was terminated in May
1997.
53
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The Company has retained Jack Z. Rubinstein to provide consulting services
to the Company for a monthly retainer of $5,000. The retainer may be terminated
by either party at any time. Jack Z. Rubinstein is a director of the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with its executive
officers.
Effective January 1, 1994, the Company entered into an employment agreement
to employ David Margolese as Chairman and Chief Executive Officer of the Company
for a term of five years. The agreement provided for an annual base salary of
$300,000, subject to increase from time to time by the Board of Directors. An
amendment to this agreement, dated as of June 8, 1994, provided for an annual
base salary of $100,000, effective June 8, 1994. Subsequently, Mr. Margolese
waived his base salary payable for the three-month period ended December 31,
1994. In January 1997, the Board of Directors increased Mr. Margolese's annual
base salary to $150,000. In July 1997, the Board of Directors increased Mr.
Margolese's annual base salary to $400,000. Under his original employment
agreement and pursuant to the Company's 1994 Stock Option Plan, the Company
granted to Mr. Margolese an option to purchase 300,000 shares of Common Stock at
$5.00 per share, which option is fully vested and exercisable. If Mr. Margolese
is terminated without Cause, as defined in the agreement, or if Mr. Margolese
resigns for 'Good Reason,' as defined in the agreement, the Company is obligated
to pay to Mr. Margolese the sum of $800,000. In January 1994, Mr. Margolese was
paid $162,000 for deferred salary earned in 1993 and $216,000 in recognition of
his service without pay in 1992. The employment agreement restricts Mr.
Margolese from engaging in any business involving the transmission of radio
entertainment programming in North America for a period of two years after the
termination of his employment.
Effective January 1, 1994, the Company entered into an agreement to employ
Robert D. Briskman as the Vice President and Chief Technical Officer of the
Company. The agreement provided for an annual base salary of $150,000. An
amendment to this agreement, dated as of June 8, 1994, provided for an annual
base salary of $100,000, effective June 8, 1994. In October 1996, the Board of
Directors increased Mr. Briskman's annual base salary to $150,000 and in January
1997, extended the term of the agreement until January 1, 1998. In addition,
under his original employment agreement and pursuant to the Company's 1994 Stock
Option Plan, the Company granted to Mr. Briskman an option to purchase 80,000
shares of Common Stock at $1.00 per share, which option is fully vested and
exercisable. In May 1997, the Board of Directors named Mr. Briskman the
Company's Executive Vice President, Engineering and Operations and extended the
term of the agreement until December 31, 2000. The Board of Directors also
increased Mr. Briskman's annual base salary to $235,000, effective May 1, 1997,
with an additional increase to $260,000, effective January 1, 1998. The original
employment agreement also provides for the grant to Mr. Briskman of options to
purchase 112,500 shares of Common Stock at $1.00 per share upon completion of
certain milestones prior to December 31, 1994. Such options were granted to Mr.
Briskman on December 23, 1994 and are fully vested and exercisable. In January
1996, Mr. Briskman exercised options to purchase 80,000 shares of the Company's
Common Stock. On July 9, 1997, the Board of Directors granted Mr. Briskman
further options to purchase up to 57,500 shares of Common Stock at a price per
share of $14.50. The options will vest and become exercisable in two stages
contingent upon Mr. Briskman's continued employment with the Company and the
replenishment of the 1994 Stock Option Plan by the Company. If Mr. Briskman's
employment is terminated for any reason other than cause, as defined in the
agreement, the Company is obligated to pay to Mr. Briskman a sum equal to 50% of
his then annual salary and, at Mr. Briskman's option, to repurchase all of the
shares of Common Stock then owned by him at a price of $1.25 per share. The
Company also has entered into a proprietary information and non-competition
agreement with Mr. Briskman. Under this agreement, Mr. Briskman may not (i)
disclose any proprietary information of the Company during or after his
employment with the Company or (ii) engage in any business directly competitive
with any business of the Company in North America for a period of one year after
termination of his employment.
Effective August 25, 1997, the Company entered into an employment agreement
with Andrew J. Greenebaum which provides for his employment as Executive Vice
President and Chief Financial
54
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<PAGE>
Officer of the Company. The agreement has a term of three years. Pursuant to the
agreement with Mr. Greenebaum, the Company will pay Mr. Greenebaum an annualized
base salary of $250,000 per year for the period of his employment with the
Company through December 31, 1997 and thereafter an annualized base salary of
$275,000, subject to any increases approved by the Board of Directors. Upon the
commencement of his employment with the Company, the Company paid Mr. Greenebaum
an additional sum of $90,000. The Company has also granted Mr. Greenebaum
options to purchase up to 175,000 shares of Common Stock at a price per share of
$15.125; however, the options relating to 10,500 of such shares are subject to
replenishment of the Plan by the Company. The options will vest and be
exercisable in three stages contingent upon the continued employment of Mr.
Greenebaum with the Company at predetermined dates. The dismissal of Mr.
Greenebaum other than for 'cause' (as defined in the agreement) subsequent to
the passing of certain milestones, however, will cause the options otherwise
exercisable only at the end of that stage to vest immediately notwithstanding
the dismissal. If Mr. Greenebaum's employment is terminated for any reason other
than by the Company for 'cause,' as defined in the agreement, or by Mr.
Greenebaum voluntarily, Mr. Greenebaum will be entitled to receive, in addition
to any other sums then due to him, an amount equal to his annualized base salary
then in effect. The Company and Mr. Greenebaum also have entered into a
proprietary information and non-competition agreement. Under this agreement, Mr.
Greenebaum may not (i) during his employment with the Company and for three
years thereafter disclose any proprietary information of the Company or (ii)
during his employment with the Company and for one year thereafter engage in any
business involving any satellite radio broadcast service or any
subscription-based digital audio radio service delivered to cars or other mobile
vehicles in North America.
The Company has entered into employment and non-competition agreements to
employ Joseph S. Capobianco as Executive Vice President, Content, and Keno V.
Thomas as Executive Vice President, Marketing, both for terms of three years.
The agreement with Mr. Capobianco, effective April 16, 1997, provided for an
annual base salary of $200,000, subject to increase from time to time by the
Board of Directors. The agreement with Mr. Thomas, effective April 28, 1997,
provided for an annualized base salary of $225,000 through December 31, 1997,
increasing to an annualized base salary of $250,000 thereafter through the term
of the agreement, subject to increase from time to time by the Board of
Directors. The Company has granted each of Mr. Capobianco and Mr. Thomas an
option to purchase 50,000 shares of Common Stock at $13 and $12.875 per share,
respectively, each such option to vest pursuant to the schedule set forth in the
applicable option agreement. On July 9, 1997, the Company granted each of
Messrs. Capobianco and Thomas further options to purchase up to 25,000 shares of
Common Stock at a price per share of $14.50. These options will vest and become
exercisable in two stages contingent upon Messrs. Capobianco's and Thomas'
respective continued employment with the Company and the replenishment of the
number of shares of Common Stock in the 1994 Stock Option Plan by the Company.
If either Mr. Capobianco or Mr. Thomas is terminated except by the Company for
'Cause,' as defined in the agreement, or by the applicable executive
voluntarily, the Company will be obligated to pay to Mr. Capobianco an amount
equal to one-third of his then annual salary if the termination is on or prior
to October 16, 1997 and one-half of his then annual salary thereafter, and to
pay to Mr. Thomas an amount equal to one-half of his then annual salary. The
Company also has entered into a proprietary information and non-competition
agreement with each of Mr. Capobianco and Mr. Thomas. Under these agreements
each of Mr. Capobianco and Mr. Thomas may not (i) disclose any proprietary
information of the Company during his employment with the Company and for three
years thereafter or (ii) during their respective employment and for one year
thereafter, engage in any business involving any satellite radio broadcast
service or any subscription-based digital audio radio service delivered to cars
or other mobile vehicles in North America.
EMPLOYEE AND DIRECTOR STOCK OPTIONS AND STOCK GRANTS
In February 1994, the Company adopted its 1994 Stock Option Plan (the '1994
Plan') and its Director's Plan. The Director's Plan was amended by the Board of
Directors in December 1994 and January 1995 and approved at the annual meeting
of stockholders on June 27, 1995 to extend the 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.
55
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The 1994 Plan, as amended, provides for options to purchase Common Stock
and is administered by the Plan Administrator, which may be either the Company's
Board of Directors or a committee designated by the Board of Directors. In
accordance with the 1994 Plan, the Plan Administrator determines the employees
to whom options are granted, the number of shares subject to each option, the
exercise price and the vesting schedule of each option. Options generally vest
over a four-year period, but may vest over a different period at the discretion
of the Plan Administrator. Under the 1994 Plan, outstanding options vest, unless
they are assumed by an acquiring entity, upon the occurrence of certain
transactions, including certain mergers and other business combinations
involving the Company. Options granted under the 1994 Plan are exercisable for a
period of ten years from the date of grant, except that incentive stock options
granted to persons who own more than 10% of the Common Stock terminate after
five years. Unless otherwise provided at the time of grant, vested options
terminate 90 days after the optionee's termination of employment with the
Company for any reason other than death or disability, and one year after
termination upon death or disability. Unless otherwise determined by the Plan
Administrator, the exercise price of options granted under the 1994 Plan must be
equal to or greater than the fair market value of the Common Stock on the date
of grant. Upon exercise, the aggregate exercise price may be paid to the Company
(i) in cash, (ii) upon approval of the Plan Administrator, by delivering to the
Company shares of Common Stock previously held by such Optionee, or (iii) by
complying with any other payment mechanism approved by the Plan Administrator
from time to time.
The Directors' Plan provides that current non-employee directors of the
Company and persons who become non-employee directors of the Company shall be
granted options to purchase 15,000 shares of Common Stock upon becoming
directors (or upon the effective date of the Director's Plan in the case of
non-employee directors who became directors prior to the effective date), and
thereafter shall annually be granted options to purchase 10,000 shares of Common
Stock on the first business day following the Company's annual meeting. The
exercise price for annual grants is the fair market value of the Company's
Common Stock on the date of grant. Options granted under the Directors' Plan
vest immediately upon grant and are exercisable for a period of ten years from
the date of grant. Options terminate 18 months after a director's termination as
a director of the Company for any reason other than death or disability, and one
year after termination upon death or disability. Upon exercise, the exercise
price may be paid (i) in cash, (ii) in shares of Common Stock, or (iii) by the
Company withholding that number of shares of Common Stock with a fair market
value on the date of exercise equal to the aggregate exercise price of the
option.
In June 1995, the Company adopted its 1995 Stock Compensation Plan (the
'Stock Compensation Plan'). Pursuant to the terms of the Stock Compensation
Plan, all employees of the Company or a Related Company (as defined in the Stock
Compensation Plan) are eligible to receive awards under the Stock Compensation
Plan. Bonuses granted pursuant to the Stock Compensation Plan are made by a plan
administrator. The plan administrator, in its absolute discretion, determines
the employees to whom, and the time or times at which, Common Stock awards are
granted, the number of shares within each award and all other terms and
conditions of the awards. The terms, conditions and restrictions applicable to
the awards made under the Stock Compensation Plan need not be the same for all
recipients, nor for all awards. The plan administrator may grant to any officer
of the Company the authority to make awards or otherwise administer the Stock
Compensation Plan solely with respect to persons who are not subject to the
reporting and liability provisions of Section 16 of the Exchange Act.
In September 1996, the Stock Compensation Plan was amended to allow the
plan to be administered by the entire Board of Directors, and if so authorized
by the Board of Directors, a committee of at least two non-employee directors.
Prior to this amendment, the plan permitted the administration only by a
committee of the Board of Directors. The purpose of the amendment was to comply
more readily with the new rules under Section 16 of the Securities Act, which
changed the eligibility requirements for these committees. The new rules under
Section 16 allow either the entire Board of Directors or a committee composed of
two or more 'non-employee' directors to act as Plan Administrator. Amending the
Stock Compensation Plan provided more flexibility for the Company in the
administration of the Stock Compensation Plan.
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Awards under the Stock Compensation Plan may not exceed 175,000 shares of
Common Stock in the aggregate, subject to certain adjustments. Shares awarded
may be from authorized but unissued shares or from Company treasury shares of
Common Stock. All shares of Common Stock received by employees pursuant to
bonuses under the Stock Compensation Plan (except for shares received by
executive officers or other persons who are subject to the reporting and
liability provisions of Section 16 of the Exchange Act) are freely transferable.
Nevertheless, the shares of Common Stock granted to recipients may be subject to
such terms and conditions as the Committee, in its sole discretion, deems
appropriate. During 1996, 67,500 shares of the Company's Common Stock were
issued pursuant to this Compensation Plan.
As of December 31, 1996, 162,500 shares of Common Stock have been issued
under the Stock Compensation Plan, and 12,500 shares of Common Stock remain
available for issuance thereunder.
An aggregate of 1,600,000 shares of Common Stock were available for
issuance pursuant to the 1994 Plan and the Directors' Plan. As of July 31, 1997,
options to purchase all of the 1,600,000 shares of Common Stock had been granted
pursuant to the 1994 Plan and the Directors' Plan and a further 133,000 options
have been issued subject to the replenishment of these Plans by the Company
prior to any of such options vesting.
STOCK OPTION INFORMATION
In April 1996, the Company granted to David Margolese pursuant to the 1994
Plan a stock option to purchase 400,000 shares of Common Stock which are now
exercisable following the grant of the FCC License. In April 1996, the Company
also granted to Robert Briskman pursuant to the 1994 Plan a stock option to
purchase 60,000 shares of Common Stock, 30,000 shares of which are exercisable
upon the FCC's grant of a license to the Company and the remaining 30,000 shares
of which were exercisable on September 18, 1997 if, as of such date, the FCC had
granted the FCC License and if Mr. Briskman was still employed by the Company.
In recognition of Mr. Briskman's services to the Company and in view of the
unexpected delay by the FCC in awarding the Company's FCC License, on October
15, 1997, the Compensation Committee of the Board of Directors granted Mr.
Briskman options to purchase 30,000 shares of Common Stock at a price of $8.5625
per share under the 1994 Plan. Such options are exercisable immediately.
The following table sets forth certain information for the fiscal year
ended December 31, 1996, with respect to options granted to the individuals
named in the Summary Compensation table above.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------- VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
TOTAL APPRECIATION FOR STOCK
NUMBER OPTIONS GRANTED TERM
OF OPTIONS TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR PRICE 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).
57
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<PAGE>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
NAME ON EXERCISE VALUE 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
Amended and Restated Bylaws provide that the Company shall indemnify all
directors and officers and may indemnify employees and certain other persons to
the full extent and in the manner permitted by Section 145 of the Delaware
General Corporation Law, as amended from time to time. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and, therefore, is unenforceable. The Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws provide
that the Company may, to the full extent permitted by law, purchase and maintain
insurance on behalf of any director, officer, employee or agent of the Company
against any liability which may be asserted against him or her and the Company
currently maintains such insurance.
58
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following tables set forth certain information regarding beneficial
ownership of the Company's Common Stock and 5% Preferred Stock, as of September
30, 1997, by (i) each stockholder known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock or 5% Preferred Stock,
(ii) in relation to the Common Stock, each director of the Company, (iii) in
relation to the Common Stock, each executive officer of the Company and (iv) in
relation to each of the Common Stock and the 5% Preferred Stock, all directors
and executive officers as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock and 5% Preferred Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable. The table of beneficial ownership of Common
Stock also sets forth information concerning the number of shares of Common
Stock issuable upon conversion of shares of the Company's 5% Preferred Stock to
holders of the 5% Preferred Stock.
BENEFICIAL OWNERS OF COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAME AND ADDRESS OF OF COMMON STOCK OF COMMON STOCK
BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
- ----------------------------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
Directors, Executive Officers and 5% Stockholders
Darlene Friedland(3) .................................................. 2,834,500 22.5%
110 Wolseley Road
Point Piper 2027
Sydney, Australia
Loral Space & Communications Ltd.(4) .................................. 1,905,488 15.2
600 Third Avenue
New York, New York 10017
David Margolese(5) .................................................... 1,900,000 15.1
c/o CD Radio Inc.
Sixth Floor
1001 22nd Street, N.W.
Washington, D.C. 20037
Robertson, Stephens & Co., et al.(6) .................................. 1,467,500 11.7
555 California Street, Suite 2600
San Francisco, CA 94104
Robert D. Briskman(7).................................................. 132,500 1.1
Jack Z. Rubinstein(8).................................................. 227,000 1.8
Peter K. Pitsch(9)..................................................... 70,000 *
Lawrence F. Gilberti(10)............................................... 35,000 *
Ralph V. Whitworth(11)................................................. 35,000 *
Joseph Capobianco(12).................................................. 0 *
Keno V. Thomas(13)..................................................... 0 *
Andrew J. Greenebaum(14)............................................... 59,000 *
All Executive Officers and Directors
as a Group (9 persons)(l5)........................................... 2,458,500 19.5
Holders of 5% Delayed Convertible Preferred Stock(16)
Everest Capital International, Ltd.(17) ............................... 2,194,368 14.9
c/o Morgan Stanley & Co. Incorporated
One Pierpont Plaza, 10th Floor
Brooklyn, NY 11201
Continental Casualty Company(18) ...................................... 2,150,881 14.6
c/o Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2477
Mackay-Shields Financial Corporation(19) .............................. 1,309,012 9.5
9 West 57th Street
New York, NY 10019
</TABLE>
(table continued on next page)
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<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAME AND ADDRESS OF OF COMMON STOCK OF COMMON STOCK
BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
- ----------------------------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
Jess M. Ravich(20) .................................................... 913,244 6.8
c/o Libra Investments, Inc.
11766 Wilshire Boulevard
Suite 870
Los Angeles, CA 90025
Grace Brothers, Ltd.(21) .............................................. 869,399 6.5
Bradford Whitmore
1560 Sherman Avenue, Suite 900
Evanston, IL 60201
Everest Capital Fund, L.P.(22) ........................................ 824,020 6.2
c/o Morgan Stanley & Co. Incorporated
One Pierpont Plaza, 10th Floor
Brooklyn, NY 11201
</TABLE>
- ------------
* Less than 1%
(1) This table is based upon information supplied by directors, officers and
principal stockholders. Percentage of ownership is based on 12,577,884
shares of Common Stock outstanding on September 30, 1997. Unless otherwise
indicated, the address of the beneficial owner is the Company.
(2) Determined in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934, as amended. Under this rule, a person is deemed to be the
beneficial owner of securities that can be acquired by such person within 60
days from September 30, 1997 upon the exercise of options, and each
beneficial owner's percentage ownership is determined by assuming that
options that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from September 30, 1997 have
been exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(3) Darlene Friedland is the spouse of Robert Friedland. Robert Friedland was a
director of the Company from June 1993 until October 1993. From May 1992,
Mr. Friedland and Ivanhoe Capital Corporation, a venture capital firm he
controls, collectively were the Company's largest shareholder until their
shares were transferred to Darlene Friedland in October 1993.
(4) Subject to demand registration rights after the Company's two satellites are
launched and operational.
(5) Includes 300,000 shares issuable pursuant to stock options that are
exercisable within 60 days. Does not include 400,000 shares issuable
pursuant to stock options that are not exercisable within 60 days. Pursuant
to a voting trust agreement entered into by Darlene Friedland, as grantor,
David Margolese, as trustee, and the Company, Mr. Margolese will have the
power to vote in his discretion all shares of Common Stock owned or
hereafter acquired by Darlene Friedland and certain of her affiliates
(currently 2,734,500 shares) for a period of five years commencing on the
first to occur of the closing dates of the Stock Offerings or Notes Offering
(both as defined below) or the consummation of the Exchange Offer.
(6) Shares are owned by a group including the following: The Robertson Stephens
Orphan Fund (which has shared voting and shared dispositive power over
1,069,200 shares), The Robertson Stephens Orphan Offshore Fund (with shared
voting and shared dispositive power over 226,800 shares), The Robertson
Stephens Global Low-Priced Stock Fund (with shared voting and shared
dispositive power over 70,000 shares), The Robertson Stephens & Company
Investment Management L.P. (with shared voting and shared dispositive power
over 1,366,000 shares), Bayview Investors, LTD (with shared voting and
shared dispositive power over 1,069,200 shares), Robertson, Stephens &
Company, Incorporated ('RS&Co.') (with shared voting and shared dispositive
power over 1,366,000 shares), and RS&Co.'s five shareholders, namely Paul H.
Stephens (with sole voting and sole dispositive power over 96,880 shares,
and shared voting and shared dispositive power over 1,366,000 shares),
Sanford R. Robertson (with sole voting and sole dispositive power over
11,620 shares, and shared voting and shared dispositive power over 1,366,000
shares), Michael G. McCaffery, G. Randy Hecht and Kenneth R. Fitzsimmons
(the three of whom have shared voting and shared dispositive power over
1,366,000 shares). Messrs. Stephens, Robertson, McCaffery, Hecht and
Fitzsimmons disclaim any beneficial ownership with respect to shares of the
Company that RS&Co. may be deemed to beneficially own. The source of the
information in this footnote is the Schedule 13D dated August 13, 1997 filed
by Robertson, Stephens & Company LLC, et al.
(7) Includes 132,500 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days. Does not include 117,500 shares issuable
pursuant to stock options that are not exercisable within 60 days of such
date.
(8) Includes 195,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days and 7,700 shares of Common Stock held in trust
for his daughters. Excludes 20,000 shares held by DICA Partners, L.P. of
which Mr. Rubinstein is the General Partner.
(9) Includes 60,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(10) Represents 35,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(11) Represents 35,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days.
(12) Does not include 75,000 shares issuable pursuant to stock options that are
not exercisable within 60 days.
(footnotes continued on next page)
60
<PAGE>
<PAGE>
(footnotes continued from previous page)
(13) Does not include 75,000 shares issuable pursuant to stock options that are
not exercisable within 60 days.
(14) Represents 59,000 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days. Does not include 116,000 shares of Common Stock
issuable pursuant to stock options not exercisable within 60 days.
(15) Includes 732,500 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days. Does not include 857,500 shares issuable
pursuant to options that are not exercisable within 60 days.
(16) Estimated solely for the purposes of this table. Such beneficial ownership
represents an estimate of the number of shares of Common Stock issuable
upon the conversion of shares of 5% Preferred Stock beneficially owned by
such person, assuming a conversion date of September 30, 1997 and that all
dividends on shares of the 5% Preferred Stock are paid, in lieu of cash, in
additional shares of 5% Preferred Stock. The number of shares of Common
Stock issuable upon conversion of the shares of the 5% Preferred Stock
would equal the liquidation preference of the shares being converted plus
any cash payments divided by the then-effective conversion price applicable
to the Common Stock (the 'Conversion Price'). The Conversion Price, as of
any date up to and including November 15, 1997, is determined in accordance
with a formula based on market prices of the Common Stock or actual prices
at which the converting holder sold the Common Stock, in either case
multiplied by an amount equal to 1 minus an applicable percentage. The
actual number of shares of Common Stock upon conversion is subject to
adjustment and could be materially less or more than the estimated amount
indicated depending upon factors which cannot be predicted by the Company
at this time, including, among others, application of the conversion
provisions based on market prices prevailing at the actual date of
conversion and whether dividends on shares of 5% Preferred Stock are paid
in cash or added to the liquidation preference. This presentation is not
intended to constitute a prediction as to the future market price of the
Common Stock or as to when holders will elect to convert shares of the 5%
Preferred Stock into shares of Common Stock. See 'Description of Capital
Stock -- 5% Delayed Convertible Preferred Stock.'
(17) Includes 1,137,155 shares of 5% Preferred Stock. The following limitations
(the 'Standstill Agreement') apply to Everest Capital International, Ltd.
and Everest Capital Fund, L.P. (the 'Everest Funds') and their affiliates,
and to certain transferees. Until the date one year after the execution of
a certain Commitment Term Sheet between such Everest Funds and the Company,
the Everest Funds and their affiliates (i) shall not acquire Common Stock,
including by means of conversion of their 5% Preferred Stock or exercise
any other right, if, upon such acquisition or exercise, the Everest Funds
and their affiliates will have or share, directly or indirectly, voting or
investment power over ten percent or more of the Common Stock (for purposes
of this clause (i), a right to acquire upon exercise or conversion will not
be deemed to confer voting or investment power over the underlying security
in the absence of an exercise or conversion), and (ii) shall not sell or
otherwise dispose of warrants or 5% Preferred Stock to any purchaser, if,
following such sale or disposition, the purchaser and its affiliates would
be beneficial owners of ten percent or more of the Common Stock, except for
a sale or disposition of warrants or 5% Preferred Stock to a purchaser who,
for itself and its affiliates, agrees to be bound by the limitations set
forth in the Standstill Agreement.
(18) Includes 1,114,630 shares of 5% Preferred Stock held on its own behalf and
on behalf of its Designated A/C High Yield Fund.
(19) Includes 678,350 shares of 5% Preferred Stock held by the Mainstay Funds,
on behalf of its High Yield Corporate Bond Fund Series, for which
Mackay-Shields Financial Corporation acts as financial advisor. Such Funds
and such advisor share investment and voting power with respect to such
shares. The Fund has agreed that it will not, following any conversion of
its shares, be the beneficial owner of more than 9.99% of the outstanding
Common Stock unless it chooses to waive this restriction upon 61 days prior
notice to the Company.
(20) Represents 64,757 shares of 5% Preferred Stock beneficially owned by Mr.
Ravich, 146,800 shares of 5% Preferred Stock that are issuable pursuant to
warrants to be issued to Libra Investments, Inc. ('Libra') and 261,700
shares of 5% Preferred Stock that are issuable pursuant to warrants to be
issued to The Ravich Revocable Trust of 1989 (the 'Ravich Trust'). Jess M.
Ravich is the Chairman, Chief Executive Officer and the controlling
shareholder of Libra and a trustee of the Ravich Trust. Mr Ravich disclaims
beneficial ownership in the shares issuable to Libra except to the extent
of his ownership interest in Libra. Libra and the Ravich Trust have agreed
that they will not, following any conversion of their shares of 5%
Preferred Stock, be the beneficial owner of more than 4.99% of the
outstanding Common Stock unless they choose to waive this restriction upon
61 days prior notice to the Company. Amount does not include warrants to
purchase 60,000 shares of Common Stock to be issued to the Ravich Trust at
a purchase price of $50.00 per share. The warrants are exercisable from
June 15, 1998 through and including June 15, 2005.
(21) Includes 450,536 shares of 5% Preferred Stock. Grace Brothers, Ltd. has
agreed that it will not, following any conversion of its shares, be the
beneficial owner of more than 9.99% of the outstanding Common Stock unless
it chooses to waive this restriction upon 61 days prior notice to the
Company.
(22) Includes 427,020 shares of 5% Preferred. Does not include shares of Common
Stock issuable pursuant to warrants to be issued to Everest Capital Fund,
L.P. or an affiliate thereof to purchase 1,740,000 shares of Common Stock
at a purchase price of $50.00 per share. The warrants are exercisable from
June 15, 1998 through and including June 15, 2005. See footnote (17) above
for further commentary.
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BENEFICIAL OWNERS OF 5% PREFERRED STOCK
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAME AND ADDRESS OF OF 5% PREFERRED STOCK OF 5% PREFERRED STOCK
BENEFICIAL OWNER OF 5% PREFERRED STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
- ----------------------------------------------------------- ------------------------ ---------------------------
<S> <C> <C>
Directors, Executive Officers and 5% Stockholders
Everest Capital International, Ltd. ...................... 1,137,155 21.8%
c/o Morgan Stanley & Co. Incorporated
One Pierpont Plaza, 10th Floor
Brooklyn, NY 11201
Continental Casualty Company .............................. 1,114,630 21.3
c/o Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2477
Mackay-Shields Financial Corporation ...................... 678,350 13.0
9 West 57th Street
New York, NY 10019
Jess M. Ravich ............................................ 473,257 9.1
c/o Libra Investments, Inc.
11766 Wilshire Boulevard
Suite 870
Los Angeles, CA 90025
Grace Brothers, Ltd. ..................................... 450,536 8.6
Bradford Whitmore
1560 Sherman Avenue, Suite 900
Evanston, IL 60201
Everest Capital Fund, L.P. ............................... 427,020 8.2
c/o Morgan Stanley & Co. Incorporated
One Pierpont Plaza, 10th Floor
Brooklyn, NY 11201
All Executive Officers and Directors as a Group (9 -- *
persons)(3) .............................................
</TABLE>
- ------------
* Less than 1%
(1) This table is based upon information supplied by principal stockholders.
Percentage of ownership is based on 5,222,608 shares of 5% Preferred Stock
outstanding on September 30, 1997. Unless otherwise indicated, the address
of the Beneficial Owner is the Company.
(2) Determined in accordance with Rule 13D-3 under the Securities Exchange Act
of 1934, as amended. Under this rule, a person is deemed to be the
beneficial owner of securities that can be acquired by such person within 60
days from September 30, 1997 upon the exercise of options, and each
beneficial owner's percentage ownership is determined by assuming that
options that are held by such person (but not those held by any other
person) and that are exercisable within 60 days from September 30, 1997 have
been exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of 5% Preferred Stock beneficially owned by them.
(3) No executive officer or director of the Company beneficially owns any shares
of 5% Preferred Stock.
VOTING TRUST AGREEMENT
The Company is a party to a voting trust agreement dated August 26, 1997
(the 'Voting Trust Agreement') by and among Darlene Friedland, as grantor, David
Margolese, as the voting trustee thereunder, and the Company. The following
summary description of the Voting Trust Agreement does not purport to be
complete and is qualified in its entirety by reference to the complete text
thereof, a copy of which has been filed with the SEC as an exhibit to the Issuer
Tender Offer Statement on Schedule 13E-4 and incorporated herein by reference.
The Voting Trust Agreement provides for the establishment of a trust (the
'Trust') into which (i) there have been deposited all of the shares of Common
Stock owned by Mrs. Friedland on August 26, 1997 and (ii) there shall be
deposited any shares of Common Stock acquired by Mrs. Friedland, her spouse Mr.
Robert Friedland, any member of either of their immediate families or any entity
directly or indirectly controlled by Mrs. Friedland, her spouse or any member of
either of their immediate families (the 'Friedland Affiliates') between the date
shares are initially deposited and the termination of the Trust. The voting
trust will terminate on the fifth anniversary of the initial deposit of shares
into the Trust.
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<PAGE>
The Voting Trust Agreement does not restrict the ability of Mrs. Friedland
or any of the Friedland Affiliates to sell, assign, transfer or pledge any of
the shares deposited into the Trust, nor does it prohibit Mrs. Friedland or the
Friedland Affiliates from purchasing additional shares of Common Stock, provided
those shares become subject to the Trust, as described above.
Under the Voting Trust Agreement, the trustee has the power to vote shares
held in the Trust in relation to any matter upon which the holders of such stock
would have a right to vote, including without limitation the election of
directors. For so long as David Margolese remains trustee of the Trust, he may
exercise such voting rights in his discretion. Any successor trustee or trustees
of the Trust must vote as follows: (i) on the election of directors, the
trustee(s) must vote the entire number of shares held by the Trust, with the
number of shares voted for each director (or nominee for director) determined by
multiplying the total number of votes held by the Trust by a fraction, the
numerator of which is the number of votes cast for such person by other
stockholders of the Company and the denominator of which is the sum of the total
number of votes represented by all shares casting any votes in the election of
directors; (ii) if the matter under Delaware law or the Certificate of
Incorporation or the Bylaws of the Company requires at least an absolute
majority of all outstanding shares of Common Stock of the Company in order to be
approved, the trustee(s) must vote all of the shares in the Trust in the same
manner as the majority of all votes that are cast for or against the matter by
all other stockholders of the Company; and (iii) on all other matters, including
without limitation any amendment of the Voting Trust Agreement for which a
stockholder vote is required, the trustee(s) must vote all of the shares in the
Trust for or against the matter in the same manner as all votes that are cast
for or against the matter by all other stockholders of the Company.
The Voting Trust Agreement may not be amended without the prior written
consent of the Company, acting by unanimous vote of the Board of Directors, and
approval of the Company's stockholders, acting by the affirmative vote of
two-thirds of the total voting power of the Company, except in certain limited
circumstances where amendments to the Voting Trust Agreement are required to
comply with applicable law.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR SECURED DISCOUNT NOTES DUE 2007
The Notes are expected to have the following terms when issued. The Notes
will mature in 2007, are expected to be issued, together with the Warrants, for
approximately $150 million aggregate gross proceeds and will be secured
obligations of the Company, secured by a pledge of the stock of Satellite CD
Radio, Inc. The Notes will accrete the original issue discount for five years
at a rate to be determined, and thereafter will bear interest at
the same rate, payable in cash semiannually in arrears. The Indenture will not
provide for a sinking fund. The Notes will be subject to redemption at any time
on or after a date to be determined in 2002, at the option of the Company, in
whole or in part, in amounts of principal at maturity of $1,000 or an integral
multiple of $1,000 at declining redemption prices set forth in the Indenture.
Notwithstanding the foregoing, during the first 36 months after the date of the
Indenture, the Company will be permitted to redeem up to 33% of the aggregate
principal amount at maturity of the Notes with the net proceeds of any Public
Equity Offerings (as defined in the Indenture) at a redemption price to be
determined.
Upon a change of control of the Company, or in the event of asset sales in
certain circumstances, the Company will be required by the terms of the
Indenture to make an offer to purchase the outstanding Notes at a purchase price
equal to, or at a premium to, the accreted value thereof.
The indebtedness of the Company evidenced by the Notes will rank pari passu
in right of payment with all other existing and future unsubordinated
indebtedness of the Company and senior in right of payment to all existing and
future obligations of the Company expressly subordinated in right of payment to
the Notes. The Indenture will contain a number of covenants restricting the
operations of the Company and its subsidiaries, including those restricting the
incurrence of indebtedness; the making of restricted payments (in the form of
the declaration or payment of certain dividends or distributions, the purchase,
redemption or other acquisition of any capital stock of the Company, the
voluntary prepayment of pari passu or subordinated indebtedness and the making
of certain investments, loans and advances); transactions with stockholders and
affiliates; the incurrence of liens; sale-leaseback
63
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<PAGE>
transactions; the transfer of assets; issuances and sales of capital stock of
subsidiaries; the incurrence of guarantees by subsidiaries; dividend and other
payment restrictions affecting subsidiaries; and consolidation, merger or sale
of substantially all of the Company's assets and requiring the purchase of
Notes, at the option of the holder, upon the occurrence of a change in control.
The events of default under the Indenture will include provisions that are
typical of senior debt financings, including a cross-acceleration to a default
by the Company or any material subsidiary on any indebtedness that has an
aggregate principal amount in excess of certain levels. Upon the occurrence of
such an event of default, the trustee or the holders of not less than 25% in
principal amount at maturity of the outstanding Notes may immediately accelerate
the maturity of all the Notes as provided in the Indenture.
WARRANTS TO PURCHASE NOTES
The Warrants are expected to have the following terms when issued. From and
after the date of issuance until the expiration of the Warrants in 2007, each
Warrant will entitle the holder thereof to acquire a to-be determined principal
amount at maturity of Notes for an exercise price of $0.01. The Notes issuable
upon exercise of the Warrants will be the same class as the Notes issued in the
Units Offerings. Holders of Warrants will not, by virtue of being such holders,
have any rights of holders of Notes.
VENDOR FINANCING
On July 22, 1997, the Company entered into the AEF Agreements with AEF to
finance approximately $105 million of the estimated $176 million price of the
launch services to be provided by Arianespace for the Company's two satellites.
Under the AEF Agreements, the Company is able to borrow funds to meet the
progress payments due to Arianespace for the construction of each launch vehicle
and other launch costs (the 'Tranche A Loans'). The obligation of AEF to make
the Tranche A Loans is subject to the Company's satisfaction of certain
conditions precedent, and the Company has comfirmed with AEF that its issuance
of the Notes will not violate such conditions. Interest on the Tranche A Loans
will be capitalized and will accrue at a rate of 3% per annum above the rate at
which dollar deposits are offered in the London interbank market for three
months or, during a certain time period following the Conversion Commitment Date
(defined below), one month (the 'Interest Basis'). Unless the Company satisfies
the conditions for conversion of the Tranche A Loans to long-term loans, the
Company will be required to repay the Tranche A Loans in full, together with
accrued interest and all fees and other amounts due, approximately three months
before the applicable launch date, which will be prior to the time CD Radio
commences commercial operations. There can be no assurance that the Company will
have sufficient funds to make such repayment.
If the Company satisfies certain conditions set forth in the AEF Agreements
and otherwise meets the requirements of AEF by a specified date prior to the
applicable launch (the 'Conversion Commitment Date'), Tranche A Loans
representing up to 60% of the launch costs may be converted ('Conversion') on
the launch date into term loans (the 'Tranche B Loans') which will amortize over
a period not to exceed seven years. However, not more than $80 million of the
Tranche A Loans may be converted in the aggregate under the AEF Agreements.
Prior to Conversion, based on documents and materials to be submitted by
the Company, including its business plan, AEF will place the Company into one of
three pre-established borrower categories for the purpose of determining the
conditions to Conversion that the Company must satisfy. It is anticipated that
the Company will be placed in the category for which the conditions to
Conversion are the most restrictive ('Category 3'). If the Company is placed in
Category 3, AEF, at its discretion, may impose conditions to Conversion and
require covenants in addition to those initially set forth in AEF Agreements.
There can be no assurance that the Company will be able to satisfy the
conditions to Conversion.
Interest on the Tranche B Loans will accrue at a rate of 3.5% per annum
above the Interest Basis and will be payable quarterly (or, in certain time
periods, monthly) in arrears. Any amounts due and
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payable by the Company which are not paid on their due date will accrue interest
at a default rate of 2% above the interest rate otherwise applicable at such
time.
The Company may, at any time, prepay the Tranche A Loans or the Tranche B
Loans by providing prior irrevocable written notice to AEF. The Company will be
required to prepay the loans in full, together with accrued interest and all
fees and other amounts due, if certain events occur, including the following:
(i) any of the applicable AEF Agreements, the Launch Services Agreement or the
related Multiparty Agreement among the Company, AEF and Arianespace is
terminated; (ii) following a launch failure, the Company does not request a
replacement launch within 180 days after the original launch date or a
replacement launch is not accomplished within two years following the original
launch date; (iii) an initial launch has not occurred by April 12, 2002; (iv) a
replacement launch results in a launch failure; or (v) the satellite fails to
enter commercial service within eight months following launch. The Company also
will be required to make a prepayment of the loans in proportion to any
prepayment (whether voluntary or mandatory) made by the Company under any other
financing agreement relating to the construction, launch and operation of the
satellites. Following Conversion, the Company will be required to apply a
percentage of its excess cash flow (cash flow not needed to service debt, pay
taxes or fund capital expenditures) to prepay the Tranche B Loans on certain
specified dates, with the percentage so applied decreasing as the outstanding
principal amount of the Tranche B loan decreases.
If Conversion occurs, the Company will not be permitted to pay any
dividends on any shares of its stock or purchase any capital stock or other
equity interest in, or make any loan to or investment in, any of its affiliates
unless the aggregate amount of all such payments for the applicable time period
is less than or equal to the amount of the Company's excess cash flow for such
period minus the amounts needed to make required prepayments of the Tranche B
loans and not used during such period to make loans, investments, capital
expenditures, scheduled payments on subordinated indebtedness or other purposes.
If Conversion occurs, it is anticipated that the Tranche B Loans will be
amortized as set forth in the following schedule, with the final payment of
principal to be made no later than April 14, 2009 (the 'maturity date'):
<TABLE>
<CAPTION>
PERCENTAGE OF PRINCIPAL AMOUNT
QUARTERLY PERIOD OF TRANCHE B LOANS TO BE
FOLLOWING LAUNCH DATE REPAID PER QUARTER
- ---------------------------------------------------- ------------------------------
<S> <C>
1 and 2............................................ No Repayment
3 and 4............................................ 1.0%
5 through 8........................................ 2.0%
9 through 12....................................... 2.5%
13 through maturity date............................ 5.0%
</TABLE>
However, based on the business plan and other documents to be submitted by
the Company during the review process required for Conversion, AEF may impose a
shorter amortization schedule for the Tranche B Loans.
If AEF determines that the Tranche A Loans are eligible for Conversion, the
Company also will be prohibited from changing its capital structure (including
the terms of its outstanding stock or other equity interests), permitting any
change in the composition of its ownership, or changing its organizational
documents, if such change could reasonably be expected to have a material
adverse effect on the Company, its business, assets or financial condition or
its ability to perform its obligations under any agreements relating to the
financing or the value of the Collateral (as defined below) or the license
granted under the Collateral Documents (as defined below). The Company will also
be prohibited from merging, consolidating or combining with any other entity.
As a condition to Conversion, the Company will be required to create, in
favor of a security agent (the 'Security Agent') (and on behalf of AEF, a bank
group providing funding to AEF to on-lend to the Company and any other lender to
the project), liens on specified assets of the Company, including the
satellites, the Company's interests in gateway, ground reception and similar
facilities and the FCC License (the 'Collateral'). In addition, if, as expected,
the Company is determined to be in Category 3, it will be required to provide a
lien on the Common Stock of Satellite CD Radio, Inc. In connection with such
liens, the Company must execute certain agreements (the 'Collateral Documents'),
including an assignment and security agreement granting the liens to the
security agent, a mortgage on any tracking, telemetry, control and monitoring
equipment owned by the
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Company and an intercreditor agreement (the 'Intercreditor Agreement'). All
obligations of the Company under the AEF Agreements will be secured by
such liens from and following the date of execution of the Collateral
Documents, subject to the condition that neither AEF nor any member of
the bank group providing funds to AEF may direct the security agent to
exercise rights with respect to the Collateral prior to Conversion. If AEF does
not approve the pledge of stock of CD Radio Inc. securing the Notes,
the Company may be precluded from converting the Tranche A Loans. From
and following the date of execution of any Collateral Document, the Company
will be prohibited from creating or incurring any lien on the Collateral other
than liens in favor of AEF (or the other parties to the Intercreditor Agreement)
and certain specified permitted liens. From such date, the Company will be
prohibited from selling or transferring any Collateral having an aggregate fair
market value in excess of $1.0 million. In addition, the Indenture permits
indebtedness under the AEF Agreements to be secured on a pari passu basis with
the Notes by a first priority security interest in the Pledged Stock.
Following the Conversion Commitment Date, neither the Company nor its
subsidiaries may sell or transfer any assets (other than permitted dispositions
of the Collateral), except for (i) sales of inventory in the ordinary course of
business, (ii) the trade-in of machinery or equipment in connection with the
acquisition of similar machinery or equipment, (iii) the sale of obsolete or
worn-out property having a value not exceeding $1.5 million in the aggregate in
any fiscal year and (iv) sales or transfers of assets that (x) do not exceed in
the aggregate 2% of the Company's total assets in any fiscal year, (y) together
with all prior permitted sales or transfers do not exceed in the aggregate 5% of
the Company's total assets at the time of such action or (z) do not have a fair
market value in excess of $1.0 million per item.
Commencing on the Conversion Commitment Date, prior to incurring additional
indebtedness in an aggregate principal amount of $10.0 million or more, the
Company will be required to deliver to AEF a certificate stating that no default
will occur as a result of the incurrence of such indebtedness. From and after
Conversion, the Company also will be required to maintain certain financial
ratios relating to its ability to service debt. If the Company is placed in
Category 3 (as anticipated), it will be in breach of the AEF Agreements if its
ratio of earnings before interest, tax, depreciation and amortization ('EBITDA')
to total interest accrued or payable for any period of four fiscal quarters
ending on the relevant date of calculation is less than: (i) at any time after
the first anniversary and on or prior to the second anniversary of Conversion,
1.0 to 1, (ii) thereafter, through and including the third anniversary of
Conversion, 1.5 to 1, (iii) thereafter, through and including the fourth
anniversary of Conversion, 2.0 to 1, (iv) thereafter, through and including the
fifth anniversary of Conversion, 2.5 to 1, and (v) any time thereafter, 3.0 to
1.
The Company will also be prohibited from permitting its ratio of EBITDA to
the sum of (a) total interest accrued or payable and (b) scheduled principal
payments for any period of four fiscal quarters ending on the relevant date of
calculation to be less than: (i) at any time after the first anniversary and on
or prior to the third anniversary of Conversion, 1.0 to 1, (ii) thereafter,
through and including the fourth anniversary of Conversion, 1.5 to 1, (iii)
thereafter, through and including the fifth anniversary of Conversion, 2.0 to 1,
and (iv) at any time thereafter, 2.5 to 1.
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In addition, the Company may not permit its ratio of indebtedness to EBITDA
for the four fiscal quarters ending on the relevant calculation date to exceed:
(i) at any time after the first anniversary and on or prior to the second
anniversary of Conversion, 6.0 to 1, (ii) thereafter, through and including the
third anniversary of Conversion, 5.5 to 1, (iii) thereafter, through and
including the fourth anniversary of Conversion, 5.0 to 1, (iv) thereafter,
through and including the fifth anniversary of Conversion, 4.0 to 1, and (v) at
any time thereafter, 3.0 to 1.
From and following the Conversion Commitment Date, the Company may not make
any advances or loans other than (i) extensions of credit for a period not
exceeding ninety days in the nature of accounts receivable or notes receivable
arising from the sale or lease of goods or services in the ordinary course of
business, and (ii) if no default exists or would result therefrom, (x) loans or
extensions of credit in the ordinary course of business to affiliates, not
exceeding $2.5 million in an aggregate principal amount outstanding at any one
time and (y) loans or extension of credit to the Company's key management
employees, not exceeding $1.25 million in an aggregate principal amount
outstanding at any one time.
Neither the Company nor any of its subsidiaries may make any payments in
respect of any indebtedness subordinated to the prior payment of all amounts
payable by the Company under any of the AEF Agreements, except for regularly
scheduled payments of principal and interest required by the instruments
evidencing such subordinated indebtedness.
A default under either of the AEF Agreements, which includes the
non-payment of principal and interest and breaches of covenants, will constitute
a default under the other AEF Agreement. In addition, the AEF Agreements will be
cross-defaulted to a default by the Company under any other financing agreement
relating to the project or any other agreement or instrument relating to
indebtedness in an aggregate principal amount exceeding five million dollars. If
the Company is subject to more restrictive cross-default provisions under any
other agreement providing for long-term, asset-based financing, those more
restrictive cross-default provisions will be deemed to be set forth in the AEF
Agreements. Upon the occurrence of an event of default, AEF may terminate all
commitments to make advances to the Company or convert loans, declare all unpaid
principal and interest immediately due and payable, and exercise its rights with
respect to any security.
Pursuant to a Multiparty Agreement to be executed among the Company, AEF
and Arianespace in connection with the AEF Agreements, if the Company is unable
to obtain sufficient financing to complete the construction and launch of the
satellites, and if the Company terminates the Arianespace Launch Contract, the
Company will be required to pay Arianespace a termination fee ranging from 5% to
40% of the launch services price, based on the proximity of the date of
termination to the scheduled launch date. The termination fee will be payable
prior to the time the Company commences commercial operations and there can be
no assurance that the Company will have sufficient funds to pay this fee.
DESCRIPTION OF CAPITAL STOCK
The Company's Amended and Restated Certificate of Incorporation provides
for authorized capital of 250,000,000 shares, consisting of 200,000,000 shares
of Common Stock, par value $0.001 per share, and 50,000,000 shares of Preferred
Stock, par value $0.001 per share.
COMMON STOCK
As of September 30, 1997, the Company had 12,577,884 shares of Common Stock
outstanding held of record by 105 persons, and had reserved for issuance
3,763,000 shares of Common Stock with respect to outstanding options and
warrants, including 1,800,000 shares pursuant to warrants exercisable at $50.00
per share and expiring in 2005.
Holders of the Company's Common Stock are entitled to cast one vote for
each share held of record on all matters acted upon at any stockholders' meeting
and to dividends if, as and when declared by the Board of Directors out of funds
legally available therefor. There are no cumulative voting rights. In the event
of any liquidation, dissolution or winding up of the Company, each holder of the
Company's Common Stock will be entitled to participate, subject to the rights of
any outstanding Preferred Stock, ratably in all assets of the Company remaining
after payment of liabilities. Holders of the Company's Common Stock have no
preemptive or conversion rights. All outstanding shares of
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Common Stock are, and the shares of Common Stock offered hereby will be when
issued against the consideration set forth in this prospectus, fully paid and
non-assessable.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol 'CDRD.'
PREFERRED STOCK
The Board of Directors has the authority to issue shares of Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof including dividend rights, conversion rights, voting
rights, redemption rights, liquidation preferences and the number of shares
constituting any series, without any further vote or action by the stockholders.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock. In addition, because the
terms of such Preferred Stock may be fixed by the Board of Directors without
stockholder action, the Preferred Stock could be designated and issued quickly
in the event the Company determines to issue preferred stock to raise additional
equity capital. The Preferred Stock could also be designated and issued with
terms calculated to deter, delay or defeat a proposed takeover of the Company,
or with terms making the removal of management more difficult. Under certain
circumstances, this could have the effect of decreasing the market price of the
Common Stock. Otherwise, the Company currently has no plans to issue Preferred
Stock.
5% DELAYED CONVERTIBLE PREFERRED STOCK
On March 19, 1997, the Board of Directors authorized the issuance of up to
8,000,000 shares of the 5% Preferred Stock. As of September 30, 1997, there were
5,222,608 shares of the 5% Preferred Stock outstanding held of record by 37
entities. In the Exchange Offer, all of the outstanding shares of 5% Preferred
Stock were tendered for 1,846,799 shares of Series C Preferred Stock. The
Company has agreed to grant a warrant to purchase an additional 486,000 shares
of 5% Preferred Stock at a price of $25.00 per share to Libra Investments, Inc.
('Libra'), the original placement agent for the 5% Preferred Stock. Following
consummation of the Exchange Offer, the Company will instead grant Libra a
warrant to purchase 121,500 shares of Series C Preferred Stock at a price of
$100.00 per share.
10 1/2% SERIES C CONVERTIBLE PREFERRED STOCK
On October 13, 1997, the Board of Directors authorized the issuance of up
to 7,000,000 shares of the 10 1/2% Series C Convertible Preferred Stock (the
'Series C Preferred Stock'). In the Exchange Offer, all of the outstanding
shares of 5% Preferred Stock were tendered for 1,846,799 shares of Series C
Preferred Stock.
Dividends. The annual dividend rate per share of the Series C Preferred
Stock will be an amount equal to 10.5% of the sum of (x) the Liquidation
Preference (as defined herein) of the Series C Preferred Stock and (y) all
accrued and unpaid dividends, if any, whether or not declared, from the date of
issuance of the shares of Series C Preferred Stock to the applicable dividend
payment date. Dividends on the shares of Series C Preferred Stock will be
cumulative, accruing quarterly and, when and as declared by the Board of
Directors of the Company, will be payable quarterly initially on November 15,
2002 (the 'First Scheduled Dividend Payment Date') and on February 15, May 15,
August 15 and November 15 of each year (each, a 'Dividend Payment Date') in each
year thereafter. In addition, accrued dividends on the shares of Series C
Preferred Stock will be paid on the redemption date of any share of Series C
Preferred Stock redeemed by the Company, on the purchase date of any share of
Series C Preferred Stock purchased by the Company pursuant to an Offer to
Purchase (as defined herein) or on the conversion date of any share of Series C
Preferred Stock converted into shares of Common Stock on or after the First
Scheduled Dividend Payment Date. No accrued dividends will be paid on any shares
of Series C Preferred Stock that are converted by the holders thereof prior to
the First Scheduled Dividend Payment Date, unless such shares of Series C
Preferred Stock are converted on or prior to a redemption date by holders
thereof electing to convert such shares after having received a notice of
redemption for such shares. Dividends may be paid in cash, shares of Common
Stock or any combination thereof, at the option of the Company. Common Stock
issued to pay dividends will be valued at the average closing price of the
Common Stock as reported in The Wall
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Street Journal for the 20 consecutive trading days immediately preceding the
date of such payment. Dividends with respect to any share of Series C Preferred
Stock will accumulate from November 15, 1997.
If and so long as any full cumulative dividends payable on the shares of
Series C Preferred Stock in respect of all prior dividend periods will not have
been paid or set apart for payment, the Company will not pay any dividends or
make any distributions of assets on or redeem, purchase or otherwise acquire for
consideration shares of capital stock of the Company ranking junior to or on a
par with the Series C Preferred Stock in payment of dividends.
Redemption. Except as described below, the shares of Series C Preferred
Stock may not be redeemed by the Company at its option prior to November 15,
2002. From and after November 15, 1999 and prior to November 15, 2002, the
Company may redeem shares of Series C Preferred Stock, in whole or in part, at
any time at a redemption price of 100% of the Liquidation Preference of the
shares of Series C Preferred Stock redeemed, plus accrued and unpaid dividends,
if any, whether or not declared, to the redemption date, if the average closing
price of the Common Stock as reported in The Wall Street Journal for the 20
consecutive trading days prior to the notice of redemption thereof equals or
exceeds $31.50 per share (subject to adjustments). From and after November 15,
2002, the Company may redeem shares of Series C Preferred Stock, in whole or in
part, at the following redemption prices per share, expressed as percentages of
the Liquidation Preference thereof, if redeemed during the 12-month period
beginning November 15 in the year indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------------------- ----------
<S> <C>
2002................................................................... 105.25%
2003................................................................... 103.50
2004................................................................... 101.75
2005 and thereafter.................................................... 100.00
</TABLE>
plus, in each case, accrued and unpaid dividends, if any, to the redemption
date.
Following the issuance of the Series C Preferred Stock, within 30 days of
the closing date of the first offering by the Company of debt securities in
excess of $50,000,000 pursuant to a registration statement filed with the
Commission under the Securities Act or pursuant to Rule 144A under the
Securities Act, the Company may redeem up to 50% of the outstanding shares of
Series C Preferred Stock at a redemption price of 100% of the Liquidation
Preference of the shares of Series C Preferred Stock redeemed, plus accrued and
unpaid dividends, if any, whether or not declared, to the redemption date. On
November 15, 2012 (the 'Mandatory Redemption Date'), the Company is required to
redeem all outstanding shares of Series C Preferred Stock at a redemption price
of 100% of the Liquidation Preference of the shares of Series C Preferred Stock,
plus accrued and unpaid dividends, if any, whether or not declared, to the
Mandatory Redemption Date.
The amount paid to the holders of shares of Series C Preferred Stock upon
redemption which is allocable to the Liquidation Preference of the shares of
Series C Preferred Stock shall be paid in cash and the amount of any accrued and
unpaid dividends to be paid on the shares of Series C Preferred Stock redeemed
shall be paid in cash, shares of Common Stock or any combination thereof at the
option of the Company.
Change in Control. Upon the occurrence of a Change in Control, the Company
must make an offer to purchase (an 'Offer to Purchase') all then outstanding
shares of Series C Preferred Stock at a purchase price (the 'Change in Control
Purchase Price') in cash equal to 101% of their Liquidation Preference, plus all
accrued and unpaid dividends (paid in cash), if any, whether or not declared, to
the date such shares are purchased (the 'Change in Control Purchase Date'). A
'Change in Control' is defined as the occurrence of any of the following events:
(a) any 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Loral Space, Arianespace or David Margolese is
or becomes the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have 'beneficial
ownership' of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 40% of the total outstanding voting stock
of the Company; (b) the Company consolidates with, or merges with or into
another person or conveys,
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transfers, leases or otherwise disposes of all or substantially all of its
assets to any person, or any person consolidates with or merges with or into the
Company, in any such event, pursuant to a transaction in which the outstanding
voting stock of the Company is converted into or exchanged for cash, securities
or other property, other than, at all times when the Notes are outstanding,
those transactions that are not deemed a 'Change of Control' under the terms of
the Indenture; (c) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors, or
whose nomination for election by the stockholders of the Company, was approved
by a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (d) the
Company is liquidated or dissolved or a special resolution is passed by the
shareholders of the Company approving the plan of liquidation or dissolution,
other than, at all times when the Notes are outstanding, those transactions that
are not deemed a 'Change of Control' under the terms of the Indenture.
Conversion. Each share of Series C Preferred Stock may be converted at any
time, at the option of the holder, unless previously redeemed, into a number of
shares of Common Stock calculated by dividing the Liquidation Preference of the
Series C Preferred Stock (without accrued and unpaid dividends) by a conversion
price (the 'Conversion Price') equal to (x) prior to the date of the first
underwritten public offering of the Company's Common Stock following the initial
issuance of the Series C Preferred Stock, $21.00 and (y) thereafter, the lower
of $21.00 per share or the issue price per share of the Common Stock in such
underwritten public offering. The Conversion Price will not be adjusted at any
time for accrued and unpaid dividends on the shares of Series C Preferred Stock,
but will be subject to adjustment for the occurrence of certain corporate events
affecting the Common Stock. Upon conversion, at any time after the First
Scheduled Dividend Payment Date, holders of the Series C Preferred Stock will be
entitled to receive all accrued and unpaid dividends upon the shares of Series C
Preferred Stock converted payable in cash or shares of Common Stock, or a
combination thereof, at the option of the Company. No accrued dividends will be
paid on any shares of Series C Preferred Stock that are converted by the holders
thereof prior to the First Scheduled Dividend Payment Date, unless such shares
of Series C Preferred Stock are converted prior to a redemption date by holders
thereof electing to convert such shares after having received a notice of
redemption for such shares. Common Stock issued to pay dividends will be valued
at the average closing price of the Common Stock as reported in The Wall Street
Journal for the 20 consecutive trading days immediately preceding the date of
such payment.
The Conversion Price for shares of Series C Preferred Stock is subject to
adjustment in certain events, including (i) dividends and other distributions
payable in Common Stock on any class of capital stock of the Company, (ii) the
issuance to all holders of Common Stock of rights or warrants entitling them to
subscribe for or purchase Common Stock at less than fair market value, (iii)
subdivisions, combinations and reclassifications of the Common Stock, (iv)
distributions to all holders of Common Stock of evidences of indebtedness of the
Company or assets and (v) a consolidation or merger to which the Company is a
party or the sale or transfer of all or substantially all of the assets of the
Company.
Automatic Exchange. If the Company has not consummated one or more
Qualifying Offerings yielding gross proceeds in an aggregate cash amount of at
least $100 million by May 15, 1998 (the 'Automatic Exchange Date'), all
outstanding shares of Series C Preferred Stock shall be exchanged automatically
(the 'Automatic Exchange') for shares of the Series D Preferred Stock, with an
initial liquidation preference of $102.50 on the Automatic Exchange Date, at an
exchange rate of one share of Series D Preferred Stock for each $100 of
Automatic Exchange Rate Liquidation Preference represented by the shares of
Series C Preferred Stock held by any holder. The 'Automatic Exchange Rate
Liquidation Preference' for the shares of Series C Preferred Stock shall be
$69.6145 per share (the amount determined by multiplying (x) the Liquidation
Preference for the Series C Preferred Stock (without accrued and unpaid
dividends thereon), by (y) 0.696145.) The Company will pay cash to holders of
Series C Preferred Stock in lieu of issuing fractional shares of Series D
Preferred Stock in the Automatic Exchange. Although holders of Series C
Preferred Stock will not be entitled to receive accrued dividends thereon on or
after the Automatic Exchange Date, shares of Series D Preferred
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Stock will be issued with an initial liquidation preference equal to $102.50.
For a description of the terms, preferences and rights of the Series D Preferred
Stock, see ' -- Series D Preferred Stock.'
In the event of an Automatic Exchange, the Company will give written notice
to the holders of record on the Automatic Exchange Date of shares of Series C
Preferred Stock at their addresses appearing on the books of the Company that
the shares of Series C Preferred Stock have been automatically exchanged into
shares of Series D Preferred Stock. The notice of exchange will specify the
number of shares of Series D Preferred Stock into which the shares of Series C
Preferred Stock have been automatically exchanged and the place where the
holders are to deliver the certificates evidencing shares of Series C Preferred
Stock in exchange for certificates evidencing shares of Series D Preferred
Stock. Thereafter, the holders will surrender their certificates evidencing
shares of Series C Preferred Stock at the place designated in the notice of
exchange. As promptly as practicable after receipt of such certificates, the
Company will issue and deliver to each holder a certificate or certificates for
the number of shares of Series D Preferred Stock to which such holder is
entitled. Shares of Series D Preferred Stock will be deemed to have been
exchanged immediately prior to the close of business on the Automatic Exchange
Date and the holders of the Series C Preferred Stock of record on such date
shall be treated for all purposes as the record holders of the Series D
Preferred Stock at such time.
Voting Rights. Other than the consent rights described below with respect
to certain corporate actions, and except as otherwise provided by applicable
law, holders of shares of Series C Preferred Stock will have no voting rights.
Consent of the holders of a majority of the outstanding shares of Series C
Preferred Stock will be required before the Company may take certain corporate
actions, including (i) any amendment, alteration or repeal of any of the
provisions of the Company's Certificate of Incorporation or Bylaws which affects
adversely the voting powers, rights or preferences of the holders of the shares
of Series C Preferred Stock, (ii) the authorization or creation of, or the
increase in authorized amount of, any shares of any class or series of equity
securities that ranks senior to or on a parity with the Series C Preferred Stock
with respect to dividend rights and rights upon liquidation, winding up or
dissolution and (iii) the merger or consolidation of the Company with or into
any other entity, unless the resulting corporation will thereafter have no class
or series of shares and no other securities either authorized or outstanding
ranking prior to, or on a parity with, the Series C Preferred Stock in the
payment of dividends or the distribution of its assets on liquidation,
dissolution or winding up. In addition, in the event that (i) after the First
Scheduled Dividend Payment Date, dividends payable on the shares of Series C
Preferred Stock shall be in arrears in an aggregate amount equal to at least six
quarterly dividend payments, (ii) the Company fails to redeem all of the
outstanding shares of Series C Preferred Stock on the Mandatory Redemption Date,
or (iii) the Company fails to make an Offer to Purchase upon a Change in
Control, the holders of a majority of the outstanding shares of Series C
Preferred Stock, voting as a class, will be entitled to elect (i) one director
in the event that there are seven or fewer directors on the Board of Directors
at such time or (ii) two directors in the event that there are eight or more
directors on the Board of Directors at such time.
In exercising the voting rights set forth herein or when otherwise granted
voting rights by operation of law, each share of Series C Preferred Stock will
be entitled to one vote per share.
No consent of the holders of the Series C Preferred Stock will be required
for (i) the creation of any indebtedness of any kind of the Company or (ii) the
authorization or issuance of any class of capital stock of the Company ranking
junior to the Series C Preferred Stock in payment of dividends or upon
liquidation, dissolution or winding up of the Company.
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, before any distribution of the assets
of the Company to the holders of shares of Common Stock or any other capital
stock of the Company ranking junior to the Series C Preferred Stock upon
liquidation, dissolution or winding up of the Company, the holders of shares of
Series C Preferred Stock will be entitled to receive out of the assets of the
Company available for distribution to its stockholders, whether from capital,
surplus or earnings, an amount per share of Series C Preferred Stock equal to
$100.00 (the 'Liquidation Preference'), plus accrued and unpaid dividends on
such share of Series C Preferred Stock, if any, to the date of final
distribution.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, before any distribution of assets of the Company to
the holders of shares of Series C Preferred Stock or
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any capital stock of the Company ranking on a par with the shares of Series C
Preferred Stock, the holders of any shares of capital stock of the Company
ranking senior to the Series C Preferred Stock and such parity stock
shall be entitled to receive out of the assets of the Company available for
distribution to its stockholders, whether from capital, surplus or earnings,
an amount per share of such senior stock equal to the liquidation preference
thereof, plus accrued and unpaid dividends thereon, if any, to the date of
final distribution.
If, upon any liquidation, dissolution or winding up of the Company, the
amounts payable with respect to the shares of Series C Preferred Stock or any
capital stock ranking on a par with the shares of Series C Preferred Stock are
not paid in full, then such holders will share ratably in any such distribution
of assets, or proceeds thereof, in proportion to the full respective
preferential amounts to which they are entitled. Neither a consolidation nor a
merger of the Company with one or more other corporations, nor a sale or a
transfer of all or substantially all of the assets of the Company, will be
deemed to be a voluntary or involuntary liquidation, dissolution or winding up
of the Company.
SERIES D PREFERRED STOCK
On October 13, 1997, the Board of Directors approved the issuance of up to
7,000,000 shares of Series D Preferred Stock. Shares of Series D Preferred Stock
will be issued in the event of an Automatic Exchange with respect to the New
Preferred Stock. See ' -- 10 1/2% Series C Convertible Preferred
Stock -- Automatic Exchange.'
PREFERRED STOCK PURCHASE RIGHTS
On October 22, 1997, the Board of Directors adopted a stockholders rights
plan and, in connection with the adoption of such plan, declared a dividend
distribution of one 'Right' for each outstanding share of Common Stock (a
'Common Share') of the Company to stockholders of record at the close of
business on November 3, 1997 (the 'Rights Record Date'). Except as set forth
below, each Right will entitle the registered holder thereof to purchase from
the Company one one-hundredth of a share of Series B Preferred Stock, par value
$0.001 per share (the 'Series B Shares'), at a purchase price of $115.00 (the
'Purchase Price'), subject to adjustment. The Purchase Price shall be paid in
cash. The description and terms of the Rights will be set forth in a Rights
Agreement (the 'Rights Agreement') to be entered into by the Company and
Continental Stock Transfer & Trust Company, as Rights Agent.
Initially, no separate Right Certificates will be distributed and the
Rights will be evidenced, with respect to any Common Shares outstanding on the
Rights Record Date, by the certificates representing such Common Shares. Until
the Separation Date (as defined below), the Rights will be transferred with, and
only with, Common Share certificates. Until the earlier of the Separation Date
and the redemption or expiration of the Rights, new Common Share certificates
issued after the Rights Record Date will contain a notation incorporating the
Rights Agreement by reference. The Rights are not exercisable until the earlier
to occur of (a) 10 business days following a public announcement that a person
or
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group of affiliated or associated persons (an 'Acquiring Person') has acquired,
or obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding Common Shares (except by reason of (i) exercise by such person of
stock options granted to such person by the Company pursuant to any stock option
or similar plan of the Company (ii) the exercise of conversion rights contained
in specified classes of Preferred Stock, or (iii) the exercise of Warrants owned
on the date of the Rights Agreement to acquire Common Shares deemed to be
benefically owned by such person on such date, which will include warrants to
acquire 1,740,000 Common Shares to be issued to an affiliate of Everest Capital
Fund, Ltd.) or (b) 15 business days following the commencement of a tender offer
or exchange offer by any person (other than the Company, any subsidiary of the
Company or any employee benefit plan thereof) if, upon consummation hereof, such
person or group would be the beneficial owner of 15% or more of such outstanding
Common Shares (the earlier of such dates being called the 'Separation Date'),
and will expire on October 22, 2002, unless earlier redeemed by the Company as
described below. As soon as practicable following the Separation Date, separate
certificates evidencing the Rights ('Right Certificates') will be mailed to
holders of record of the Common Shares as of the close of business on the
Separation Date and, thereafter, such separate Right Certificates alone will
evidence the Rights. A holder of 15% or more of the Common Stock as of the date
of the Rights Agreement will be excluded from the definition of 'Acquiring
Person' unless such holder increases the aggregate percentage of its and its
affiliates' beneficial ownership interest in the Company by an additional 1%.
In the event that, at any time following the Separation Date, (a) the
Company is the surviving corporation in a merger with an Acquiring Person and
the Company's Common Shares are not changed or exchanged, (b) a person (other
than the Company, any subsidiary of the Company or any employee benefit plan
thereof), together with its Affiliates and Associates (as defined in the Rights
Agreement), becomes an Acquiring Person (in any manner, except pursuant to (i)
the exercise of stock options granted pursuant to the Company's existing and
future stock option plans, (ii) the exercise of conversion rights contained in
specified Preferred Stock issues of the Company, (iii) the exercise of certain
warrants specified in the Rights Agreement and (iv) a tender offer for any and
all outstanding Common Shares made in accordance with applicable laws, which
remains open for at least 40 Business Days and into which holders of 80% or more
of the Company's outstanding Common Shares tender their shares), (c) an
Acquiring Person engages in one or more 'self-dealing' transactions as set forth
in the Rights Agreement or (d) during such time as there is an Acquiring Person,
an event occurs (e.g., a reverse stock split), that results in such Acquiring
Person's ownership interest being increased by more than one percent, the Rights
Agreement provides that proper provision shall be made so that each holder of a
Right will thereafter be entitled to receive, upon the exercise thereof at the
then current exercise price of the Right, Common Shares (or, in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the exercise price of the Right.
In the event that, at any time following the first date of public
announcement by the Company or an Acquiring Person indicating that an Acquiring
Person has become such (the 'Shares Acquisition Date'), (a) the Company
consolidates or merges with another person and the Company is not the surviving
corporation, (b) the Company consolidates or merges with another person and is
the surviving corporation, but in such transaction its Common Shares are changed
or exchanged or (c) 50% or more of the Company's assets or earning power is sold
or transferred, the Rights Agreement provides that proper provision shall be
made so that each holder of a Right shall thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right,
common shares of the acquiring company having a value equal to two times the
exercise price of the Right.
The Board may, at its option, at any time after the right of the Board to
redeem the Rights has expired or terminated (with certain exceptions), exchange
all or part of the then outstanding and exercisable Rights (other than those
held by the Acquiring Person and Affiliates and Associates of the Acquiring
Person) for Common Shares at a ratio of one Common Share per Right, as adjusted;
provided, however, that such Right cannot be exercised once a Person, together
with such Person's Affiliates and Associates, becomes the beneficiary owner of
50% or more of the Common Shares then outstanding. If the Board authorizes such
an exchange, the Rights will immediately cease to be exercisable.
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Notwithstanding any of the foregoing, following the occurrence of any of
the events set forth in the fourth and fifth paragraphs of this section, any
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person or Affiliate or
Associate thereof shall immediately become null and void. The Rights Agreement
contains provisions intended to prevent the utilization of voting trusts or
similar arrangements (except for the voting arrangement between two of the
Company's principal stockholders and the Company) that could have the effect of
rendering ineffective or circumventing the beneficial ownership rules set forth
in the Rights Agreement.
The Purchase Price payable, and the number of Series B Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (a) in the event of a dividend
of Series B Shares on, or a subdivision, combination or reclassification of, the
Series B Shares, (b) upon the grant to holders of the Series B Shares of certain
rights or warrants to subscribe for Series B Shares or securities convertible
into Series B Shares at less than the current market price of the Series B
Shares or (c) upon the distribution to holders of the Series B Shares of debt
securities or assets (excluding regular quarterly cash dividends and dividends
payable in Series B Shares) or of subscription rights or warrants (other than
those referred to above).
At any time after the date of the Rights Agreement until ten Business Days
(as defined in the Rights Agreement) (a period that can be extended) following
the Shares Acquisition Date, the Board of Directors, with the concurrence of a
majority of the Independent Directors (those members of the Board who are not
officers or employees of the Company or of any Subsidiary of the Company and who
are not Acquiring Persons or their Affiliates, Associates, nominees or
representatives, and who either (a) were members of the Board prior to the
adoption of the Rights Plan or (b) were subsequently elected to the Board and
were recommended for election or approved by a majority of the Independent
Directors then on the Board), may redeem the Rights, in whole but not in part,
at a price of $0.01 per Right, subject to adjustment (the 'Redemption Price').
Thereafter, the Board may only redeem the Rights in certain specified
circumstances including in connection with certain events not involving an
Acquiring Person or an Affiliate or Associate of an Acquiring Person. In
addition, the Company's right of redemption may be reinstated if (a) an
Acquiring Person reduces its beneficial ownership to 10% or less of the
outstanding Common Shares in a transaction or series of transactions not
involving the Company and (b) there is at such time no other Acquiring Person.
The Rights Agreement may also be amended, as described below, to extend the
period of redemption.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders or to the Company, shareholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Shares (or other consideration) of the Company or for
common shares of the Acquiring Person as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights or imposing limitations on the right to amend the Agreement, any of the
provisions of the Rights Agreement may be amended by the Board with the
concurrence of a majority of the Independent Directors or by special approval of
the stockholders of the Company prior to the Separation Date. Thereafter, the
period during which the Rights may be redeemed may be extended (by action of the
Board, with the concurrence of a majority of the Independent Directors or by
special approval of the stockholders of the Company), and other provisions of
the Rights Agreement may be amended by action of the Board with the concurrence
of a majority of the Independent Directors or by special approval of the
shareholders of the Company; provided, however, that (a) such amendment will not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person) and (b) no amendment shall be made at such time as the
Rights are no longer redeemable (except for the possibility of the right of
redemption being reinstated as described above).
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Section 203 of the Delaware General Corporation Law ('Section 203')
generally provides that a stockholder acquiring more than 15% of the outstanding
voting stock of a corporation subject to the statute (an 'Interested
Stockholder') but less than 85% of such stock may not engage in certain
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Business Combinations (as defined in Section 203) with the corporation for a
period of three years after the time the stockholder became an Interested
Stockholder unless (i) prior to such time, the corporation's board of directors
approved either the Business Combination or the transaction in which the
stockholder became an Interested Stockholder or (ii) the Business Combination is
approved by the corporation's board of directors and authorized at a
stockholders' meeting by a vote of at least two-thirds of the corporation's
outstanding voting stock not owned by the Interested Stockholder. Under Section
203, these restrictions will not apply to certain Business Combinations proposed
by an Interested Stockholder following the earlier of the announcement or
notification of one of certain extraordinary transactions involving the
corporation and a person who was not an Interested Stockholder during the
previous three years, who became an Interested Stockholder with the approval of
the corporation's board of directors or who became an Interested Stockholder at
a time when the restrictions contained in Section 203 did not apply for reasons
specified in Section 203, if such extraordinary transaction is approved or not
opposed by a majority of the directors who were directors prior to such person
becoming an Interested Stockholder during the previous three years or were
recommended for election or elected to succeed such directors by a majority of
such directors.
Section 203 defines the term 'Business Combination' to encompass a wide
variety of transactions with or caused by an Interested Stockholder, including
transactions in which the Interested Stockholder receives or could receive a
benefit on other than a pro rata basis with other stockholders, transactions
with the corporation which increase the proportionate interest in the
corporation directly or indirectly owned by the Interested Stockholder or
transactions in which the Interested Stockholder receives certain other
benefits.
The provisions of Section 203, coupled with the Board's authority to issue
preferred stock without further stockholder action, could delay or frustrate the
removal of incumbent directors or a change in control of the Company. The
provisions also could discourage, impede or prevent a merger, tender offer or
proxy contest, even if such event would be favorable to the interests of
stockholders. The Company's stockholders, by adopting an amendment to the
Company's Amended and Restated Certificate of Incorporation (the 'Certificate'),
may elect not to be governed by Section 203 effective 12 months after such
adoption. Neither the Certificate nor the Company's Amended and Restated Bylaws
exclude the Company from the restrictions imposed by Section 203.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock, the 5% Preferred
Stock and the Series C Preferred Stock is Continental Stock Transfer & Trust
Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Stock Offerings, the Company will have
15,377,844 shares of Common Stock outstanding, assuming no exercise of (i) the
Underwriters' overallotment option and (ii) outstanding options. Of these
shares, 9,695,896 shares will be freely tradeable without restriction under the
Securities Act unless such shares are purchased in the Stock Offerings by
Affiliates. Of the remaining 6,381,988 shares of Common Stock, 3,547,488 shares
are Restricted Shares. Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act. Up to 1,642,000 of the
Restricted Shares held by the directors and certain officers of the Company will
be eligible for sale, subject to the restrictions of Rule 144, upon expiration
of the Lock-up Agreements, which shall expire, with respect to a Lock-up
Agreement concerning 1,600,000 of such shares, on a cumulative basis as to 25%
of such 1,600,000 shares at the expiration of each of the 15th, 18th, 21st and
24th month following August 26, 1997, and, with respect to Lock-up Agreements
concerning the remaining 42,000 shares, 180 days after the effective date of the
Stock Offerings. The remaining 1,905,488 Restricted Shares will not become
eligible for resale until August 1998, and then only pursuant to the
restrictions under Rule 144. In addition, the Company's largest stockholder has
entered into a lock-up agreement relating to 2,834,500 shares lasting for a
period ending, on a cumulative basis, as to 25% of the shares of Common Stock
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owned by such holder, on the expiration of the 15th, 18th, 21st and 24th month
following August 26, 1997. As such shares become free of such lock-up, they will
be eligible for sale without restriction.
In general, under Rule 144 as currently in effect, beginning 90 days after
the conclusion of the Stock Offerings, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including persons who may be deemed 'affiliates' of the Company, will be
entitled to sell in any three month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock or
(ii) the average weekly trading volume of the Common Stock during the four
calendar weeks immediately preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission. Sales pursuant to Rule 144
are also subject to certain other requirements relating to manner of sale,
notice and availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the three months immediately
preceding the sale is entitled to sell restricted shares pursuant to Rule 144(k)
without regard to the limitations described above, provided that two years have
expired since the later of the date on which such restricted shares were first
acquired from the Company or from an affiliate of the Company. Certain of the
Company's current stockholders have demand and incidental registration rights.
See 'Principal Stockholders.'
The Company has granted options to purchase 1,733,000 shares of Common
Stock to certain directors, officers and key employees of the Company pursuant
to the stock plans. Of the shares underlying these outstanding options,
1,705,000 are subject to the agreements described above restricting the sale of
such shares for a period of 180 days after the date of this Prospectus.
Following the Stock Offerings, the Company intends to file a registration
statement under the Securities Act to register shares of Common Stock issuable
upon the exercise of stock options granted under the Company's stock option
plans. Except as limited by the agreements described above and by Rule 144
volume limitations applicable to affiliates, shares issued upon the exercise of
stock options after the effective date of such registration statement generally
will be available for sale in the open market.
The Company is unable to predict the effect that sales made under Rule 144,
pursuant to future registration statements, or otherwise, may have on any then
prevailing market price for shares of the Common Stock. Nevertheless, sales of a
substantial amount of Common Stock in the public market, or the perception that
such sales could occur, could adversely affect market prices.
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UNDERWRITING
Subject to the terms and conditions set forth in a U.S. purchase agreement
(the 'U.S. Purchase Agreement') among the Company and each of the underwriters
named below (the 'U.S. Underwriters') and concurrently with the sale of 560,000
shares of Common Stock to the International Managers (as defined below), the
Company has agreed to sell to each of the U.S. Underwriters, and each of the
U.S. Underwriters for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
('Merrill Lynch'), Lehman Brothers Inc. and C.E. Unterberg, Towbin are acting as
representatives (the 'U.S. Representatives'), has severally agreed to purchase
from the Company, the number of shares of Common Stock set forth opposite its
name below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................................
Lehman Brothers Inc..............................................................
C.E. Unterberg, Towbin...........................................................
---------
Total.............................................................. 2,240,000
---------
---------
</TABLE>
The Company has also entered into an international purchase agreement (the
'International Purchase Agreement' and, together with the U.S. Purchase
Agreement, the 'Purchase Agreements') with certain underwriters outside the
United States and Canada (the 'International Managers' and, together with the
U.S. Underwriters, the 'Underwriters') for whom Merrill Lynch International,
Lehman Brothers International (Europe) and C.E. Unterberg, Towbin are acting as
representatives (the 'International Representatives'). Subject to the terms and
conditions set forth in the International Purchase Agreement, and concurrently
with the sale of 2,240,000 shares of Common Stock to the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, the Company has agreed to sell to the
International Managers, and the International Managers severally have agreed to
purchase, an aggregate of 560,000 shares of Common Stock. The public offering
price per share and the underwriting discount per share of Common Stock are
identical under the U.S. Purchase Agreement and the International Purchase
Agreement.
In each Purchase Agreement, the several U.S. Underwriters and the several
International Managers, respectively have agreed, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all the shares of
Common Stock offered hereby, if any are purchased. In the event of default by an
Underwriter, the Purchase Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated. The sale of Common Stock to the U.S.
Underwriters is conditioned upon the sale of shares of Common Stock to the
International Managers, and vice versa.
The U.S. Underwriters and the International Managers have entered into an
Intersyndicate agreement (the 'Intersyndicate Agreement') that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell shares of
Common Stock to each other for purposes of resale at the initial public offering
price set forth on the cover page of this Prospectus, less an amount not greater
than the selling concession. Under the terms of the Intersyndicate Agreement,
the U.S. Underwriters and any dealer to whom they sell shares of Common Stock
will not offer to sell or sell shares of Common Stock to persons who are
non-U.S. or non-Canadian persons, or to persons they believe intend to resell to
persons who are non-U.S. or non-Canadian persons, and the International Managers
and any dealer to whom they sell shares of Common Stock will not offer to sell
or sell shares of Common Stock to U.S.
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persons or Canadian persons or to persons they believe intend to resell to U.S.
persons or Canadian persons, except, in each case, for transactions pursuant to
the Intersyndicate Agreement.
The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus, and
to certain dealers at such price less a concession not in excess of $ per
share of Common Stock. The U.S. Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share of Common Stock on sales
to certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
The Company, its directors, executive officers and certain stockholders
have agreed, subject to certain exceptions, not to directly or indirectly (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any Common Stock or any
securities convertible into or exchangeable or exercisable for any shares of
Common Stock or request the filing of any registration statement under the
Securities Act, with respect to any of the foregoing or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly the economic consequence of ownership of Common Stock,
whether any such swap transaction is to be settled by delivery of the Common
Stock or other securities, in cash or otherwise without the prior written
consent of Merrill Lynch, on behalf of the Underwriters, for a period of 180
days after the date of this Prospectus. In addition, certain stockholders have
entered into lock-up agreements relating to an aggregate of 4,334,500 shares of
Common Stock lasting for a period ending, on a cumulative basis, as to 25% of
the shares of Common Stock owned by each such holder, on the expiration of the
15th, 18th, 21st and 24th month following August 26, 1997.
The Company has granted an option to the U.S. Underwriters, exercisable for
30 days after the date of this Prospectus, to purchase up to an aggregate of
336,000 additional shares of Common Stock at the public offering price set forth
on the cover page of this Prospectus, less the underwriting discount. The U.S.
Underwriters may exercise this option only to cover over-allotments, if any,
made on the sale of the Common Stock offered hereby. To the extent that the U.S.
Underwriters exercise this option, each U.S. Underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares of
Common Stock proportionate to such U.S. Underwriter's initial amount reflected
in the foregoing table. The Company has also granted an option to the
International Managers, exercisable for 30 days after the date of this
Prospectus, to purchase up to an additional 84,000 shares of Common Stock to
cover over-allotments, if any, on terms similar to those granted to U.S.
Underwriters.
The Company has agreed to indemnify the several U.S. Underwriters and the
International Managers against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
The Underwriters do not intend to confirm sales of Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the U.S.
Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the U.S. Representatives are
permitted to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the U.S.
Representatives may reduce that short position by purchasing Common Stock in the
open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce the
Underwriters' short position or to stabilize the price of the Common Stock, they
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may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Stock Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security before the distribution is completed.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two-month prior period or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters and dealers are not required to
engage in passive market making and may end passive market making activities at
any time.
Neither the Company nor any of the Underwriters makes any representation or
prediction, however, as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transaction or
that such transactions, once commenced, will not be discontinued without notice.
Pursuant to an agreement, dated October 21, 1992, Batchelder & Partners,
Inc., the Company's financial advisor, will receive fees in the amount of 2% of
the proceeds of the Stock Offerings.
LEGAL MATTERS
Certain legal matters relating to the securities offered hereby are being
passed upon for the Company by Paul, Weiss, Rifkind, Wharton & Garrison, New
York, New York. Certain regulatory matters arising under the Communications Act
are being passed upon by Wiley, Rein & Fielding, Washington, D.C. Certain legal
matters are being passed upon for the Underwriters by Shearman & Sterling, New
York, New York.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996, for each of the three years in the period ended December 31,
1996, and for the period from May 17, 1990 (the date of inception) to December
31, 1996, incorporated herein by reference, have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of said firm as experts in accounting and auditing.
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Inside back cover
Photograph of car on highway and CD Radio logo
Caption: 50 Channels of Programming
National Satellite Coverage
Commercial-Free Music
CD Quality Sound
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information...................................................................................................... 5
Incorporation of Certain Documents by Reference............................................................................. 5
Special Note Regarding Forward-Looking Statements........................................................................... 6
Prospectus Summary.......................................................................................................... 7
Risk Factors................................................................................................................ 14
Use of Proceeds............................................................................................................. 24
Price Range of Common Stock................................................................................................. 26
Dividend Policy............................................................................................................. 26
Dilution.................................................................................................................... 27
Capitalization.............................................................................................................. 28
Selected Historical Financial
Information............................................................................................................... 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................................................. 30
Business.................................................................................................................... 35
Management.................................................................................................................. 51
Principal Stockholders...................................................................................................... 59
Description of Certain Indebtedness......................................................................................... 63
Description of Capital Stock................................................................................................ 67
Shares Eligible for Future Sale............................................................................................. 75
Underwriting................................................................................................................ 77
Legal Matters............................................................................................................... 79
Independent Accountants..................................................................................................... 79
</TABLE>
2,800,000 SHARES
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
C.E. UNTERBERG, TOWBIN
, 1997
_____________________________ _____________________________
<PAGE>
<PAGE>
INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 20, 1997
PROSPECTUS
2,800,000 SHARES
[LOGO]
COMMON STOCK
- ----------------------------------------------------------
All of the shares of common stock, par value $.001 per share (the 'Common
Stock'), offered hereby are being offered by CD Radio Inc. (the 'Company'). Of
the 2,800,000 shares of Common Stock offered hereby, 560,000 shares are being
offered outside the United States and Canada (the 'International Offering') and
2,240,000 shares are being offered in the United States and Canada (the 'U.S.
Offering' and, together with the International Offering, the 'Stock Offerings').
The public offering price per share and the underwriting discount per share will
be identical for both Stock Offerings. See 'Underwriting.'
The Stock Offerings are one component of a financing transaction which
includes an offer to exchange (the 'Exchange Offer') shares of the Company's
10 1/2% Series C Convertible Preferred Stock (the 'Series C Preferred Stock')
for shares of the Company's outstanding 5% Delayed Convertible Preferred Stock
(the '5% Preferred Stock') and an underwritten public offering of Units (the
'Units') consisting of the Company's Senior Discount Notes due 2007 (the
'Notes') and warrants (the 'Warrants') to purchase additional Notes (the 'Units
Offering' and, together with the Stock Offerings, the 'Offerings'). Separate
registration statements have been filed for each of the Exchange Offer and the
Units Offering, and such offers have been, and will be, made by separate
prospectuses. On November 20, 1997 the Exchange Offer was consummated and shares
of Series C Preferred Stock were exchanged for of all of the outstanding shares
of 5% Preferred Stock. The consummation of the Stock Offerings is not
conditioned upon the consummation of the Units Offering but
is conditioned upon the consummation of the Exchange Offer and,
after giving effect to the Stock Offerings, there having ocurred one or more
Qualifying Offerings (as defined herein) yielding gross proceeds in an aggregate
cash amount of at least $100 million.
Since October 24, 1997, the Company's Common Stock has traded on the Nasdaq
National Market under the symbol 'CDRD.' On November 19, 1997, the closing bid
price of the Common Stock as reported on the Nasdaq National Market was $19 5/16
per share.
SEE 'RISK FACTORS' BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(3)..................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Underwriting.'
(2) Before deducting expenses payable by the Company estimated to be
$ .
(3) The Company has granted to the International Managers and the U.S.
Underwriters options, exercisable within 30 days of the date hereof, to
purchase up to an additional 84,000 and 336,000 shares of Common Stock,
respectively, solely to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to the Company will be $ , $ and
$ , respectively. See 'Underwriting.'
------------------------
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1997.
------------------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
C.E. UNTERBERG, TOWBIN
------------------------
The date of this Prospectus is , 1997.
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such State.
<PAGE>
<PAGE>
INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE -- (CONTINUED)
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. Federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
'Non-United States Holder.' A 'Non-United States Holder' is a person or entity
that, for U.S. Federal income tax purposes, is (i) a non-resident alien
individual, (ii) a foreign corporation or partnership, or (iii) a non-resident
fiduciary of a foreign estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the 'Code'), and administrative interpretations as of the date hereof, all of
which may be changed either retroactively or prospectively. This discussion does
not address all aspects of U.S. Federal income and estate taxation that may be
relevant to Non-United States Holders in light of their particular circumstances
and does not address any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
Prospective holders should consult their tax advisors with respect to the
United States Federal, state, local and non-United States income and other tax
consequences to them of holding and disposing of Common Stock.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-United States
Holder of Common Stock generally will be subject to withholding tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty
unless the dividend is effectively connected with the conduct of a trade or
business within the United States, or, if an income tax treaty applies, is
attributable to a United States permanent establishment of the Non-United States
Holder and the Non-United States Holder provides the payor with proper
documentation (generally Form 4224).
In order to claim the benefit of an applicable tax treaty rate, a
Non-United States Holder may have to file with the Company or its dividend
paying agent an exemption or reduced treaty rate certificate or letter in
accordance with the terms of such treaty. Under United States Treasury
regulations currently in effect, for purposes of determining whether tax is to
be withheld at a 30% rate or at a reduced rate as specified by an income tax
treaty, the Company ordinarily will presume that dividends paid to the address
in a foreign country are paid to a resident of such country absent knowledge
that such presumption is not warranted (the 'address rule'). However, on October
6, 1997, the U.S. Treasury Department issued final regulations on withholding of
income tax payments to foreign persons, effective January 1, 1999, which will
abolish the address rule. Effective January 1, 1999, a Non-United States Holder
seeking a reduced rate of withholding under an income tax treaty would generally
be required to provide to the Company a valid Internal Revenue Service Form W-8
certifying that such Non-United States Holder is entitled to benefits under an
income tax treaty. The final regulations also provide special rules for
determining whether, for purposes of assessing the applicability of an income
tax treaty, dividends paid to a Non-United States Holder that is an entity
should be treated as being paid to the entity itself or to the persons holding
an interest in that entity. A Non-United States Holder who is eligible for a
reduced withholding rate may obtain a refund of any excess amounts withheld by
filing an appropriate claim for a refund with the Internal Revenue Service.
In the case of dividends that are effectively connected with the Non-United
States Holder's conduct of a trade or business with the United States or, if an
income tax treaty applies, is attributable to a United States permanent
establishment of the Non-United States Holder, the Non-United States Holder will
generally be subject to regular U.S. income tax in the same manner as if the
Non-United States Holder were a United States resident. A Non-United States
corporation receiving effectively connected dividends also may be subject to an
additional 'branch profits tax' which is imposed, under certain circumstances,
at a rate of 30% (or such lower rate as may be specified by an applicable
treaty) of the Non-United States corporation's 'effectively connected earnings
and profits,' subject to certain adjustments.
76
<PAGE>
<PAGE>
INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE -- (CONTINUED)
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to U.S. Federal
income tax with respect to gain realized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with a trade or
business of such Non-United States Holder in the U.S., (ii) in the case of
certain Non-United States Holders who are non-resident alien individuals and
hold the Common Stock as a capital asset, such individuals are present in the
U.S. for 183 or more days in the taxable year of the disposition and either (a)
such individuals have a 'tax home' (as defined for United States Federal income
tax purposes) in the U.S., or (b) the gain is attributable to an office or other
fixed place of business maintained by such individuals in the U.S., (iii) the
Non-United States Holder is subject to tax, pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates whose loss of U.S. citizenship
has as one of its principal purposes the avoidance of U.S. taxes, or (iv) under
certain circumstances if the Company is or has been during certain time periods
a 'United States real property holding corporation' within the meaning of
Section 897(c)(2) of the Code and, assuming that the Common Stock is regularly
traded on an established securities market for tax purposes, the Non-United
States Holder held, directly or indirectly, at any time within the five-year
period preceding such disposition more than 5% of the outstanding Common Stock.
The Company is not, and does not anticipate becoming, a United States real
property holding corporation.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Under the United States Treasury regulations, the Company must report
annually to the Internal Revenue Service and to each Non-United States Holder
the amount of dividends paid to such holder and any tax withheld with respect to
such dividends. These information reporting requirements apply regardless of
whether withholding is required because the dividends were effectively connected
with a trade or business in the United States of the Non-United States Holder or
withholding was reduced or eliminated by an applicable income tax treaty. Copies
of the information returns reporting such dividends and withholding may also be
made available to the tax authorities in the country in which the Non-United
States Holder is a resident under the provisions of an applicable income tax
treaty or agreement.
United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting requirements)
generally will not apply to (i) dividends paid to Non-United States Holders that
are subject to the 30% withholding discussed above (or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding) or
(ii) under current law, dividends paid to a Non-United States Holder at an
address outside of the United States. However, under final United States
Treasury regulations, effective as of January 1, 1999, a Non-United States
Holder will generally be subject to United States withholding tax at a 31% rate,
unless certain certification procedures (or, in the case of payments made
outside the United States with respect to an offshore account, certain
documentary evidence procedures) are satisfied, directly or through a foreign
intermediary.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of Common Stock
to beneficial owners that are not 'exempt recipients' and that fail to provide
in the manner required certain identifying information.
The payment of the proceeds of the disposition of Common Stock to or
through the U.S. office of a broker is subject to information reporting unless
the disposing holder, under penalty of perjury, certifies its Non-United States
status or otherwise establishes an exemption. Generally, U.S. information
reporting and backup withholding will not apply to a payment of disposition
proceeds if the payment is made outside the U.S. through a Non-United States
office of a Non-United States broker. However, information reporting
requirements (but probably, prior to January 1, 1999, not backup withholding)
will apply to a payment of disposition proceeds outside the U.S. if (A) the
payment is made through an office outside the U.S. of a broker that is either
(i) a U.S. person, (ii) a foreign person which derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the U.S.,
(iii) a 'controlled foreign corporation' for U.S. Federal income tax purposes,
or (iv) effective January 1, 1999, but probably not prior to such date, a
foreign broker that is (1) a foreign partnership, one or more
77
<PAGE>
<PAGE>
INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE -- (CONTINUED)
of whose partners are U.S. persons who, in the aggregate hold more than 50% of
the income or capital interest in the partnership at any time during its tax
year, or (2) a foreign partnership engaged at any time during its tax year in
the conduct of a trade or business in the United States, and (B) the broker
fails to maintain documentary evidence that the holder is a Non-United States
Holder and that certain conditions are met, or that the holder otherwise is
entitled to an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
FEDERAL ESTATE TAX
An individual Non-United States Holder who is treated as the owner of or
has made certain lifetime transfers of an interest in the Common Stock will be
required to include the value thereof in his gross estate for U.S. Federal
estate tax purposes, and may be subject to U.S. Federal estate tax unless an
applicable estate tax treaty provides otherwise. Estates of non-resident aliens
are generally allowed a statutory credit which generally has the effect of
offsetting the U.S. Federal estate tax imposed on the first $60,000 of the
taxable estate.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS TAX ADVISOR WITH
RESPECT TO THE UNITED STATES FEDERAL INCOME TAX AND FEDERAL ESTATE TAX
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF COMMON STOCK, INCLUDING THE
APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN, OR OTHER TAXING
JURISDICTION.
78
<PAGE>
<PAGE>
INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE -- (CONTINUED)
UNDERWRITING
Subject to the terms and conditions set forth in an international purchase
agreement (the 'International Purchase Agreement') among the Company and each of
the underwriters named below (the 'International Managers') and concurrently
with the sale of 2,240,000 shares of Common Stock to the U.S. Underwriters (as
defined below), the Company has agreed to sell to each of the International
Managers, and each of the International Managers for whom Merrill Lynch
International ('Merrill Lynch'), Lehman Brothers Inc. and C.E. Unterberg, Towbin
are acting as representatives (the 'International Representatives'), has
severally agreed to purchase from the Company, the number of shares of Common
Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGERS OF SHARES
<S> <C>
Merrill Lynch International..................................................................
Lehman Brothers International (Europe).......................................................
C.E. Unterberg, Towbin.......................................................................
---------
Total.......................................................................... 560,000
---------
---------
</TABLE>
The Company has also entered into a U.S. purchase agreement (the 'U.S.
purchase agreement' and, together with the International Purchase Agreement, the
'Purchase Agreements') with certain underwriters in the United States and Canada
(the 'U.S. Underwriters' and, together with the International Managers, the
'Underwriters') for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Lehman Brothers Inc. and C.E. Unterberg, Towbin are acting as representatives
(the 'U.S. Representatives'). Subject to the terms and conditions set forth in
the U.S. Purchase Agreement, and concurrently with the sale of 560,000 shares of
Common Stock to the International Managers pursuant to the International
Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters, and
the U.S. Underwriters severally have agreed to purchase, an aggregate of
2,240,000 shares of Common Stock. The public offering price per share and the
underwriting discount per share of Common Stock are identical under the
International Purchase Agreement and the U.S. Purchase Agreement.
In each Purchase Agreement, the several International Managers and the
several U.S. Underwriters, respectively have agreed, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all the shares of
Common Stock offered hereby, if any are purchased. In the event of default by an
Underwriter, the Purchase Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated. The sale of Common Stock to the U.S.
Underwriters is conditioned upon the sale of shares of Common Stock to the
International Managers, and vice versa.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the 'Intersyndicate Agreement') that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
International Managers and the U.S. Underwriters are permitted to sell shares of
Common Stock to each other for purposes of resale at the initial public offering
price set forth on the cover page of this Prospectus, less an amount not greater
than the selling concession. Under the terms of the Intersyndicate Agreement,
the U.S. Underwriters and any dealer to whom they sell shares of Common Stock
will not offer to sell or sell shares of Common Stock to persons who are
non-U.S. or non-Canadian persons or to persons they believe intend to resell to
persons who are non-U.S. or non-Canadian persons, and the International Managers
and any dealer to whom they sell shares of Common Stock will not offer to sell
or sell shares of Common Stock to U.S. persons or Canadian persons or to persons
they believe intend to resell to U.S. persons or Canadian persons, except, in
each case, for transactions pursuant to the Intersyndicate Agreement.
79
<PAGE>
<PAGE>
INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE -- (CONTINUED)
The International Representatives have advised the Company that the
International Managers propose initially to offer the shares of Common Stock to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share of Common Stock. The International Managers may allow, and
such dealers may allow, a discount not in excess of $ per share of Common
Stock on sales to certain other dealers. After the initial public offering, the
public offering price, concession and discount may be changed.
The Company, its directors, executive officers and certain stockholders
have agreed, subject to certain exceptions, not to directly or indirectly (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any Common Stock or any
securities convertible into or exchangeable or exercisable for any shares of
Common Stock, or request the filing of any registration statement under the
Securities Act, with respect to any of the foregoing or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of Common Stock,
whether any such swap transaction is to be settled by delivery of the Common
Stock or other securities, in cash or otherwise without the prior written
consent of Merrill Lynch, on behalf of the Underwriters, for a period of 180
days after the date of this Prospectus. In addition, certain stockholders have
entered into lock-up agreements relating to an aggregate of 4,334,500 shares of
Common Stock lasting for a period ending, on a cumulative basis, as to 25% of
the shares of Common Stock owned by each such holder, on the expiration of the
15th, 18th, 21st and 24th month following August 26, 1997.
The Company has granted an option to the International Managers,
exercisable for 30 days after the date of this Prospectus, to purchase up to an
aggregate of 84,000 additional shares of Common Stock at the public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The International Managers may exercise this option only to cover
over-allotments, if any, made on the sale of the Common Stock offered hereby. To
the extent that the International Managers exercise this option, each
International Manager will be obligated, subject to certain conditions, to
purchase a number of additional shares of Common Stock proportionate to such
International Manager's initial amount reflected in the foregoing table. The
Company has also granted an option to the U.S. Underwriters, exercisable for 30
days after the date of this Prospectus, to purchase up to an additional 336,000
shares of Common Stock to cover over-allotments, if any, on terms similar to
those granted to International Managers.
The Company has agreed to indemnify the several International Managers and
the U.S. Underwriters against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
The Underwriters do not intend to confirm sales of Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the U.S.
Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the U.S. Representatives are
permitted to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the U.S.
Representatives may reduce that short position by purchasing Common Stock in the
open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce the
Underwriters' short position or to stabilize the price of the Common Stock, they
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Stock Offerings.
80
<PAGE>
<PAGE>
INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE -- (CONTINUED)
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security before the distribution is completed.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two-month prior period or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters and dealers are not required to
engage in passive market making and may end passive market making activities at
any time.
COMPLIANCE WITH U.K. LAW
Each Underwriter agrees that (a) it has not offered or sold and, for a
period of six months following consummation of the Stock Offerings, will not
offer or sell any Common Stock to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which do not constitute an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (b) it has complied with and will comply with all
applicable provisions of the Public Offers of Securities Regulations 1995 and
the Financial Services Act 1986 with respect to anything done by it in relation
to the Common Stock in, from, or otherwise involving the United Kingdom and (c)
it has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issue or sale of the
Common Stock to a person who is of a kind described in Article 11(3) of the
Financial Serivces Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or to a person to whom the document may otherwise lawfully be issued or passed
on.
Neither the Company nor any of the U.S. Underwriters makes any
representation or prediction, however, as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transaction or that
such transactions, once commenced, will not be discontinued without notice.
Pursuant to an agreement, dated October 21, 1992, Batchelder & Partners,
Inc., the Company's financial advisor, will receive fees in the amount of 2% of
the proceeds of the Stock Offerings.
LEGAL MATTERS
Certain legal matters relating to the securities offered hereby are being
passed upon for the Company by Paul, Weiss, Rifkind, Wharton & Garrison, New
York, New York. Certain regulatory matters arising under the Communications Act
are being passed upon by Wiley, Rein & Fielding, Washington, D.C. Certain legal
matters are being passed upon for the Underwriters by Shearman & Sterling, New
York, New York.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996, for each of the three years in the period ended December 31,
1996, and for the period from May 17, 1990 (the date of inception) to December
31, 1996, incorporated herein by reference, have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of said firm as experts in accounting and auditing.
81
<PAGE>
<PAGE>
[THIS PAGE IS INTENTIONALLY BLANK]
<PAGE>
<PAGE>
INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE
_____________________________ _____________________________
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information...................................................................................................... 5
Incorporation of Certain Documents by Reference............................................................................. 5
Special Note Regarding Forward-Looking Statements........................................................................... 6
Prospectus Summary.......................................................................................................... 7
Risk Factors................................................................................................................ 14
Use of Proceeds............................................................................................................. 24
Price Range of Common Stock................................................................................................. 26
Dividend Policy............................................................................................................. 26
Dilution.................................................................................................................... 27
Capitalization.............................................................................................................. 28
Selected Historical Financial Information................................................................................... 29
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 30
Business.................................................................................................................... 35
Management.................................................................................................................. 51
Principal Stockholders...................................................................................................... 59
Description of Certain Indebtedness......................................................................................... 63
Description of Capital Stock................................................................................................ 67
Shares Eligible for Future Sale............................................................................................. 75
Certain United States Federal Tax Consequences to Non-United States Holders of Common Stock................................. 76
Underwriting................................................................................................................ 79
Legal Matters............................................................................................................... 81
Independent Accountants..................................................................................................... 81
</TABLE>
2,800,000 SHARES
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
C.E. UNTERBERG, TOWBIN
, 1997
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The cash expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting compensation, are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.......................................... $23,175
NASD Filing Fee.............................................................................. 8,148
Nasdaq Listing Fees.......................................................................... 7,500
Blue Sky Fees and Expenses (includes fees and expenses of counsel)........................... 15,000
Fees of Transfer Agent and Registrar......................................................... 3,000
Accounting Fees and Expenses................................................................. 80,000
Legal Fees and Expenses...................................................................... 363,177
Printing, Engraving and Delivery Expenses.................................................... 0
-------
Total.............................................................................. $500,000
-------
-------
</TABLE>
- ------------
* To be completed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a
corporation to indemnify its directors, officers, employees and agents against
certain liabilities they may incur in such capacities, including liabilities
under the Securities Act, provided they act in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation. The Company's Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws require the Company to indemnify its officers and
directors to the full extent permitted by Delaware law.
Section 102 of the Delaware General Corporation Law authorizes a
corporation to limit or eliminate its directors' liability to the corporation or
its stockholders for monetary damages for breaches of fiduciary duties, other
than for (i) breaches of the duty of loyalty, (ii) acts or omissions involving
bad faith, intentional misconduct or knowing violations of the law, (iii)
unlawful payments of dividends, stock purchases or redemptions, or (iv)
transactions from which a director derives an improper personal benefit. The
Company's Amended and Restated Certificate of Incorporation contains provisions
limiting the liability of the directors to the Company and to its shareholders
to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law authorizes a
corporation to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation against any
liability asserted against him and incurred by him or her in any such capacity,
or arising out of his or her status as such. The Company's Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws provide that the
Company may, to the full extent permitted by law, purchase and maintain
insurance on behalf of any director, officer, employee or agent of the Company
against any liability which may be asserted against him or her and the Company
currently maintains such insurance.
The Purchase Agreements between the Company and the Underwriters with
respect to the Stock Offerings registered hereunder will provide for
indemnification of the registrant and its officers and directors by the
Underwriters or agents, as the case may be, against certain liabilities
including liabilities under the Securities Act.
II-1
<PAGE>
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------------------------------
<C> <S>
1.1 -- U.S. Purchase Agreement and International Purchase Agreement.
4.1 -- Description of Capital Stock contained in the Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the period ended March 31, 1996).
4.2 -- Description of Rights of Security Holders contained in the Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.2 to the Company's Form 10-Q for the period ended March 31, 1996).
4.3 -- Form of Certificate for Shares of Common Stock (incorporated by reference to Exhibit 4.3 to the Company's
Form 10-Q for the period ended March 31, 1996).
5.1 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1).
24.1* -- Power of Attorney (included on signature page).
</TABLE>
- ------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) (1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on November 20, 1997.
CD RADIO INC.
BY: /S/ DAVID MARGOLESE
..................................
DAVID MARGOLESE
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ DAVID MARGOLESE Chairman and Chief Executive Officer November 20, 1997
......................................... (Principal Executive Officer)
(DAVID MARGOLESE)
* Executive Vice President and Chief Financial November 20, 1997
......................................... Officer (Principal Financial and
(ANDREW J. GREENEBAUM) Accounting Officer)
* Director November 20, 1997
.........................................
(ROBERT D. BRISKMAN)
* Director November 20, 1997
.........................................
(LAWRENCE F. GILBERTI)
* Director November 20, 1997
.........................................
(PETER K. PITSCH)
* Director November 20, 1997
.........................................
(JACK Z. RUBINSTEIN)
* Director November 20, 1997
.........................................
(RALPH V. WHITWORTH)
*By: /s/ DAVID MARGOLESE
.........................................
DAVID MARGOLESE
ATTORNEY-IN-FACT
</TABLE>
II-3
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- -------- ---------------------------------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 -- U.S. Purchase Agreement and International Purchase Agreement.....................................
4.1 -- Description of Capital Stock contained in the Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the period ended March
31, 1996)........................................................................................
4.2 -- Description of Rights of Security Holders contained in the Amended and Restated Bylaws
(incorporated by reference to Exhibit 3.2 to the Company's Form 10-Q for the period ended March
31, 1996)........................................................................................
4.3 -- Form of Certificate for Shares of Common Stock (incorporated by reference to Exhibit 4.3 to the
Company's Form 10-Q for the period ended March 31, 1996).........................................
5.1 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison..............................................
23.1 -- Consent of Coopers & Lybrand L.L.P. .............................................................
23.2 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1)....................
24.1* -- Power of Attorney (included on signature page)...................................................
</TABLE>
- ------------
*Previously filed.
<PAGE>
<PAGE>
================================================================================
CD RADIO INC.
(a Delaware corporation)
2,800,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
Dated: [ ], 1997
================================================================================
<PAGE>
<PAGE>
Table of Contents
<TABLE>
<S> <C> <C>
U.S. PURCHASE AGREEMENT.................................................................... 2
SECTION 1. Representations and Warranties.................................... 5
(a) Representations and Warranties by the Company..................... 5
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing................... 13
(a) Initial Securities................................................ 13
(b) Option Securities................................................. 13
(c) Payment........................................................... 14
(d) Denominations; Registration....................................... 15
SECTION 3. Covenants of the Company.......................................... 15
(a) Compliance with Securities Regulations and Commission
Requests.......................................................... 15
(b) Filing of Amendments.............................................. 15
(c) Delivery of Registration Statements............................... 16
(d) Delivery of Prospectuses.......................................... 16
(e) Continued Compliance with Securities Laws......................... 16
(f) Blue Sky Qualifications........................................... 17
(g) Rule 158.......................................................... 17
(h) Use of Proceeds................................................... 17
(i) Listing........................................................... 17
(j) Restriction on Sale of Securities................................. 17
(k) Reporting Requirements............................................ 18
SECTION 4. Payment of Expenses............................................... 18
(a) Expenses.......................................................... 18
(b) Termination of Agreement.......................................... 18
SECTION 5. Conditions of U.S. Underwriters' Obligations...................... 19
(a) Effectiveness of Registration Statement........................... 19
(c) Opinion of Regulatory Counsel for Company......................... 19
(d) Opinion of Patent Counsel for Company............................. 19
(e) Opinion of Intellectual Property Counsel for Company.............. 20
(f) Opinion of Counsel for U.S. Underwriters.......................... 20
(g) Officers' Certificate............................................. 20
(h) Accountants' Comfort Letter....................................... 21
(i) Bring-down Comfort Letter......................................... 21
(j) Approval of Listing............................................... 21
(k) No Objection...................................................... 21
(l) Lock-up Agreements................................................ 21
(m) Consummation of the Exchange Offer................................ 21
(q) Purchase of Initial International Securities...................... 21
(r) Conditions to Purchase of U.S. Option Securities.................. 21
(s) Additional Documents.............................................. 22
(t) Termination of Agreement.......................................... 23
</TABLE>
i
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 6. Indemnification................................................... 23
(a) Indemnification of U.S. Underwriters.............................. 23
(b) Indemnification of Company, Directors and Officers................ 24
(c) Actions against Parties; Notification............................. 24
(d) Settlement without Consent if Failure to Reimburse................ 25
SECTION 7. Contribution...................................................... 25
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.......................................................... 27
SECTION 9. Termination of Agreement.......................................... 27
(a) Termination; General.............................................. 27
(b) Liabilities....................................................... 28
SECTION 10. Default by One or More of the U.S. Underwriters................... 28
SECTION 11. Notices........................................................... 28
SECTION 12. Parties........................................................... 29
SECTION 13. GOVERNING LAW AND TIME............................................ 29
SECTION 14. Effect of Headings................................................ 29
SCHEDULES
Schedule A - List of U.S. Underwriters....................................... A-1
Schedule B - Pricing Information............................................. B-1
Schedule C - List of Persons and Entities Subject to Lock-up................. C-1
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel............................. A-1
Exhibit B - Form of Opinion of Regulatory Counsel to the Company............. B-1
Exhibit C - Form of Opinion of Patent Counsel to the Company................. C-1
Exhibit D - Form of Opinion of Intellectual Property Counsel to the Company.. D-1
Exhibit E - Form of Lock-up Letter........................................... E-1
</TABLE>
ii
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<PAGE>
CD RADIO INC.
(a Delaware corporation)
2,800,000 Shares of Common Stock
(par value $.001 per share)
U.S. PURCHASE AGREEMENT
------------------------
[ ], 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Lehman Brothers Inc.
C.E. Unterberg, Towbin, a California Limited Partnership
as U.S. Representatives of the several U.S. Underwriters
C/O MERRILL LYNCH & CO.
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
CD Radio Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other U.S. Underwriters named in
Schedule A hereto (collectively, the "U.S. Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Lehman Brothers Inc., and C.E. Unterberg,
Towbin are acting as representatives (in such capacity, the "U.S.
Representatives"), with respect to the issue and sale by the Company and the
purchase by the U.S. Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $.001 per share, of the
Company ("Common Stock") set forth in said Schedule A, and with respect to the
grant by the Company to the U.S. Underwriters, acting severally and not jointly,
of the option described in Section 2(b) hereof to purchase all or any part of
420,000 additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 2,800,000 shares of Common Stock (the "Initial U.S. Securities") to be
purchased by the U.S. Underwriters and all or any part of the 420,000 shares of
Common Stock subject to the option described in Section 2(b) hereof (the "U.S.
Option Securities") are hereinafter called, collectively, the "U.S. Securities".
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Company of an aggregate of 700,000 shares of
Common Stock (the "Initial International
2
<PAGE>
<PAGE>
Securities") through arrangements with certain underwriters outside the United
States and Canada, which underwriters are Merrill Lynch International, Lehman
Brothers International (Europe) and C.E. Unterberg, Towbin, (the "International
Managers"), and the grant by the Company to the International Managers, acting
severally and not jointly, of an option to purchase all or any part of the
International Managers' pro rata portion of up to 105,000 additional shares of
Common Stock solely to cover over-allotments, if any (the "International Option
Securities" and, together with the U.S. Option Securities, the "Option
Securities"). The Initial International Securities and the International Option
Securities are hereinafter called the "International Securities". It is
understood that the Company is not obligated to sell and the U.S. Underwriters
are not obligated to purchase, any Initial U.S. Securities unless all of the
Initial International Securities are contemporaneously purchased by the
International Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters", the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities", and the U.S. Securities and the International Securities
are hereinafter collectively called the "Securities".
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company understands that the U.S. Underwriters propose to make a
public offering of the U.S. Securities as soon as the U.S. Representatives deem
advisable after this Agreement has been executed and delivered. The public
offering of the Securities by the U.S. Underwriters and the International
Managers is referred to herein as the "Stock Offerings."
The Company also has made an exchange offer (the "Exchange Offer") for
its outstanding 5% Delayed Convertible Preferred Stock ("5% Preferred Stock")
pursuant to a registration statement on Form S-4 (No. 333-34761) (the "Exchange
Offer Registration Statement") and is undertaking a public offering of Units
(the "Units Offering"), each Unit consisting of $1,000 aggregate principal
amount at maturity Senior Discount Notes due 2007 (the "Notes") and warrants
(the "Warrants") to purchase Common Stock, pursuant to a registration statement
on Form S-3 (No. 333-34769).
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-34767) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of
3
<PAGE>
<PAGE>
Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has
elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare
and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule
434 and Rule 424(b). Two forms of prospectus are to be used in connection with
the offering and sale of the Securities: one relating to the U.S. Securities
(the "Form of U.S. Prospectus") and one relating to the International Securities
(the "Form of International Prospectus"). The Form of International Prospectus
is identical to the Form of U.S. Prospectus, except for the front cover and back
cover pages and the information under the caption "Underwriting" and the
inclusion in the Form of International Prospectus of a section under the caption
"Certain United States Tax Considerations for Non-United States Holders". The
information included in any such prospectus or in any such Term Sheet, as the
case may be, that was omitted from such registration statement at the time it
became effective but that is deemed to be part of such registration statement at
the time it became effective (a) pursuant to paragraph (b) of Rule 430A is
referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule
434 is referred to as "Rule 434 Information". Each Form of U.S. Prospectus and
Form of International Prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information, that was used after such effectiveness
and prior to the execution and delivery of this Agreement, is herein called a
"preliminary prospectus". Such registration statement, including the exhibits
thereto, schedules thereto, if any, and the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement". Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement", and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final Form of U.S. Prospectus and the final Form of
International Prospectus, including the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the forms first
furnished to the Underwriters for use in connection with the offering of the
Securities are herein called the "U.S. Prospectus" and the "International
Prospectus," respectively, and collectively, the "Prospectuses". If Rule 434 is
relied on, the terms "U.S. Prospectus" and "International Prospectus" shall
refer to the preliminary U.S. Prospectus dated October 30, 1997 and preliminary
International Prospectus dated October 30, 1997, respectively, each together
with the applicable Term Sheet and all references in this Agreement to the date
of such Prospectuses shall mean the date of the applicable Term Sheet. For
purposes of this Agreement, all references to the Registration Statement, any
preliminary prospectus, the U.S. Prospectus, the International Prospectus or any
Term Sheet or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained", "included" or "stated" in the
Registration Statement, any preliminary prospectus (including the Form of U.S.
Prospectus and Form of International Prospectus) or the Prospectuses (or other
references of like import) shall be deemed to mean
4
<PAGE>
<PAGE>
and include all such financial statements and schedules and other information
which is incorporated by reference in the Registration Statement, any
preliminary prospectus (including the Form of U.S. Prospectus and Form of
International Prospectus) or the Prospectuses, as the case may be; and all
references in this Agreement to amendments or supplements to the Registration
Statement, any preliminary prospectus (including the Form of U.S. Prospectus and
Form of International Prospectus) or the Prospectuses shall be deemed to mean
and include the filing of any document under the Securities Exchange Act of 1934
(the "1934 Act") which is incorporated by reference in the Registration
Statement, such preliminary prospectus or the Prospectuses, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each U.S. Underwriter as of the date hereof, as of
the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each U.S.
Underwriter, as follows:
(i) Compliance with Registration Requirements. Pursuant to an
oral waiver granted to the Company by the Commission, the Company is
permitted to use Form S-3 under the 1933 Act in connection with the
Stock Offerings. Each of the Registration Statement and any Rule 462(b)
Registration Statement has become effective under the 1933 Act and no
stop order suspending the effectiveness of the Registration Statement or
any Rule 462(b) Registration Statement has been issued under the 1933
Act and no proceedings for that purpose have been instituted or are
pending or, to the knowledge of the Company, are contemplated by the
Commission, and any request on the part of the Commission for additional
information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any U.S. Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and
did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading. Neither of the
Prospectuses nor any amendments or supplements thereto, at the time the
Prospectuses or any amendments or supplements thereto were issued and at
the Closing Time (and, if any U.S. Option Securities are purchased, at
the Date of Delivery), included or will include an untrue statement of a
material fact or omitted or will omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434. The
representations and warranties in this subsection shall
5
<PAGE>
<PAGE>
not apply to statements in or omissions from the Registration
Statement or the U.S. Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
U.S. Underwriter through the U.S. Representatives expressly for use in
the Registration Statement or the U.S. Prospectus.
Each preliminary prospectus and the prospectuses filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectuses
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or deemed
to be incorporated by reference in the Registration Statement and the
Prospectuses, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act, and, when read together with the other
information in the Prospectuses, at the time the Registration Statement
became effective, at the time the Prospectuses were issued and at the
Closing Time (and if any Option Securities are purchased, at the Date of
Delivery), did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(iii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act.
(iv) Financial Statements. The financial statements and the
related notes of the Company included in the Registration Statement and
the Prospectuses present fairly in accordance with generally accepted
accounting principles ("GAAP") the financial position of the Company and
its consolidated subsidiary as of the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and
its consolidated subsidiary for the periods specified. Such financial
statements have been prepared in conformity with GAAP applied on a
consistent basis throughout the periods involved. The selected financial
data and the summary financial information included in the Registration
Statement and the Prospectuses present fairly in accordance with GAAP
the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements of the Company
for each of the years in the five-year period ended December 31, 1996.
(v) No Material Adverse Charge in Business. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein or contemplated
thereby, there has not been (A) any
6
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<PAGE>
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and
its subsidiary considered as one enterprise, whether or not arising in
the ordinary course of business (a "Material Adverse Effect"), (B) any
transaction entered into by the Company or its subsidiary, other than in
the ordinary course of business, that is material with respect to the
Company and its subsidiary considered as one enterprise, or (C) any
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses, to enter into and perform its
obligations under this Agreement and to consummate the Stock Offerings;
the Company is duly qualified as a foreign corporation to transact
business and is in good standing in each other jurisdiction in which
each such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.
(vii) Good Standing of the Subsidiary. Satellite CD Radio, Inc.
has been duly organized and is validly existing as a corporation in good
standing under the laws of the State of Delaware and has corporate power
and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectuses and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect. All of the issued and
outstanding capital stock of Satellite CD Radio, Inc. has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of Satellite CD Radio, Inc. was issued in
violation of the preemptive or similar rights of any securityholder of
Satellite CD Radio, Inc. Satellite CD Radio, Inc. is the only subsidiary
of the Company.
(viii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectuses in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectuses, pursuant to the
Exchange Offer or pursuant to the exercise of convertible securities,
warrants or options referred to in the Prospectuses). The shares of
issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable;
none of the outstanding shares of capital
7
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<PAGE>
stock of the Company was issued in violation of the preemptive or other
similar rights of any securityholder of the Company.
(ix) Authorization of Agreements. This Agreement and the
International Purchase Agreement have been duly authorized, executed and
delivered by the Company.
(x) Authorization and Description of Securities. The Securities
to be purchased by the U.S. Underwriters and the International Managers
from the Company have been duly authorized for issuance and sale to the
U.S. Underwriters pursuant to this Agreement and the International
Managers pursuant to the International Purchase Agreement, respectively,
and, when issued and delivered by the Company pursuant to this Agreement
and the International Purchase Agreement, respectively, against payment
of the consideration set forth herein and in the International Purchase
Agreement, respectively, will be validly issued, fully paid and
non-assessable; the Common Stock conforms to all statements relating
thereto contained in the Prospectuses and the description thereof in the
Prospectuses conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to
personal liability by reason of being such a holder; and the issuance of
the Securities is not subject to the preemptive or other similar rights
of any securityholder of the Company.
(xi) Absence of Defaults and Conflicts. Neither the Company nor
its subsidiary is in violation of its charter or by-laws or in default
in the performance or observance of any obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Company or its subsidiary is a party or by which
it or any of them may be bound, or to which any of the property or
assets of the Company or its subsidiary is subject (collectively,
"Agreements and Instruments") except for such defaults that would not
result in a Material Adverse Effect; and the execution, delivery and
performance of this Agreement and the International Purchase Agreement
and the consummation of the transactions contemplated in this Agreement,
the International Purchase Agreement and in the Registration Statement
(including the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the
Prospectuses under the caption "Use of Proceeds") and compliance by the
Company with its obligations under this Agreement and the International
Purchase Agreement have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined below) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or its subsidiary pursuant to, the
Agreements and Instruments (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation
of the provisions
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of the charter or by-laws of the Company or its subsidiary or any
applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or its subsidiary or
any of their assets, properties or operations. As used herein, a
"Repayment Event" means any event or condition which gives the holder of
any note, debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or its subsidiary.
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or its subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
its subsidiary's principal suppliers, manufacturers or contractors,
which, in either case, may reasonably be expected to result in a
Material Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or its subsidiary, which is required to be disclosed in the
Registration Statement and the Prospectuses (other than as disclosed
therein), or which might reasonably be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the transactions
contemplated by this Agreement and the International Purchase Agreement
or the performance by the Company of its obligations hereunder or
thereunder; all pending legal or governmental proceedings to which the
Company or its subsidiary is a party or of which any of their respective
property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental
to the business, in the aggregate could not reasonably be expected to
result in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or documents
which are required to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xv) Possession of Intellectual Property. The Company and its
subsidiary own or possess adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them and intended to be
operated by them in the manner described in the Registration Statement
and the Prospectuses, and neither the Company nor its subsidiary has
received any notice or is otherwise
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aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or its subsidiary
therein, and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or inadequacy,
singly or in the aggregate, would result in a Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder or under the International Purchase Agreement,
in connection with the offering, issuance or sale of the Securities
under this Agreement and the International Purchase Agreement or the
consummation of the transactions contemplated by this Agreement and the
International Purchase Agreement, except such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations and state securities or blue sky laws.
(xvii) Possession of Licenses and Permits. Except as disclosed in
the Prospectuses, the Company and its subsidiary possess such permits,
licenses (including, without limitation, the FCC License, as defined in
the Prospectuses), approvals, consents and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate
federal, state, local or foreign regulatory agencies or bodies necessary
to conduct the business now operated by them or intended to be operated
by them in the manner described in the Registration Statement and the
Prospectuses; the Company and its subsidiary are in compliance with the
terms and conditions of all such Governmental Licenses, except where the
failure so to comply would not, singly or in the aggregate, have a
Material Adverse Effect; all of the Governmental Licenses are valid and
in full force and effect, except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to be
in full force and effect would not have a Material Adverse Effect; and
neither the Company nor its subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xviii) Title to Property. The Company and its subsidiary have
good and marketable title to all real property owned by the Company and
its subsidiary and good title to all other properties owned by them, in
each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such
as (a) are described in the Prospectuses or (b) do not, singly or in the
aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the Company or its subsidiary; and all of the leases and subleases
material to the business of the Company and its subsidiary, considered
as one enterprise, and under which the
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Company or its subsidiary holds properties described in the
Prospectuses, are in full force and effect, and neither the Company nor
its subsidiary has any notice of any material claim of any sort that has
been asserted by anyone adverse to the rights of the Company or its
subsidiary under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or such subsidiary to
the continued possession of the leased or subleased premises under any
such lease or sublease.
(xix) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated, the issuance
and sale of Units in connection with the Units Offering, and the
application of the net proceeds therefrom as described in the
Prospectuses will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
(xx) Environmental Laws. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in
a Material Adverse Effect, (A) neither the Company nor its subsidiary is
in violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating
to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of Hazardous Materials (collectively, "Environmental Laws"), (B) the
Company and its subsidiary have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each
in compliance with their requirements, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental
Law against the Company or its subsidiary and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company or its subsidiary relating to Hazardous Materials or any
Environmental Laws.
(xxi) Taxes. All United States federal income tax returns of the
Company and its subsidiary required by law to be filed have been filed
and all taxes shown by such returns or otherwise assessed, which are due
and payable, have been paid, except assessments against which appeals
have been or will be promptly taken and as to which adequate reserves
have been provided. The Company and its subsidiary
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have filed all other tax returns that are required to have been filed by
them pursuant to applicable foreign, state, local or other law, except
insofar as the failure to file such returns would not result in a
Material Adverse Effect, and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Company and its
subsidiary, except for such taxes, if any, as are being contested in
good faith and as to which adequate reserves have been provided.
(xxii) Internal Controls. The Company and its subsidiary maintain
a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization, (B) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific authorization
and (D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxiii) Registration Rights. Except as described in the
Prospectuses, there are no persons with registration rights or other
similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act.
(xxiv) Related Parties. No relationship, direct or indirect,
exists between or among any of the Company or any affiliate of the
Company, on the one hand, and any director, officer, stockholder or
supplier of any of them, on the other hand, which is required to be
described in the Registration Statement or the Prospectuses which is not
so described or is not described as required.
(xxv) Offering Materials. The Company has not distributed and,
prior to the Closing Time, will not distribute any Offering Materials in
connection with the offering and sale of Securities, other than the
Registration Statement, any preliminary prospectus, the Prospectuses or
any other Offering Materials, if any, permitted by the 1933 Act and the
1934 Act and approved by the Representatives.
(xxvi) Voting Trust Agreement. The Voting Trust Agreement, dated
August 26, 1997 among the Company, Darlene Friedland and David Margolese
and consented to by Robert M. Friedland has been duly authorized,
executed and delivered by the Company and, assuming due authorization,
execution and delivery thereof by the parties thereto (other than the
Company), is a valid, legal and binding obligation of the Company and
Darlene Friedland, enforceable against the Company and Darlene Friedland
in accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting enforcement of creditors' rights generally and
except as enforcement thereof is subject
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to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(xxvii) Proposed Amendment. The Proposed Amendment (as defined in
the Exchange Offer Registration Statement) has been approved by the
Board of Directors of the Company and the stockholders of the Company
and has been validly filed with the Secretary of State of the State of
Delaware, and prior to the date hereof the Company's Articles of
Incorporation have been amended by the Proposed Amendment.
(xxviii) Exchange Offer. Prior to the date hereof, the Exchange
Offer has been consummated, and in the Exchange Offer shares of the
Company's 10 1/2% Series C Convertible Preferred Sock were exchanged for
[ ] % of the outstanding shares of 5% Preferred Stock.
(xxix) Qualifying Offerings. Immediately after giving effect to
the issuance and sale of the Initial Securities, there will have
occurred one or more Qualifying Offerings (as defined in the Certificate
of Designations for the 5% Preferred Stock) yielding gross proceeds to
the Company in an aggregate cash amount of at least $100 million.
(b) Officer's Certificate. Any certificate signed by any officer
of the Company delivered to the Representatives or to its counsel shall be
deemed a representation and warranty by the Company to the Representatives as to
the matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each U.S. Underwriter, severally and not
jointly, and each U.S. Underwriter, severally and not jointly, agrees to
purchase from the Company, at the price per share set forth in Schedule B, the
number of Initial U.S. Securities set forth in Schedule A opposite the name of
such U.S. Underwriter, plus any additional number of Initial U.S. Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the U.S.
Underwriters, severally and not jointly, to purchase up to an additional 420,000
shares of Common Stock at the price per share set forth in Schedule B, less an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial U.S. Securities but not payable on the U.S. Option
Securities. The option hereby granted will expire 30 days after the date hereof
and may be exercised in whole or in part from time to time only for the purpose
of covering
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over-allotments which may be made in connection with the offering and
distribution of the Initial U.S. Securities upon notice by the Global
Coordinator to the Company setting forth the number of U.S. Option Securities as
to which the several U.S. Underwriters are then exercising the option and the
time and date of payment and delivery for such U.S. Option Securities. Any such
time and date of delivery for the U.S. Option Securities (a "Date of Delivery")
shall be determined by the Global Coordinator, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the U.S. Option Securities, each of the U.S. Underwriters,
acting severally and not jointly, will purchase that proportion of the total
number of U.S. Option Securities then being purchased which the number of
Initial U.S. Securities set forth in Schedule A opposite the name of such U.S.
Underwriter bears to the total number of Initial U.S. Securities, subject in
each case to such adjustments as the Global Coordinator in its discretion shall
make to eliminate any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, or at such
other place as shall be agreed upon by the Global Coordinator and the Company,
at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after
4:30 P.M. (Eastern time) on any given day) business day after the date hereof
(unless postponed in accordance with the provisions of Section 10), or such
other time not later than ten business days after such date as shall be agreed
upon by the Global Coordinator and the Company (such time and date of payment
and delivery being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option
Securities are purchased by the U.S. Underwriters, payment of the purchase price
for, and delivery of certificates for, such U.S. Option Securities shall be made
at the above-mentioned offices, or at such other place as shall be agreed upon
by the Global Coordinator and the Company, on each Date of Delivery as specified
in the notice from the Global Coordinator to the Company.
Payment shall be made to the Company by wire transfer of
immediately available funds to a bank account designated by the Company, against
delivery to the U.S. Representatives for the respective accounts of the U.S.
Underwriters of certificates for the U.S. Securities to be purchased by them. It
is understood that each U.S. Underwriter has authorized the U.S.
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial U.S. Securities and the U.S.
Option Securities, if any, which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the U.S. Underwriters, may (but shall
not be obligated to) make payment of the purchase price for the Initial U.S.
Securities or the U.S. Option Securities, if any, to be purchased by any U.S.
Underwriter whose funds have not been received by the Closing Time or the
relevant Date of Delivery, as the case may be, but such payment shall not
relieve such U.S. Underwriter from its obligations hereunder.
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(d) Denominations; Registration. Certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with
each U.S. Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement
shall become effective, or any supplement to the Prospectuses or any
amended Prospectuses shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or
supplement to the Prospectuses or for additional information, and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)), any
Term Sheet or any amendment, supplement or revision to either any
prospectus included in the Registration Statement at the time it became
effective or to the Prospectuses, whether pursuant to the 1933 Act, the
1934 Act or otherwise, will furnish the Global Coordinator with copies
of any such documents a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file or use any such
document to which the Global Coordinator or counsel for the U.S.
Underwriters shall object.
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(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the U.S. Representatives and counsel for
the U.S. Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein and
documents incorporated or deemed to be incorporated by reference
therein) and signed copies of all consents and certificates of experts,
and will also deliver to the U.S. Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of
each amendment thereto (without exhibits) for each of the U.S.
Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the U.S. Underwriters will be identical
to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
U.S. Underwriter, without charge, as many copies of each preliminary
prospectus as such U.S. Underwriter reasonably requested, and the
Company hereby consents to the use of such copies for purposes permitted
by the 1933 Act. The Company will furnish to each U.S. Underwriter,
without charge, during the period when the U.S. Prospectus is required
to be delivered under the 1933 Act or the 1934 Act, such number of
copies of the U.S. Prospectus (as amended or supplemented) as such U.S.
Underwriter may reasonably request. The U.S. Prospectus and any
amendments or supplements thereto furnished to the U.S. Underwriters
will be identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act
and the rules and regulations of the Commission under the 1934 Act (the
"1934 Act Regulations") so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement, the
International Purchase Agreement and in the Prospectuses. If at any time
when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the
opinion of counsel for the U.S. Underwriters or for the Company, to
amend the Registration Statement or amend or supplement any Prospectus
in order that the Prospectuses will not include any untrue statements of
a material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in the light of the
circumstances existing at the time any such Prospectus is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel,
at any such time to amend the Registration Statement or amend or
supplement any Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly
prepare and file with the Commission, subject to Section 3(b), such
amendment or supplement as may be necessary to correct such statement or
omission or to make the Registration Statement or the Prospectuses
comply with such requirements, and the Company will
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furnish to the U.S. Underwriters such number of copies of such
amendment or supplement as the U.S. Underwriters may reasonably
request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the U.S. Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws of
such states and other jurisdictions as the Global Coordinator may
designate and to maintain such qualifications in effect for a period of
not less than one year from the later of the effective date of the
Registration Statement and any Rule 462(b) Registration Statement;
provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In
each jurisdiction in which the Securities have been so qualified, the
Company will file such statements and reports as may be required by the
laws of such jurisdiction to continue such qualification in effect for a
period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to
its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectuses under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to maintain
the quotation of the Securities on the Nasdaq National Market and will
file with the Nasdaq National Market all documents and notices required
by the Nasdaq National Market of companies that have securities that are
traded on the Nasdaq National Market and quotations for which are
reported by the Nasdaq National Market.
(j) Restriction on Sale of Securities. During a period of 180
days from the date of the Prospectuses, the Company will not, without
the prior written consent of the Global Coordinator, (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of
any share of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common
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Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold hereunder or
under the International Purchase Agreement, (B) any shares of Common
Stock issued by the Company upon the exercise of an option or warrant or
the conversion of a security outstanding on the date hereof, or required
to be issued by the Company pursuant to a contract entered into prior to
the date hereof, and referred to in the Prospectuses, (C) any shares of
Common Stock issued or options to purchase Common Stock granted pursuant
to existing employee benefit plans of the Company referred to in the
Prospectuses, (D) any shares of Common Stock issued pursuant to any
non-employee director stock plan or dividend reinvestment plan or (E)
any shares of Common Stock or Warrants issued in connection with the
Exchange Offer or the Units Offering or the issuance of Common Stock
upon the exercise of such Warrants.
(k) Reporting Requirements. The Company, during the period when
the Prospectuses are required to be delivered under the 1933 Act or the
1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will
pay all expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement, any Agreement among
Underwriters and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Securities to the
Underwriters and the transfer of the Securities between the U.S. Underwriters
and the International Managers, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectuses and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies of the Blue
Sky Survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities, (ix) the filing fees incident
to, and the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities Dealers,
Inc. (the "NASD") of the terms of the sale of the Securities and (x) the fees
and expenses incurred in connection with the inclusion of the Securities in the
Nasdaq National Market.
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(b) Termination of Agreement. If this Agreement is terminated by the
U.S. Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the U.S. Underwriters.
SECTION 5. Conditions of U.S. Underwriters' Obligations. The obligations
of the several U.S. Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the 1933 Act
or proceedings therefor initiated or threatened by the Commission, and
any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of counsel
to the U.S. Underwriters. A prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance with
Rule 424(b) (or a post-effective amendment providing such information
shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon
Rule 434, a Term Sheet shall have been filed with the Commission in
accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Paul, Weiss, Rifkind, Wharton & Garrison, counsel for
the Company, in form and substance satisfactory to counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters to the effect set forth in
Exhibit A hereto and to such further effect as counsel to the U.S.
Underwriters may reasonably request.
(c) Opinion of Regulatory Counsel for Company. At the Closing
Time, the U.S. Representatives shall have received the favorable
opinion, dated as of the Closing Time, of Wiley, Rein & Fielding,
regulatory counsel for the Company, in form and substance satisfactory
to counsel for the U.S. Underwriters to the effect set forth in Exhibit
B hereto and to such further effect as counsel for the U.S.
Underwriters may reasonably request.
(d) Opinion of Patent Counsel for Company. At the Closing Time,
the U.S Representatives shall have received the favorable opinion, dated
as of the Closing Time, of [Bright & Lorig], patent counsel for the
Company, in form and substance satisfactory to counsel for the U.S.
Underwriters, together with signed or reproduced
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copies of such letter for each of the other U.S. Underwriters, to the
effect set forth in Exhibit C hereto and to such further effect as
counsel for the U.S. Underwriters may reasonably request.
(e) Opinion of Intellectual Property Counsel for Company. At the
Closing Time, the U.S. Representatives shall have received the favorable
opinion, dated as of the Closing Time, of Marzouk & Parry, intellectual
property counsel for the Company, in form and substance satisfactory to
counsel for the U.S. Underwriters, together with signed or reproduced
copies of such letter for each of the other U.S. Underwriters, to the
effect set forth in Exhibit D hereto and to such further effect as
counsel to the U.S. Underwriters may reasonably request.
(f) Opinion of Counsel for U.S. Underwriters. At Closing Time,
the U.S. Representatives shall have received the favorable opinion,
dated as of Closing Time, of Shearman & Sterling, counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters with respect to the matters set
forth in clauses (i), (ii), (v), (vi) (solely as to preemptive or other
similar rights arising by operation of law or under the charter or
by-laws of the Company), (viii) through (x), inclusive, (xiv) (solely as
to the information in the Prospectus under "Description of Capital
Stock--Common Stock") and the penultimate paragraph of Exhibit A hereto.
In giving such opinion such counsel may rely, as to all matters governed
by the laws of jurisdictions other than the law of the State of New York
and the federal law of the United States and the General Corporation Law
of the State of Delaware, upon the opinions of counsel satisfactory to
the U.S. Representatives. Such counsel may also state that, insofar as
such opinion involves factual matters, they have relied, to the extent
they deem proper, upon certificates of officers of the Company and its
subsidiaries and certificates of public officials.
(g) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectuses, any material adverse change in
the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiary
considered as one enterprise, whether or not arising in the ordinary
course of business, and the U.S. Representatives shall have received a
certificate of the chief executive officer of the Company and of the
chief financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a)
hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or
are pending or are contemplated by the Commission.
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(h) Accountants' Comfort Letter. At the time of the execution of
this Agreement, the U.S. Representatives shall have received from
Coopers & Lybrand L.L.P. a letter dated such date, in form and substance
satisfactory to the U.S. Representatives, together with signed or
reproduced copies of such letter for each of the other U.S. Underwriters
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectuses.
(i) Bring-down Comfort Letter. At Closing Time, the
Representatives shall have received from Coopers & Lybrand L.L.P. a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (h) of
this Section, except that the specified date referred to shall be a date
not more than three business days prior to Closing Time.
(j) Approval of Listing. At Closing Time, the Securities shall
have been approved for inclusion in the Nasdaq National Market.
(k) No Objection. The NASD has confirmed that it has not raised
any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(l) Lock-up Agreements. At the date of this Agreement, the U.S.
Representatives shall have received an agreement substantially in the
form of Exhibit B hereto signed by the persons listed on Schedule D
hereto.
(m) Consummation of the Exchange Offer. The Company shall have
consummated the Exchange Offer.
(o) Proposed Amendment. The company's Articles of Incorporation
shall have been amended by the Proposed Amendment.
(p) Qualifying Offerings. After giving effect to the issuance and
sale of the Initial Securities, there shall have occurred one or more
Qualifying Offerings yielding gross proceeds to the Company in an
aggregate cash amount of at least $100 million.
(q) Purchase of Initial International Securities.
Contemporaneously with the purchase by the U.S. Underwriters of the
Initial U.S. Securities under this Agreement, the International Managers
shall have purchased the Initial International Securities under the
International Purchase Agreement.
(r) Conditions to Purchase of U.S. Option Securities. In the
event that the U.S. Underwriters exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the U.S. Option
Securities, the representations and warranties of
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the Company contained herein and the statements in any certificates
furnished by the Company or any subsidiary of the Company hereunder
shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the U.S. Representatives
shall have received:
(i) Officers' Certificate. A certificate, dated such Date
of Delivery, of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the
Company confirming that the certificate delivered at Closing Time
pursuant to Section 5(g) hereof remains true and correct as of
such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion
of Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the
Company, together with the favorable opinions of Wiley, Rein &
Fielding, regulatory counsel for the Company, Bright & Lorig,
patent counsel for the Company, and Mazouk & Parry, intellectual
property counsel for the Company each in form and substance
satisfactory to counsel for the U.S. Underwriters, dated such
Date of Delivery, relating to the U.S. Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinions required by Section 5(b), (c), (d) and (e)
hereof.
(iii) Opinion of Counsel for U.S. Underwriters. The
favorable opinion of Shearman & Sterling, counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the U.S.
Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Section
5(f) hereof.
(iv) Bring-down Comfort Letter. A letter from Coopers &
Lybrand L.L.P., in form and substance satisfactory to the U.S.
Representatives and dated such Date of Delivery, substantially in
the same form and substance as the letter furnished to the U.S.
Representatives pursuant to Section 5(h) hereof, except that the
"specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to such
Date of Delivery.
(s) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the U.S. Underwriters shall have been furnished
with such documents and opinions as they may reasonably require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the
Company in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the
U.S. Representatives and counsel for the U.S. Underwriters.
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(t) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of U.S. Option Securities on a Date of Delivery which is after
the Closing Time, the obligations of the several U.S. Underwriters to
purchase the relevant Option Securities, may be terminated by the U.S.
Representatives by notice to the Company at any time at or prior to
Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of U.S. Underwriters. The Company agrees to
indemnify and hold harmless each U.S. Underwriter and each person, if any, who
controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement
of a material fact included in any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 6(d)
below) any such settlement is effected with the written consent
of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by
Merrill Lynch), reasonably incurred in investigating, preparing
or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced
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or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
(i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto) and
provided, further, that the Company will not be liable to an U.S. Underwriter
with respect to any preliminary prospectus to the extent that the Company shall
sustain the burden of proving that any such loss, liability, claim, damage or
expense resulted from the fact that such U.S. Underwriter, in contravention of a
requirement of this Agreement or applicable law, sold Securities to a person to
whom such U.S. Underwriter failed to send or give, at or prior to the Closing
Time, a copy of the Prospectus, as then amended or supplemented if (i) the
Company has previously furnished copies thereof (sufficiently in advance of the
Closing Time to allow for distribution by the Closing Time) to the Underwriters
and the loss, liability, claim, damage or expense of such U.S. Underwriter
resulted from an untrue statement or omission or alleged untrue statement or
omission of a material fact contained in or omitted from the preliminary
prospectus which was corrected in the Prospectus as, if applicable, amended or
supplemented prior to the Closing Time and (ii) such failure to give or send
such Prospectus by the Closing Time to the party or parties asserting such loss,
liability, claim, damage or expense would have constituted the sole defense to
the claim asserted by such person.
(b) Indemnification of Company, Directors and Officers. Each U.S.
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary U.S. prospectus or
the U.S. Prospectus (or any amendment or supplement thereto) in reliance upon
and in conformity with written information furnished to the Company by such U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the U.S. Prospectus (or any amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action
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commenced against it in respect of which indemnity may be sought hereunder, but
failure to so notify an indemnifying party shall not relieve such indemnifying
party from any liability hereunder to the extent it is not materially prejudiced
as a result thereof and in any event shall not relieve it from any liability
which it may have otherwise than on account of this indemnity agreement. In the
case of parties indemnified pursuant to Section 6(a) above, counsel to the
indemnified parties shall be selected by Merrill Lynch, and, in the case of
parties indemnified pursuant to Section 6(b) above, counsel to the indemnified
parties shall be selected by the Company. An indemnifying party may participate
at its own expense in the defense of any such action; provided, however, that
counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, and shall
have, if requested, provided such indemnifying party reasonably detailed
information regarding such fees and expenses (including with respect to the
services performed, the rate or rates charged and the expenses incurred) such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the
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one hand and the U.S. Underwriters on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the U.S.
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and
the U.S. Underwriters on the other hand in connection with the offering of the
U.S. Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the U.S.
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the U.S.
Underwriters, in each case as set forth on the cover of the U.S. Prospectus, or,
if Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the U.S. Securities as set forth on
such cover.
The relative fault of the Company on the one hand and the U.S.
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the U.S. Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the U.S. Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section were determined by
pro rata allocation (even if the U.S. Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section, no U.S.
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the U.S. Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such U.S. Underwriter has otherwise been required to pay by reason
of any such untrue or alleged untrue statement or omission or alleged omission.
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No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section, each person, if any, who controls a
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The U.S.
Underwriters' respective obligations to contribute pursuant to this Section are
several in proportion to the number of Initial U.S. Securities set forth
opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any U.S.
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the U.S. Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The U.S. Representatives may terminate
this Agreement, by notice to the Company, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the U.S.
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiary considered as one enterprise, whether or not arising
in the ordinary course of business, or (ii) if there has occurred any material
adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the U.S. Representatives, impracticable to market the Securities or
to enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or materially limited by the
Commission or the Nasdaq National Market, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the
National Association of Securities Dealers, Inc. or any other governmental
authority, or (iv) if a banking moratorium has been declared by either Federal
or New York authorities.
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(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the U.S. Underwriters. If
one or more of the U.S. Underwriters shall fail at Closing Time or a Date of
Delivery to purchase the Securities which it or they are obligated to purchase
under this Agreement (the "Defaulted Securities"), the U.S. Representatives
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting U.S. Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of U.S. Securities to be purchased on such date, the
non-defaulting U.S. Underwriters shall be obligated, each severally and
not jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of U.S. Securities to be purchased on such date, this Agreement
or, with respect to any Date of Delivery which occurs after Closing
Time, the obligation of the U.S. Underwriters to purchase and of the
Company to sell the Option Securities to be purchased and sold on such
Date of Delivery shall terminate without liability on the part of any
non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after Closing Time, which does not result in a termination of the obligation of
the U.S. Underwriters to purchase and the Company to sell the relevant U.S.
Option Securities, as the case may be, either the U.S. Representatives or the
Company shall have the right to postpone Closing Time or the relevant Date of
Delivery, as the case may be, for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectuses or in
any other documents or arrangements. As used herein, the term "U.S. Underwriter"
includes any person substituted for a U.S. Underwriter under this Section.
SECTION 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any
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standard form of telecommunication. Notices to the U.S. Underwriters shall be
directed to the U.S. Representatives at North Tower, World Financial Center, New
York, New York 10281, attention of General Counsel; and notices to the Company
shall be directed to it at CD Radio Inc, 1001 22nd St. N.W., Washington, D.C.
20037, attention of Chairman and Chief Executive Officer.
SECTION 12. Parties. This Agreement shall inure to the benefit of
and be binding upon the U.S. Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the U.S.
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the U.S. Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any U.S.
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK
CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
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If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the U.S. Underwriters and the Company in accordance with its terms.
Very truly yours,
CD RADIO INC.
By_______________________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
LEHMAN BROTHERS INC.
C.E. UNTERBERG, TOWBIN
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By___________________________________________
Authorized Signatory
For themselves and as U.S. Representatives of the other U.S. Underwriters named
in Schedule A hereto.
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SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial U.S.
Name of U.S. Underwriter Securities
------------------------ -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................................
Lehman Brothers Inc........................................................
C.E. Unterberg, Towbin,....................................................
----------
Total...................................................................... 2,800,000
=========
</TABLE>
Sch A - 1
<PAGE>
<PAGE>
SCHEDULE B
CD RADIO INC.
3,500,000 Shares of Common Stock
(par value $.001 per share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $[ ].
2. The purchase price per share for the U.S. Securities to be paid by
the several U.S. Underwriters shall be $[ ], being an amount equal to
the initial public offering price set forth above less $[ ] per share;
provided that the purchase price per share for any U.S. Option Securities
purchased upon the exercise of the over-allotment option described in Section
2(b) shall be reduced by an amount per share equal to any dividends or
distributions declared by the Company and payable on the Initial U.S. Securities
but not payable on the U.S. Option Securities.
Sch B - 1
<PAGE>
<PAGE>
SCHEDULE C
List of persons and entities
subject to lock-up
Joseph S. Capobianco
Lawrence F. Gilberti
Keno V. Thomas
Andrew Greenebaum
Robert D. Briskman
Loral Space and Communication Ltd.
Peter Pitsch
Jack Rubinstein
David Margolese
Sch C - 1
<PAGE>
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the U.S.
Purchase Agreement and the International Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in the District of
Columbia, which is the only jurisdiction in which the Company is required to be
qualified, whether by reason of the ownership or leasing of property or the
conduct of business as of the date hereof, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectuses in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if any, pursuant to
the U.S. Purchase Agreement, the International Purchase Agreement or the
Exchange Offer, pursuant to reservations, agreements or employee benefit plans
referred to in the Prospectuses or pursuant to the exercise of convertible
securities or options referred to in the Prospectuses); the shares of issued and
outstanding capital stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; and none of the outstanding shares
of capital stock of the Company was issued in violation of the preemptive rights
contained in (i) the Charter Documents or (ii) the General Corporation Law of
the State of Delaware (the "DGCL").
(v) The Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for issuance
and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, and, when issued and delivered
by the Company pursuant to the U.S. Purchase Agreement and the International
Purchase Agreement, respectively, against payment of the consideration set forth
in the U.S. Purchase Agreement and the International Purchase Agreement, will be
validly issued, fully paid and non-assessable and no holder of the Securities is
or will be subject to personal liability by reason of being such a holder.
(vi) The issuance of the Securities is not subject to the preemptive
rights provisions contained in (i) the Charter Documents or (ii) the DGCL.
A-1
<PAGE>
<PAGE>
(vii) Satellite CD Radio, Inc. has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectuses and is
duly qualified as a foreign corporation to transact business and is in good
standing in the District of Columbia, which is the only jurisdiction in which
such company is required to be qualified, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse Effect;
all of the issued and outstanding capital stock of Satellite CD Radio, Inc. has
been duly authorized and validly issued, is fully paid and non-assessable and,
to our knowledge, is owned by the Company free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of Satellite CD Radio, Inc. was issued in
violation of the preemptive rights provisions contained in (i) Satellite CD
Radio Inc's certificate of incorporation or by-laws or (ii) the DGCL. .
(viii) The U.S. Purchase Agreement and the International Purchase
Agreement have been duly authorized, executed and delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectuses pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and, to the best of our
knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectuses, excluding the documents incorporated by reference
therein, and each amendment or supplement to the Registration Statement and the
Prospectuses, excluding the documents incorporated by reference therein, as of
their respective effective or issue dates (other than the financial statements
and supporting schedules included therein or omitted therefrom, as to which we
need express no opinion) as of the date thereof each complied as to form in all
material respects with the requirements of the 1933 Act.
(xi) The documents incorporated by reference in the Prospectuses (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion), when they were filed
with the Commission complied as to form in all material respects with the
requirements of the 1934 Act and the rules and regulations of the Commission
thereunder.
(xii) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the Nasdaq National Market.
A-2
<PAGE>
<PAGE>
(xiii) To our knowledge without having done any search of judicial
records or records of any governmental agency or body, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or its subsidiary is a party, or to which the property of the Company or
its subsidiary is subject, before or brought by any court or governmental agency
or body, domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the U.S. Purchase Agreement and International
Purchase Agreement or the performance by the Company of its obligations
thereunder (other than any pending or threatened actions, proceedings, inquiries
or investigations relating to the Federal Communications Commission, as to which
we express no opinion).
(xiv) The information in the Prospectuses under "Description of Capital
Stock", "Certain United States Federal Income Tax Consequences to Non-United
States Holders of Common Stock" and "Business--Legal Proceedings" and in the
Registration Statement under Item 15, to the extent that it constitutes matters
of law, summaries of legal matters, summaries of the Company's charter and
by-laws or legal proceedings, or legal conclusions, has been reviewed by us and
is correct in all material respects.
(xv) To our knowledge, there are no statutes or regulations of the
United States or the State of New York or provisions of the DGCL that are
required to be described in the Prospectuses that are not described as required
(except that we express no opinion as to the Federal Communications Act or other
federal statutes or regulations of the Federal Communications Commission
affecting digital radio satellite broadcasting).
(xvi) All descriptions in the Registration Statement of contracts and
other documents to which the Company or its subsidiary are a party are accurate
in all material respects; to our knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments
required to be described or referred to in the Registration Statement or to be
filed as exhibits thereto other than those described or referred to therein or
filed or incorporated by reference as exhibits thereto.
(xvii) To our knowledge, (a) neither the Company nor its subsidiary is
in violation of its charter or by-laws and, (b) except as described in the
Registration Statement, no default by the Company or its subsidiary exists in
the due performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument that is described or
referred to in the Registration Statement or the Prospectuses or filed or
incorporated by reference as an exhibit to the Registration Statement.
(xviii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency of the State of New York or the United States (other than
under the 1933 Act and the 1933 Act Regulations, which were made, or as may be
required under the securities or blue sky laws of the various states,
A-3
<PAGE>
<PAGE>
as to which we need express no opinion) or under the DGCL is necessary or
required in connection with the due authorization, execution and delivery of the
U.S. Purchase Agreement and the International Purchase Agreement by the Company
or for the offering, issuance, sale or delivery of the Securities.
(xix) The execution, delivery and performance of the U.S. Purchase
Agreement and the International Purchase Agreement and the consummation of the
transactions contemplated in the U.S. Purchase Agreement, the International
Purchase Agreement and in the Registration Statement (including the issuance and
sale of the Securities, and the use of the proceeds from the sale of the
Securities as described in the Prospectuses under the caption "Use Of Proceeds")
and compliance by the Company with its obligations under the U.S. Purchase
Agreement and the International Purchase Agreement do not and will not, whether
with or without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in Section
1(a)(xi) of the Purchase Agreements) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary pursuant to, any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or any other agreement or
instrument, filed as an exhibit to or described in the Registration Statement,
to which the Company or its subsidiary is a party or by which it or any of them
may be bound, or to which any of the property or assets of the Company or its
subsidiary is subject (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not have a Material Adverse Effect), nor will
such action result in any violation of the provisions of the charter or by-laws
of the Company or its subsidiary, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court of the State of New York or the United
States having jurisdiction over the Company or its subsidiary or any of their
respective properties, assets or operations.
(xx) The Company is not, and upon consummation of the Stock Offerings
and the Units Offering will not be, an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Companies Act of 1940, as amended.
(xxi) The Rights under the Company's Shareholder Rights Plan to which
holders of the Securities will be entitled have been duly authorized and validly
issued.
(xxii) The Voting Trust Agreement constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law); the provisions of the Voting Trust Agreement create a "voting
trust" as provided in Section 218 under the Delaware General Corporation Law.
A-4
<PAGE>
<PAGE>
In addition, although we have not undertaken to investigate or verify
independently, and are not passing upon and do not assume any responsibility
for, the accuracy, completeness or fairness of the contents of the Registration
Statement and the Prospectuses (except with respect to certain matters of
corporate law, as set forth in paragraphs 5, 14, and 16 above), in connection
with the preparation of the Registration Statement and the Prospectuses, we have
participated in conferences with representatives and counsel of Merrill Lynch
and with certain officers and employees of, and counsel and independent
certified public accountants for, the Company, at which conferences the contents
of the Registration Statement, the Prospectuses and related matters were
discussed, and advise you that nothing has come to our attention that would lead
us to believe that the Registration Statement or any amendment thereto,
including the Rule 430A Information and Rule 434 Information (if applicable),
(except for financial statements and schedules and other financial data included
or incorporated by reference therein or omitted therefrom, as to which we need
make no statement), at the time such Registration Statement or any such
amendment became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectuses or any
amendment or supplement thereto (except for financial statements and schedules
and other financial data included or incorporated by reference therein or
omitted therefrom, as to which we need make no statement), at the time the
Prospectuses were issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of the federal communications laws of the United
States, upon the opinion of Wiley, Rein & Fielding, special counsel to the
Company (which opinion shall be dated and furnished to Merrill Lynch at the
Closing Time, shall be satisfactory in form and substance to counsel for Merrill
Lynch and shall expressly state that Merrill Lynch may rely on such opinion as
if it were addressed to Merrill Lynch), provided that Paul, Weiss, Rifkind,
Wharton & Garrison shall state in their opinion that they believe that they and
Merrill Lynch are justified in relying upon such opinion, and (B), as to matters
of fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-5
<PAGE>
<PAGE>
Exhibit B
FORM OF OPINION OF REGULATORY COUNSEL TO THE COMPANY
(A) (1) the execution, and delivery and performance of the Purchase
Agreements relating to the Stock Offerings and the Units Offering and the
consummation of the transactions contemplated therein and in the Prospectuses
used in connection with the Stock Offerings and the Units Offering, the
consummation of the Stock Offerings, the Units Offering and the Exchange Offer
and compliance by the Company with its obligations thereunder do not violate (i)
the Federal Communications Act of 1934, as amended (the "Communications Act"),
(ii) any rules or regulations of the Federal Communications Commission ("FCC")
applicable to the Company or its subsidiaries, (iii) any state
telecommunications law, rules or regulations ("State Law") applicable to the
Company or its subsidiaries, and (iv) to the best of such counsel's knowledge,
any decree from any court, and (2) no consent, approval, authorization or order
of or filing with the FCC or any state authority overseeing telecommunications
matters ("State Authority"), is necessary for the execution, delivery and
performance of the Purchase Agreements relating to the Stock Offerings and the
Units Offering, the consummation of the Stock Offerings, the Units Offering and
Exchange Offer and except for consents, approvals, authorizations or orders of
or qualifications as have already been obtained and except to the extent that
the failure to obtain such consents, approvals, authorizations or orders or to
qualify with the FCC or any State Authority would not, individually or in the
aggregate, have a material adverse effect on the prospects, condition (financial
or otherwise) or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole;
(B) Except as described in the Prospectuses used in connection with the
Stock Offerings and the Units Offering, (1) each of the Company and all of its
subsidiaries have made all reports and filings, and paid all fees, required by
the FCC and the State Authorities, and have all certificates, orders, permits,
licenses, authorizations, consents and approvals of and from, and have made all
filings and registrations, with the FCC and the State Authorities necessary to
own, lease, license and use its properties and assets and to conduct the
business now operated by them or intended to be operated by them in the manner
described in the Prospectuses used in connection with the Stock Offerings and
the Units Offering; and (2) neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the violation, revocation or
modification of any such certificates, orders, permits, licenses,
authorizations, consents or approvals, or the qualification or rejection of any
such filing or registration, the effect of which, singly or in the aggregate,
would have a material adverse effect on the prospects, condition, financial or
otherwise, earnings, operations or business of the Company and its subsidiaries
now operated by them or intended to be operated by them in the manner described
in the Prospectuses used in connection with the Stock Offerings and the Units
Offering, taken as a whole;
B-1
<PAGE>
<PAGE>
(C) neither the Company nor any of its subsidiaries is in violation of,
or in default under the Communications Act, the telecommunications rules or
regulations of the FCC or State Law, the effect of which, singly or in the
aggregate, would have a material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries, taken as a whole;
(D) to the best of such counsel's knowledge after due inquiry (i) no
adverse judgment, decree or order of the FCC or any State Authority has been
issued against the Company or any of its subsidiaries and (ii) no litigation,
proceeding, inquiry or investigation has been commenced or threatened against
the Company or any of its subsidiaries before or by the FCC or any State
Authority which, if decided adversely to the Company's interest, would have a
material adverse effect on the Company and its subsidiaries, taken as a whole;
and
(E) the statements in the Prospectuses used in connection with the Stock
Offerings and the Units Offering under the captions "Risk Factors - Continuing
Oversight by the FCC," "Risk Factors - Application of Export Control
Regulations, "Risk Factors - Competition," "Business - Competition," and
"Business - Government Regulation," insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to therein,
fairly summarize the matters referred to therein.
B-2
<PAGE>
<PAGE>
Exhibit C
FORM OF OPINION OF PATENT COUNSEL TO THE COMPANY
(A) The Company has received the following U.S. patents: ________, and
no facts have come to the attention of such counsel that have led such counsel
to express an opinion that any of such patents is unenforceable or invalid.
(B) Such counsel is not aware of any pending or threatened action, suit,
proceeding or claim by others that the Company is infringing or otherwise
violating any patents or other proprietary information of others.
(C) Such counsel has no knowledge of any adversarial legal or
governmental proceedings or interference proceedings pending relating to patents
of the Company; and
(D) the statements in the Prospectuses used in connection with the Stock
Offerings and the Units Offering under the captions "Risk Factors--Uncertain
Protection" and "Business--Technology, Patents and Trademarks," insofar as such
statements constitute a summary of the legal matters, documents or proceedings
referred to therein, fairly summarize the matters referred to therein.
C-1
<PAGE>
<PAGE>
Exhibit D
FORM OF OPINION OF OTHER
INTELLECTUAL PROPERTY COUNSEL TO THE COMPANY
(A) To such counsel's knowledge, the Applications are still pending and
all filings required to be made by the date of such opinion have been made.
(B) Such counsel is not aware of any pending or threatened action, suit,
proceeding or claim by others that the Company is infringing or otherwise
violating any trademarks of others.
(C) Aside from the pending Applications, we have no knowledge of any
pending or threatened adversarial legal or governmental proceedings or
interference proceedings relating to the Applications.
D-1
<PAGE>
<PAGE>
FORM OF LOCK-UP AGREEMENT Exhibit E
[ ], 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Lehman Brothers Inc.
C.E. Unterberg, Towbin
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281
Re: Proposed Public Offering by CD Radio Inc.
-----------------------------------------
Dear Ladies and Gentlemen:
The undersigned, a stockholder [and an officer and/or director] of CD
Radio Inc., a Delaware corporation (the "Company"), understands that Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Lehman Brothers Inc. propose to enter into a Purchase Agreement (the
"Purchase Agreement") with the Company providing for the public offering of
shares (the "Securities") of the Company's common stock, par value $0.001 per
share (the "Common Stock"). In recognition of the benefit that such an offering
will confer upon the undersigned as a stockholder [and an officer and/or
director] of the Company, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with each underwriter to be named in the Purchase Agreement that, during a
period of 180 days from the date of the Purchase Agreement, the undersigned will
not, without the prior written consent of Merrill Lynch, directly or indirectly,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer any shares of the
Company's Common Stock or any securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of disposition, or file any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock, whether any such swap or transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise; provided
that the foregoing shall not apply to transfers
E-1
<PAGE>
<PAGE>
of shares of Common Stock by operation of law. During such 180-day period, the
undersigned (a) may make gifts of shares of Common Stock or securities
convertible into Common Stock, or may transfer to its affiliates shares of
Common Stock or securities convertible into Common Stock, upon the condition
that such donees or transferees agree to be bound by the foregoing restriction
in the same manner as it applies to the undersigned and (b) may sell shares of
Common Stock pursuant to an exchange offer for all of the outstanding shares of
Common Stock.
Very truly yours,
Signature: ____________________________
Print Name: ___________________________
E-2
<PAGE>
<PAGE>
================================================================================
CD RADIO INC.
(a Delaware corporation)
700,000 Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
Dated: [ ], 1997
================================================================================
<PAGE>
<PAGE>
Table of Contents
<TABLE>
<S> <C> <C>
INTERNATIONAL PURCHASE AGREEMENT........................................................... 1
SECTION 1. Representations and Warranties.................................... 4
(a) Representations and Warranties by the Company..................... 4
(b) Officer's Certificate............................................. 12
SECTION 2. Sale and Delivery to International Managers; Closing.............. 12
(a) Initial Securities................................................ 12
(b) Option Securities................................................. 12
(c) Payment........................................................... 13
(d) Denominations; Registration....................................... 14
SECTION 3. Covenants of the Company.......................................... 14
(a) Compliance with Securities Regulations and Commission
Requests.......................................................... 14
(b) Filing of Amendments.............................................. 14
(c) Delivery of Registration Statements............................... 15
(d) Delivery of Prospectuses.......................................... 15
(e) Continued Compliance with Securities Laws......................... 15
(f) Blue Sky Qualifications........................................... 16
(g) Rule 158.......................................................... 16
(h) Use of Proceeds................................................... 16
(i) Listing........................................................... 16
(j) Restriction on Sale of Securities................................. 16
(k) Reporting Requirements............................................ 17
SECTION 4. Payment of Expenses............................................... 17
(a) Expenses.......................................................... 17
(b) Termination of Agreement.......................................... 18
SECTION 5. Conditions of International Managers' Obligations................. 18
(a) Effectiveness of Registration Statement........................... 18
(b) Opinion of Counsel for Company.................................... 18
(c) Opinion of Regulatory Counsel for Company......................... 18
(d) Opinion of Patent Counsel for Company............................. 19
(e) Opinion of Intellectual Property Counsel for Company.............. 19
(f) Opinion of Counsel for International Managers..................... 19
(g) Officers' Certificate............................................. 19
(h) Accountants' Comfort Letter....................................... 20
(i) Bring-down Comfort Letter......................................... 20
(j) Approval of Listing............................................... 20
(k) No Objection...................................................... 20
(l) Lock-up Agreements................................................ 20
(m) Consummation of the Exchange Offer................................ 20
(n) Proposed Amendment................................................ 20
(o) Qualifying Offerings.............................................. 20
</TABLE>
i
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
(p) Purchase of Initial U.S. Securities............................... 21
(r) Conditions to Purchase of International Option Securities......... 21
(s) Additional Documents.............................................. 22
(t) Termination of Agreement.......................................... 22
SECTION 6. Indemnification................................................... 22
(a) Indemnification of International Managers......................... 22
(b) Indemnification of Company, Directors and Officers................ 23
(c) Actions against Parties; Notification............................. 24
(d) Settlement without Consent if Failure to Reimburse................ 24
SECTION 7. Contribution...................................................... 25
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.......................................................... 26
SECTION 9. Termination of Agreement.......................................... 26
(a) Termination; General.............................................. 26
(b) Liabilities....................................................... 27
SECTION 10. Default by One or More of the International Managers.................. 27
SECTION 11. Notices............................................................... 28
SECTION 12. Parties............................................................... 28
SECTION 13. GOVERNING LAW AND TIME................................................ 28
SECTION 14. Effect of Headings.................................................... 28
SCHEDULES
Schedule A - List of International Managers................................. A-1
Schedule B - Pricing Information............................................ B-1
Schedule C - List of Persons and Entities Subject to Lock-up................. C-1
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel............................ A-1
Exhibit B - Form of Opinion of Regulatory Counsel for the Company........... B-1
Exhibit C - Form of Opinion of Patent Counsel Company....................... C-1
Exhibit D - Form of Opinion of Intellectual Property Counsel for the Company D-1
Exhibit E - Form of Lock-up Letter........................................... E-1
</TABLE>
ii
<PAGE>
<PAGE>
CD RADIO INC.
(a Delaware corporation)
3,500,000 Shares of Common Stock
(par value $.001 per share)
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
[ ], 1997
MERRILL LYNCH INTERNATIONAL
Lehman Brothers International (Europe)
C.E. Unterberg, Towbin, a California Limited Partnership
as International Managers
C/O MERRILL LYNCH INTERNATIONAL
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
CD Radio Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch International ("Merrill Lynch"), Lehman Brothers
International (Europe) and C.E. Unterberg, Towbin (collectively, the
"International Managers", which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), with respect to the
issue and sale by the Company and the purchase by the International Managers,
acting severally and not jointly, of the respective numbers of shares of Common
Stock, par value $.001 per share, of the Company ("Common Stock") set forth in
said Schedule A, and with respect to the grant by the Company to the
International Managers, acting severally and not jointly, of the option
described in Section 2(b) hereof to purchase all or any part of 105,000
additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 700,000 shares of Common Stock (the "Initial International
Securities") to be purchased by the International Managers and all or any part
of the 105,000 shares of Common Stock subject to the option described in Section
2(b) hereof (the "International Option Securities") are hereinafter called,
collectively, the "International Securities."
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "U.S. Purchase Agreement") providing for
the offering by the Company of an aggregate of 2,800,000 shares of Common Stock
(the "Initial U.S. Securities") through arrangements with certain underwriters
in the United States and Canada (the "U.S.
<PAGE>
<PAGE>
Underwriters") for which Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Lehman Brothers Inc. and C.E. Unterberg, Towbin, are acting as representatives
(the "U.S. Representatives") and the grant by the Company to the U.S.
Underwriters, acting severally and not jointly, of an option to purchase all or
any part of the U.S. Underwriters' pro rata portion of up to 420,000 additional
shares of Common Stock solely to cover over-allotments, if any (the "U.S. Option
Securities" and, together with the International Option Securities, the "Option
Securities"). The Initial U.S. Securities and the U.S. Option Securities are
hereinafter called the "U.S. Securities." It is understood that the Company is
not obligated to sell and the International Managers are not obligated to
purchase, any Initial International Securities unless all of the Initial U.S.
Securities are contemporaneously purchased by the U.S. Underwriters.
The International Managers and the U.S. Underwriters are hereinafter
collectively called the "Underwriters", the Initial International Securities and
the Initial U.S. Securities are hereinafter collectively called the "Initial
Securities", and the International Securities and the U.S. Securities are
hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company understands that the International Managers propose to make
a public offering of the International Securities as soon as they deem advisable
after this Agreement has been executed and delivered. The public offering of the
Securities by the U.S. Underwriters and the International Managers is referred
to herein as the "Stock Offerings."
The Company also has made an exchange offer (the "Exchange Offer") for
its outstanding 5% Delayed Convertible Preferred Stock ("5% Preferred Stock")
pursuant to a registration statement on Form S-4 (No. 333-34761) (the "Exchange
Offer Registration Statement") and is undertaking a public offering of Units
(the "Units Offering"), each Unit consisting of $1,000 aggregate principal
amount at maturity Senior Discount Notes due 2007 (the "Notes") and warrants
(the "Warrants") to purchase Common Stock, pursuant to a registration statement
on Form S-3 (No. 333-34769).
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-34767) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet
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(a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b).
Two forms of prospectus are to be used in connection with the offering and sale
of the Securities: one relating to the International Securities (the "Form of
International Prospectus") and one relating to the U.S. Securities (the "Form of
U.S. Prospectus"). The Form of International Prospectus is identical to the Form
of U.S. Prospectus, except for the front cover and back cover pages and the
information under the caption "Underwriting" and the inclusion in the Form of
International Prospectus of a section under the caption "Certain United States
Tax Considerations for Non-United States Holders." The information included in
any such prospectus or in any such Term Sheet, as the case may be, that was
omitted from such registration statement at the time it became effective but
that is deemed to be part of such registration statement at the time it became
effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule
430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
"Rule 434 Information." Each Form of International Prospectus and Form of U.S.
Prospectus used before such registration statement became effective, and any
prospectus that omitted, as applicable, the Rule 430A Information or the Rule
434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto,
schedules thereto, if any, and the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became
effective and including the Rule 430A Information and the Rule 434 Information,
as applicable, is herein called the "Registration Statement." Any registration
statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein
referred to as the "Rule 462(b) Registration Statement," and after such filing
the term "Registration Statement" shall include the Rule 462(b) Registration
Statement. The final Form of International Prospectus and the final Form of U.S.
Prospectus, including the documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the 1933 Act, in the forms first furnished to the
Underwriters for use in connection with the offering of the Securities are
herein called the "International Prospectus" and the "U.S. Prospectus,"
respectively, and collectively, the "Prospectuses." If Rule 434 is relied on,
the terms "International Prospectus" and "U.S. Prospectus" shall refer to the
preliminary International Prospectus dated October 30, 1997 and the preliminary
U.S. Prospectus dated October 30, 1997, respectively, each together with the
applicable Term Sheet and all references in this Agreement to the date of such
Prospectuses shall mean the date of the applicable Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the International Prospectus, the U.S. Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus (including the Form of U.S.
Prospectus and Form of International Prospectus) or the Prospectuses (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is
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incorporated by reference in the Registration Statement, any preliminary
prospectus or the Prospectuses, as the case may be; and all references in this
Agreement to amendments or supplements to the Registration Statement, any
preliminary prospectus (including the Form of U.S. Prospectus and Form of
International Prospectus) or the Prospectuses shall be deemed to mean and
include the filing of any document under the Securities Exchange Act of 1934
(the "1934 Act") which is incorporated by reference in the Registration
Statement, such preliminary prospectus or the Prospectuses, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each International Manager as of the date hereof, as
of the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each
International Manager, as follows:
(i) Compliance with Registration Requirements. Pursuant to an
oral waiver granted to the Company by the Commission, the Company is
permitted to use Form S-3 under the 1933 Act in connection with the
Stock Offerings. Each of the Registration Statement and any Rule 462(b)
Registration Statement has become effective under the 1933 Act and no
stop order suspending the effectiveness of the Registration Statement or
any Rule 462(b) Registration Statement has been issued under the 1933
Act and no proceedings for that purpose have been instituted or are
pending or, to the knowledge of the Company, are contemplated by the
Commission, and any request on the part of the Commission for additional
information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any International
Option Securities are purchased, at the Date of Delivery), the
Registration Statement, the Rule 462(b) Registration Statement and any
amendments and supplements thereto complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither of the Prospectuses nor any amendments or supplements thereto,
at the time the Prospectuses or any amendments or supplements thereto
were issued and at the Closing Time (and, if any International Option
Securities are purchased, at the Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or the International Prospectus made in reliance
upon and in conformity
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with information furnished to the Company in writing by any
International Managers expressly for use in the Registration Statement
or the International Prospectus.
Each preliminary prospectus and the prospectuses filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectuses
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or deemed
to be incorporated by reference in the Registration Statement and the
Prospectuses, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act, and, when read together with the other
information in the Prospectuses, at the time the Registration Statement
became effective, at the time the Prospectuses were issued and at the
Closing Time (and if any Option Securities are purchased, at the Date of
Delivery), did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(iii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act.
(iv) Financial Statements. The financial statements and the
related notes of the Company included in the Registration Statement and
the Prospectuses present fairly in accordance with generally accepted
accounting principles ("GAAP") the financial position of the Company and
its consolidated subsidiary as of the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and
its consolidated subsidiary for the periods specified. Such financial
statements have been prepared in conformity with GAAP applied on a
consistent basis throughout the periods involved. The selected financial
data and the summary financial information included in the Registration
Statement and the Prospectuses present fairly in accordance with GAAP
the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements of the Company
for each of the years in the five-year period ended December 31, 1996.
(v) No Material Adverse Charge in Business. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein or contemplated
thereby, there has not been (A) any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiary considered as
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one enterprise, whether or not arising in the ordinary course of
business (a "Material Adverse Effect"), (B) any transaction entered into
by the Company or its subsidiary, other than in the ordinary course of
business, that is material with respect to the Company and its
subsidiary considered as one enterprise, or (C) any dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses, to enter into and perform its
obligations under this Agreement and to consummate the Stock Offerings;
the Company is duly qualified as a foreign corporation to transact
business and is in good standing in each other jurisdiction in which
each such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.
(vii) Good Standing of the Subsidiary. Satellite CD Radio, Inc.
has been duly organized and is validly existing as a corporation in good
standing under the laws of the State of Delaware and has corporate power
and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectuses and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect. All of the issued and
outstanding capital stock of Satellite CD Radio, Inc. has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of Satellite CD Radio, Inc. was issued in
violation of the preemptive or similar rights of any securityholder of
Satellite CD Radio, Inc. Satellite CD Radio, Inc. is the only subsidiary
of the Company.
(viii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectuses in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectuses, pursuant to the
Exchange Offer or pursuant to the exercise of convertible securities,
warrants or options referred to in the Prospectuses). The shares of
issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable;
none of the outstanding shares of capital stock of the Company was
issued in violation of the preemptive or other similar rights of any
securityholder of the Company.
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(ix) Authorization of Agreements. This Agreement and the
International Purchase Agreement have been duly authorized, executed and
delivered by the Company.
(x) Authorization and Description of Securities. The Securities
to be purchased by the International Managers and the U.S. Underwriters
from the Company have been duly authorized for issuance and sale to the
International Managers pursuant to this Agreement and the U.S.
Underwriters pursuant to the U.S. Purchase Agreement, respectively, and,
when issued and delivered by the Company pursuant to this Agreement and
the U.S. Purchase Agreement, respectively, against payment of the
consideration set forth herein and in the U.S. Purchase Agreement,
respectively, will be validly issued, fully paid and non-assessable; the
Common Stock conforms to all statements relating thereto contained in
the Prospectuses and the description thereof in the Prospectuses
conforms to the rights set forth in the instruments defining the same;
no holder of the Securities will be subject to personal liability by
reason of being such a holder; and the issuance of the Securities is not
subject to the preemptive or other similar rights of any securityholder
of the Company.
(xi) Absence of Defaults and Conflicts. Neither the Company nor
its subsidiary is in violation of its charter or by-laws or in default
in the performance or observance of any obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Company or its subsidiary is a party or by which
it or any of them may be bound, or to which any of the property or
assets of the Company or its subsidiary is subject (collectively,
"Agreements and Instruments") except for such defaults that would not
result in a Material Adverse Effect; and the execution, delivery and
performance of this Agreement and the U.S. Purchase Agreement and the
consummation of the transactions contemplated in this Agreement, the
U.S. Purchase Agreement and in the Registration Statement (including the
issuance and sale of the Securities and the use of the proceeds from the
sale of the Securities as described in the Prospectuses under the
caption "Use of Proceeds") and compliance by the Company with its
obligations under this Agreement and the U.S. Purchase Agreement have
been duly authorized by all necessary corporate action and do not and
will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or its subsidiary pursuant to, the Agreements and
Instruments (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not result in a Material Adverse
Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or its subsidiary or any
applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or its subsidiary or
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any of their assets, properties or operations. As used herein, a
"Repayment Event" means any event or condition which gives the holder of
any note, debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or its subsidiary.
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or its subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
its subsidiary's principal suppliers, manufacturers or contractors,
which, in either case, may reasonably be expected to result in a
Material Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or its subsidiary, which is required to be disclosed in the
Registration Statement and the Prospectuses (other than as disclosed
therein), or which might reasonably be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the transactions
contemplated by this Agreement and the International Purchase Agreement
or the performance by the Company of its obligations hereunder or
thereunder; all pending legal or governmental proceedings to which the
Company or its subsidiary is a party or of which any of their respective
property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental
to the business, in the aggregate could not reasonably be expected to
result in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or documents
which are required to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xv) Possession of Intellectual Property. The Company and its
subsidiary own or possess adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them and intended to be
operated by them in the manner described in the Registration Statement
and the Prospectuses, and neither the Company nor its subsidiary has
received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of
the Company or
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its subsidiary therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder or under the U.S. Purchase Agreement, in
connection with the offering, issuance or sale of the Securities under
this Agreement and the U.S. Purchase Agreement or the consummation of
the transactions contemplated by this Agreement and the U.S. Purchase
Agreement, except such as have been already obtained or as may be
required under the 1933 Act or the 1933 Act Regulations and state
securities or blue sky laws.
(xvii) Possession of Licenses and Permits. Except as disclosed in
the Prospectuses, the Company and its subsidiary possess such permits,
licenses (including, without limitation, the FCC License, as defined in
the Prospectuses), approvals, consents and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate
federal, state, local or foreign regulatory agencies or bodies necessary
to conduct the business now operated by them or intended to be operated
by them in the manner described in the Registration Statement and the
Prospectuses; the Company and its subsidiary are in compliance with the
terms and conditions of all such Governmental Licenses, except where the
failure so to comply would not, singly or in the aggregate, have a
Material Adverse Effect; all of the Governmental Licenses are valid and
in full force and effect, except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to be
in full force and effect would not have a Material Adverse Effect; and
neither the Company nor its subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xviii) Title to Property. The Company and its subsidiary have
good and marketable title to all real property owned by the Company and
its subsidiary and good title to all other properties owned by them, in
each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such
as (a) are described in the Prospectuses or (b) do not, singly or in the
aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the Company or its subsidiary; and all of the leases and subleases
material to the business of the Company and its subsidiary, considered
as one enterprise, and under which the Company or its subsidiary holds
properties described in the Prospectuses, are in full force and effect,
and neither the Company nor its subsidiary has any notice of any
material claim of any sort that has been asserted by anyone adverse to
the rights of
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the Company or its subsidiary under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the Company
or such subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease.
(xix) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated, the issuance
and sale of Units in connection with the Units Offering, and the
application of the net proceeds therefrom as described in the
Prospectuses will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
(xx) Environmental Laws. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in
a Material Adverse Effect, (A) neither the Company nor its subsidiary is
in violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating
to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of Hazardous Materials (collectively, "Environmental Laws"), (B) the
Company and its subsidiary have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each
in compliance with their requirements, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental
Law against the Company or its subsidiary and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company or its subsidiary relating to Hazardous Materials or any
Environmental Laws.
(xxi) Taxes. All United States federal income tax returns of the
Company and its subsidiary required by law to be filed have been filed
and all taxes shown by such returns or otherwise assessed, which are due
and payable, have been paid, except assessments against which appeals
have been or will be promptly taken and as to which adequate reserves
have been provided. The Company and its subsidiary have filed all other
tax returns that are required to have been filed by them pursuant to
applicable foreign, state, local or other law, except insofar as the
failure to file such returns would not result in a Material Adverse
Effect, and have paid all taxes
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due pursuant to such returns or pursuant to any assessment received by
the Company and its subsidiary, except for such taxes, if any, as are
being contested in good faith and as to which adequate reserves have
been provided.
(xxii) Internal Controls. The Company and its subsidiary maintain
a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization, (B) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific authorization
and (D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxiii) Registration Rights. Except as described in the
Prospectuses, there are no persons with registration rights or other
similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act.
(xxiv) Related Parties. No relationship, direct or indirect,
exists between or among any of the Company or any affiliate of the
Company, on the one hand, and any director, officer, stockholder or
supplier of any of them, on the other hand, which is required to be
described in the Registration Statement or the Prospectuses which is not
so described or is not described as required.
(xxv) Offering Materials. The Company has not distributed and,
prior to the Closing Time, will not distribute any Offering Materials in
connection with the offering and sale of Securities, other than the
Registration Statement, any preliminary prospectus, the Prospectuses or
any other Offering Materials, if any, permitted by the 1933 Act and the
1934 Act and approved by the Representatives.
(xxvi) Voting Trust Agreement. The Voting Trust Agreement, dated
August 26, 1997 among the Company, Darlene Friedland and David Margolese
and consented to by Robert M. Friedland has been duly authorized,
executed and delivered by the Company and, assuming due authorization,
execution and delivery thereof by the parties thereto (other than the
Company), is a valid, legal and binding obligation of the Company and
Darlene Friedland, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
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(xxvii) Proposed Amendment. The Proposed Amendment (as defined in
the Exchange Offer Registration Statement) has been approved by the
Board of Directors of the Company and the stockholders of the Company
and has been validly filed with the Secretary of State of the State of
Delaware, and prior to the date hereof the Company's Articles of
Incorporation have been amended by the Proposed Amendment.
(xxviii) Exchange Offer. Prior to the date hereof, the Exchange
Offer has been consummated and, in the Exchange Offer, shares of the
Company's 10 1/2% Series C Convertible Preferred Stock were exchanged
for [ ]% of the outstanding shares of 5% Preferred Stock.
(xxix) Qualifying Offerings. After giving effect to the issuance
and sale of the Initial Securities, there will have occurred one or more
Qualifying Offerings (as defined in the Certificate of Designations for
the 5% Preferred Stock) yielding gross proceeds to the Company in an
aggregate cash amount of at least $100 million.
(b) Officer's Certificate. Any certificate signed by any officer of the
Company delivered to the Representatives or to its counsel shall be deemed a
representation and warranty by the Company to the Representatives as to the
matters covered thereby.
SECTION 2. Sale and Delivery to International Managers; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each International Manager, severally and
not jointly, and each International Manager, severally and not jointly, agrees
to purchase from the Company, at the price per share set forth in Schedule B,
the number of Initial International Securities set forth in Schedule A opposite
the name of such International Manager, plus any additional number of Initial
International Securities which such International Manager may become obligated
to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the International Managers,
severally and not jointly, to purchase up to an additional 105,000 shares of
Common Stock at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Company and
payable on the Initial International Securities but not payable on the
International Option Securities. The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Initial International Securities upon
notice by the Global Coordinator to the Company setting forth the number of
International Option Securities as to which the several International Managers
are then exercising the option and the time and date of payment and
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delivery for such International Option Securities. Any such time and date of
delivery for the International Option Securities (a "Date of Delivery") shall be
determined by the Global Coordinator, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Time, as hereinafter defined. If the option is exercised as to all or
any portion of the International Option Securities, each of the International
Managers, acting severally and not jointly, will purchase that proportion of the
total number of International Option Securities then being purchased which the
number of Initial International Securities set forth in Schedule A opposite the
name of such International Manager bears to the total number of Initial
International Securities, subject in each case to such adjustments as the Global
Coordinator in its discretion shall make to eliminate any sales or purchases of
fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, or at such
other place as shall be agreed upon by the Global Coordinator and the Company,
at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after
4:30 P.M. (Eastern time) on any given day) business day after the date hereof
(unless postponed in accordance with the provisions of Section 10), or such
other time not later than ten business days after such date as shall be agreed
upon by the Global Coordinator and the Company (such time and date of payment
and delivery being herein called "Closing Time").
In addition, in the event that any or all of the International Option
Securities are purchased by the International Managers, payment of the purchase
price for, and delivery of certificates for, such International Option
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Global Coordinator and the Company, on each Date
of Delivery as specified in the notice from the Global Coordinator to the
Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the International Managers for their respective of certificates for the
International Securities to be purchased by them. It is understood that each
International Manager has agreed to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial International Securities and the
International Option Securities, if any, which it has agreed to purchase.
Merrill Lynch, individually and not as representative of the International
Managers, may (but shall not be obligated to) make payment of the purchase price
for the Initial International Securities or the International Option Securities,
if any, to be purchased by any International Manager whose funds have not been
received by the Closing Time or the relevant Date of Delivery, as the case may
be, but such payment shall not relieve such International Manager from its
obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
International Securities and the International Option Securities, if any, shall
be in such denominations and
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registered in such names as the International Managers may request in writing at
least one full business day before the Closing Time or the relevant Date of
Delivery, as the case may be. The certificates for the Initial International
Securities and the International Option Securities, if any, will be made
available for examination and packaging by the International Managers in The
City of New York not later than 10:00 A.M. (Eastern time) on the business day
prior to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
International Manager as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement
shall become effective, or any supplement to the Prospectuses or any
amended Prospectuses shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or
supplement to the Prospectuses or for additional information, and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)), any
Term Sheet or any amendment, supplement or revision to either any
prospectus included in the Registration Statement at the time it became
effective or to the Prospectuses, whether pursuant to the 1933 Act, the
1934 Act or otherwise, will furnish the Global Coordinator with copies
of any such documents a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file or use any such
document to which the Global Coordinator or counsel for the
International Managers shall object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the International Managers and counsel for
the International Managers, without charge, signed copies of the
Registration Statement as originally filed and of
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each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated or deemed
to be incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the
International Managers, without charge, a conformed copy of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the International Managers. The copies of
the Registration Statement and each amendment thereto furnished to the
International Managers will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
International Manager, without charge, as many copies of each
preliminary prospectus as such International Manager reasonably
requested, and the Company hereby consents to the use of such copies for
purposes permitted by the 1933 Act. The Company will furnish to each
International Manager, without charge, during the period when the
International Prospectus is required to be delivered under the 1933 Act
or the 1934 Act, such number of copies of the International Prospectus
(as amended or supplemented) as such International Manager may
reasonably request. The International Prospectus and any amendments or
supplements thereto furnished to the International Managers will be
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act
and the rules and regulations of the Commission under the 1934 Act (the
"1934 Act Regulations") so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement, the
U.S. Purchase Agreement and in the Prospectuses. If at any time when a
prospectus is required by the 1933 Act to be delivered in connection
with sales of the Securities, any event shall occur or condition shall
exist as a result of which it is necessary, in the opinion of counsel
for the International Managers or for the Company, to amend the
Registration Statement or amend or supplement any Prospectus in order
that the Prospectuses will not include any untrue statements of a
material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in the light of the
circumstances existing at the time any such Prospectus is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel,
at any such time to amend the Registration Statement or amend or
supplement any Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly
prepare and file with the Commission, subject to Section 3(b), such
amendment or supplement as may be necessary to correct such statement or
omission or to make the Registration Statement or the Prospectuses
comply with such requirements, and the Company will furnish to the
International Managers such
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number of copies of such amendment or supplement as the International
Managers may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the International Managers, to qualify the
Securities for offering and sale under the applicable securities laws of
such states and other jurisdictions as the Global Coordinator may
designate and to maintain such qualifications in effect for a period of
not less than one year from the later of the effective date of the
Registration Statement and any Rule 462(b) Registration Statement;
provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In
each jurisdiction in which the Securities have been so qualified, the
Company will file such statements and reports as may be required by the
laws of such jurisdiction to continue such qualification in effect for a
period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to
its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectuses under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to maintain
the quotation of the Securities on the Nasdaq National Market and will
file with the Nasdaq National Market all documents and notices required
by the Nasdaq National Market of companies that have securities that are
traded on the Nasdaq National Market and quotations for which are
reported by the Nasdaq National Market.
(j) Restriction on Sale of Securities. During a period of 180
days from the date of the Prospectuses, the Company will not, without
the prior written consent of the Global Coordinator, (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of
any share of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common
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Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold hereunder or
under the U.S. Purchase Agreement, (B) any shares of Common Stock issued
by the Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof, or required to
be issued by the Company pursuant to a contract entered into prior to
the date hereof, and referred to in the Prospectuses, (C) any shares of
Common Stock issued or options to purchase Common Stock granted pursuant
to existing employee benefit plans of the Company referred to in the
Prospectuses (D) any shares of Common Stock issued pursuant to any
non-employee director stock plan or dividend reinvestment plan or (E)
any shares of Common Stock issued in connection with the Exchange Offer
or the Units Offering or the issuance of Common Stock upon the exercise
of such Warrants.
(k) Reporting Requirements. The Company, during the period when
the Prospectuses are required to be delivered under the 1933 Act or the
1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters and the
transfer of the Securities between the U.S. Underwriters and the International
Managers, (iv) the fees and disbursements of the Company's counsel, accountants
and other advisors, (v) the qualification of the Securities under securities
laws in accordance with the provisions of Section 3(f) hereof, including filing
fees and the reasonable fees and disbursements of counsel for the Underwriters
in connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets and of
the Prospectuses and any amendments or supplements thereto, (vii) the
preparation, printing and delivery to the Underwriters of copies of the Blue Sky
Survey and any supplement thereto, (viii) the fees and expenses of any transfer
agent or registrar for the Securities, (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Securities and (x) the fees and expenses
occurred in connection with the inclusion of the Securities in the Nasdaq
National Market.
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(b) Termination of Agreement. If this Agreement is terminated by the
International Managers in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the International Managers for all
of their out-of-pocket expenses, including the reasonable fees and disbursements
of counsel for the International Managers.
SECTION 5. Conditions of International Managers' Obligations. The
obligations of the several International Managers hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any
subsidiary of the Company delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and other obligations hereunder, and
to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the 1933 Act
or proceedings therefor initiated or threatened by the Commission, and
any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of counsel
to the International Managers. A prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance with
Rule 424(b) (or a post-effective amendment providing such information
shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon
Rule 434, a Term Sheet shall have been filed with the Commission in
accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the
International Managers shall have received the favorable opinion, dated
as of Closing Time, of Paul, Weiss, Rifkind, Wharton & Garrison, counsel
for the Company, in form and substance satisfactory to counsel for the
International Managers, together with signed or reproduced copies of
such letter for each of the other International Managers to the effect
set forth in Exhibit A hereto and to such further effect as counsel to
the International Managers may reasonably request.
(c) Opinion of Regulatory Counsel for Company. At the Closing
Time, the International Managers shall have received the favorable
opinion, dated as of the Closing Time, of Wiley, Rein & Fielding,
regulatory counsel for the Company, in form and substance satisfactory
to counsel for the International Managers, together with signed or
reproduced copies of such letter for each of the other International
Managers, to the effect set forth in Exhibit B hereto and to such
further effect as counsel for the International Managers may reasonably
request.
(d) Opinion of Patent Counsel for Company. At the Closing Time,
the International Managers shall have received the favorable opinion,
dated as of the
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Closing Time, of [Bright & Lorig], patent counsel for the Company, in
form and substance satisfactory to counsel for the International
Managers, together with signed or reproduced copies of such letter for
each of the other International Managers, to the effect set forth in
Exhibit C hereto and to such further effect as counsel for the
International Managers may reasonably request.
(e) Opinion of Intellectual Property Counsel for Company. At the
Closing Time, the International Managers shall have received the
favorable opinion, dated as of the Closing Time, of Marzouk & Parry,
intellectual property counsel for the Company, in form and substance
satisfactory to counsel for the International Managers, together with
signed or reproduced copies of such letter for each of the other
International Managers, to the effect set forth in Exhibit D hereto and
to such further effect as counsel to the International Managers may
reasonably request.
(f) Opinion of Counsel for International Managers. At Closing
Time, the International Managers shall have received the favorable
opinion, dated as of Closing Time, of Shearman & Sterling, counsel for
the International Managers, together with signed or reproduced copies of
such letter for each of the other International Managers with respect to
the matters set forth in clauses (i), (ii), (v), (vi) (solely as to
preemptive or other similar rights arising by operation of law or under
the charter or by-laws of the Company), (viii) through (x), inclusive,
(xiv) (solely as to the information in the Prospectus under "Description
of Capital Stock--Common Stock") and the penultimate paragraph of
Exhibit A hereto. In giving such opinion such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the law of
the State of New York, and the federal law of the United States and the
General Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to the International Managers. Such counsel may
also state that, insofar as such opinion involves factual matters, they
have relied, to the extent they deem proper, upon certificates of
officers of the Company and its subsidiaries and certificates of public
officials.
(g) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectuses, any material adverse change in
the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiary
considered as one enterprise, whether or not arising in the ordinary
course of business, and the International Managers shall have received a
certificate of the chief executive officer of the Company and of the
chief financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a)
hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop
order suspending the effectiveness of the
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Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or are contemplated by the
Commission.
(h) Accountants' Comfort Letter. At the time of the execution of
this Agreement, the International Managers shall have received from
Coopers & Lybrand L.L.P. a letter dated such date, in form and substance
satisfactory to the International Managers, together with signed or
reproduced copies of such letter for each of the other International
Managers containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect
to the financial statements and certain financial information contained
in the Registration Statement and the Prospectuses.
(i) Bring-down Comfort Letter. At Closing Time, the International
Managers shall have received from Coopers & Lybrand L.L.P. a letter,
dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (h) of
this Section, except that the specified date referred to shall be a date
not more than three business days prior to Closing Time.
(j) Approval of Listing. At Closing Time, the Securities shall
have been approved for inclusion in the Nasdaq National Market.
(k) No Objection. The NASD has confirmed that it has not raised
any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(l) Lock-up Agreements. At the date of this Agreement, the
International Managers shall have received an agreement substantially in
the form of Exhibit B hereto signed by the persons listed on Schedule D
hereto.
(m) Consummation of the Exchange Offer. The Company shall have
consummated the Exchange Offer.
(n) Proposed Amendment. The Proposed Amendment has been approved
by the Board of Directors of the Company and the stockholders of the
Company and has been validly filed with the Secretary of State of the
State of Delaware, and the Company's Articles of Incorporation shall
have been amended by the Proposed Amendment.
(o) Qualifying Offerings. After giving effect to the issuance and
sale of the Initial Securities, there shall have occurred one or more
Qualifying Offerings yielding gross proceeds to the Company in an
aggregate cash amount of at least $100 million.
(p) Purchase of Initial U.S. Securities. Contemporaneously with
the purchase by the International Managers of the Initial International
Securities under
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this Agreement, the U.S. Underwriters shall have purchased the Initial
U.S. Securities under the U.S. Purchase Agreement.
(q) Conditions to Purchase of International Option Securities. In
the event that the International Managers exercise their option provided
in Section 2(b) hereof to purchase all or any portion of the
International Option Securities, the representations and warranties of
the Company contained herein and the statements in any certificates
furnished by the Company or any subsidiary of the Company hereunder
shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the International Managers shall have
received:
(i) Officers' Certificate. A certificate, dated such Date
of Delivery, of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the
Company confirming that the certificate delivered at Closing Time
pursuant to Section 5(g) hereof remains true and correct as of
such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion
of Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the
Company, together with the favorable opinions of, Wiley, Rein &
Fielding, regulatory counsel for the Company, Bright & Lorig,
patent counsel for the Company, and Mazouk & Parry, intellectual
property counsel for the Company each in form and substance
satisfactory to counsel for the International Managers, dated
such Date of Delivery, relating to the International Option
Securities to be purchased on such Date of Delivery and otherwise
to the same effect as the opinions required by Section 5(b), (c),
(d) and (e) hereof.
(iii) Opinion of Counsel for International Managers. The
favorable opinion of Shearman & Sterling, counsel for the
International Managers, dated such Date of Delivery, relating to
the International Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as the opinion
required by Section 5(f) hereof.
(iv) Bring-down Comfort Letter. A letter from Coopers &
Lybrand L.L.P., in form and substance satisfactory to the
International Managers and dated such Date of Delivery,
substantially in the same form and substance as the letter
furnished to the International Managers pursuant to Section 5(h)
hereof, except that the "specified date" in the letter furnished
pursuant to this paragraph shall be a date not more than five
days prior to such Date of Delivery.
(r) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the International Managers shall have been
furnished with such documents and opinions as they may reasonably
require for the purpose of enabling them to pass
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upon the issuance and sale of the Securities as herein contemplated, or
in order to evidence the accuracy of any of the representations or
warranties, or the fulfillment of any of the conditions, herein
contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Securities as herein contemplated shall be
satisfactory in form and substance to the International Managers and
counsel for the International Managers.
(s) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of International Option Securities on a Date of Delivery which
is after the Closing Time, the obligations of the several International
Managers to purchase the relevant Option Securities, may be terminated
by the International Managers by notice to the Company at any time at or
prior to Closing Time or such Date of Delivery, as the case may be, and
such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6, 7
and 8 shall survive any such termination and remain in full force and
effect.
SECTION 6. Indemnification.
(a) Indemnification of International Managers. The Company agrees to
indemnify and hold harmless each International Manager and each person, if any,
who controls any International Manager within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; provided that (subject to
Section 6(d) below) any such settlement is effected with the written
consent of the Company; and
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(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
International Manager expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the International
Prospectus (or any amendment or supplement thereto) and provided, further, that
the Company will not be liable to an International Manager with respect to any
preliminary prospectus to the extent that the Company shall sustain the burden
of proving that any such loss, liability, claim, damage or expense resulted from
the fact that such International Manager, in contravention of a requirement of
this Agreement or applicable law, sold Securities to a person to whom such
International Manager failed to send or give, at or prior to the Closing Time, a
copy of the Prospectus, as then amended or supplemented if (i) the Company has
previously furnished copies thereof (sufficiently in advance of the Closing Time
to allow for distribution by the Closing Time) to the Underwriters and the loss,
liability, claim, damage or expense of such International Manager resulted from
an untrue statement or omission or alleged untrue statement or omission of a
material fact contained in or omitted from the preliminary prospectus which was
corrected in the Prospectus as, if applicable, amended or supplemented prior to
the Closing Time and (ii) such failure to give or send such Prospectus by the
Closing Time to the party or parties asserting such loss, liability, claim,
damage or expense would have constituted the sole defense to the claim asserted
by such person..
(b) Indemnification of Company, Directors and Officers. Each
International Manager severally agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a)(1) of this Section, as incurred, but only with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any preliminary
international prospectus or the International Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company by such International Manager expressly for use in the
Registration Statement (or any amendment thereto) or such
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preliminary prospectus or the International Prospectus (or any amendment or
supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, and shall have, if
requested, provided such indemnifying party reasonably detailed information
regarding such fees and expenses (including with respect to the services
performed, the rate or rates charged and the expenses incurred) such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
24
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<PAGE>
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the International Managers on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
International Managers on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
International Managers on the other hand in connection with the offering of the
International Securities pursuant to this Agreement shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of the
International Securities pursuant to this Agreement (before deducting expenses)
received by the Company and the total underwriting discount received by the
International Managers, in each case as set forth on the cover of the
International Prospectus, or, if Rule 434 is used, the corresponding location on
the Term Sheet, bear to the aggregate initial public offering price of the
International Securities as set forth on such cover.
The relative fault of the Company on the one hand and the International
Managers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the International Managers and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the International Managers agree that it would not be
just and equitable if contribution pursuant to this Section were determined by
pro rata allocation (even if the International Managers were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
25
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<PAGE>
Notwithstanding the provisions of this Section, no International Manager
shall be required to contribute any amount in excess of the amount by which the
total price at which the International Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such International Manager has otherwise been required to pay by
reason of any such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section, each person, if any, who controls an
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company.
The International Managers' respective obligations to contribute pursuant to
this Section are several in proportion to the number of Initial International
Securities set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
International Manager or controlling person, or by or on behalf of the Company,
and shall survive delivery of the Securities to the International Managers.
SECTION 9. Termination of Agreement.
(a) Termination; General. The International Managers may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the International
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiary considered as one enterprise, whether or not arising
in the ordinary course of business, or (ii) if there has occurred any material
adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the International Managers, impracticable to market the Securities
or to enforce contracts for the sale of the Securities, or (iii) if trading in
any securities of the Company has been suspended or materially limited by the
Commission or the Nasdaq National Market, or if
26
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<PAGE>
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the International Managers. If one
or more of the International Managers shall fail at Closing Time or a Date of
Delivery to purchase the Securities which it or they are obligated to purchase
under this Agreement (the "Defaulted Securities"), the International Managers
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting International Managers, or any other underwriters,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the International Managers shall not have completed such arrangements within
such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of International Securities to be purchased on such date, the
non-defaulting International Managers shall be obligated, each severally
and not jointly, to purchase the full amount thereof in the proportions
that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting International Managers,
or
(b) if the number of Defaulted Securities exceeds 10% of the
number of International Securities to be purchased on such date, this
Agreement or, with respect to any Date of Delivery which occurs after
Closing Time, the obligation of the International Managers to purchase
and of the Company to sell the Option Securities to be purchased and
sold on such Date of Delivery shall terminate without liability on the
part of any non-defaulting International Manager.
No action taken pursuant to this Section shall relieve any defaulting
International Manager from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after Closing
Time, which does not result in a termination of the obligation of the
International Managers to purchase and the Company to sell the relevant
International Option Securities, as the case may be, either the International
Managers or the Company shall have the right to postpone Closing Time or the
27
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<PAGE>
relevant Date of Delivery, as the case may be, for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectuses or in any other documents or arrangements. As used herein, the term
"International Manager" includes any person substituted for an International
Manager under this Section.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Managers shall be directed to the Merrill Lynch International at
Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY, England, attention of
General Counsel; and notices to the Company shall be directed to it at CD Radio
Inc., 1001 22nd St. N.W., Washington, D.C. 20037, attention of Chairman and
Chief Executive Officer.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the International Managers and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
International Managers and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the International Managers and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any International Manager shall be deemed to be a successor by reason merely of
such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
28
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the International Managers and the Company in accordance with its terms.
Very truly yours,
CD RADIO INC.
By_______________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
C.E. UNTERBERG, TOWBIN
By: MERRILL LYNCH INTERNATIONAL
By _________________________________________
Authorized Signatory
29
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
International
Name of International Manager Securities
----------------------------- ----------
<S> <C>
Merrill Lynch International................................................
Lehman Brothers International (Europe).....................................
C.E. Unterberg, Towbin.....................................................
-------
Total...................................................................... 700,000
=======
</TABLE>
Sch A - 1
<PAGE>
<PAGE>
SCHEDULE B
CD RADIO INC.
700,000 Shares of Common Stock
(par value $.001 per share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $[ ].
2. The purchase price per share for the International Securities to be
paid by the several International Managers shall be $[ ], being an
amount equal to the initial public offering price set forth above less $[ ]
per share; provided that the purchase price per share for any International
Option Securities purchased upon the exercise of the over-allotment option
described in Section 2(b) shall be reduced by an amount per share equal to any
dividends or distributions declared by the Company and payable on the Initial
International Securities but not payable on the International Option Securities.
Sch B - 1
<PAGE>
<PAGE>
SCHEDULE C
List of persons and entities
subject to lock-up
Joseph S. Capobianco
Lawrence F. Gilberti
Keno V. Thomas
Andrew Greenebaum
Robert D. Briskman
Loral Space & Communications Ltd.
Peter K. Pitsch
Jack Rubinstein
David Margolese
Sch C - 1
<PAGE>
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the U.S.
Purchase Agreement and the International Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in the District of
Columbia, which is the only jurisdiction in which the Company is required to be
qualified, whether by reason of the ownership or leasing of property or the
conduct of business as of the date hereof, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectuses in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if any, pursuant to
the U.S. Purchase Agreement and the International Purchase Agreement or pursuant
to reservations, agreements or employee benefit plans referred to in the
Prospectuses or pursuant to the exercise of convertible securities or options
referred to in the Prospectuses); the shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares of capital stock of
the Company was issued in violation of the preemptive rights contained in (i)
the Charter Documents or (ii) the General Corporation Law of the State of
Delaware (the "DGCL").
(v) The Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for issuance
and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, and, when issued and delivered
by the Company pursuant to the U.S. Purchase Agreement and the International
Purchase Agreement, respectively, against payment of the consideration set forth
in the U.S. Purchase Agreement and the International Purchase Agreement, will be
validly issued, fully paid and non-assessable and no holder of the Securities is
or will be subject to personal liability by reason of being such a holder.
(vi) The issuance of the Securities is not subject to the preemptive
rights contained in (i) the Charter Documents or (ii) the DGCL.
A-1
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<PAGE>
(vii) Satellite CD Radio, Inc. has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectuses and is
duly qualified as a foreign corporation to transact business and is in good
standing in the District of Columbia, which is the only jurisdiction in which
such company is required to be qualified, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse Effect;
all of the issued and outstanding capital stock of Satellite CD Radio, Inc. has
been duly authorized and validly issued, is fully paid and non-assessable and,
to our knowledge, is owned by the Company free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of Satellite CD Radio, Inc. was issued in
violation of the preemptive rights provisions contained in (i) Satellite CD
Radio Inc.'s certificate of incorporation or by-laws or (ii) the DGCL.
(viii) The U.S. Purchase Agreement and the International Purchase
Agreement have been duly authorized, executed and delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectuses pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and, to the best of our
knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectuses, excluding the documents incorporated by reference
therein, and each amendment or supplement to the Registration Statement and the
Prospectuses, excluding the documents incorporated by reference therein, as of
their respective effective or issue dates (other than the financial statements
and supporting schedules included therein or omitted therefrom, as to which we
need express no opinion) as of the date thereof of each complied as to form in
all material respects with the requirements of the 1933 Act.
(xi) The documents incorporated by reference in the Prospectuses (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion), when they were filed
with the Commission complied as to form in all material respects with the
requirements of the 1934 Act and the rules and regulations of the Commission
thereunder.
(xii) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements
A-2
<PAGE>
<PAGE>
of the charter and by-laws of the Company and the requirements of the Nasdaq
National Market.
(xiii) To our knowledge without having done any search of judicial
records or records of any governmental agency or body, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or its subsidiary is a party, or to which the property of the Company or
its subsidiary is subject, before or brought by any court or governmental agency
or body, domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the U.S. Purchase Agreement and International
Purchase Agreement or the performance by the Company of its obligations
thereunder (other than any pending or threatened actions, proceedings, inquiries
or investigations relating to the Federal Communications Commission, as to which
we express no opinion)
(xiv) The information in the Prospectuses under "Description of Capital
Stock", "Business--Legal Proceedings", and "Certain United States Federal Income
Tax Consequences to Non-United States Holders of Common Stock"and in the
Registration Statement under Item 15, to the extent that it constitutes matters
of law, summaries of legal matters, summaries of the Company's charter and
by-laws or legal proceedings, or legal conclusions, has been reviewed by us and
is correct in all material respects.
(xv) To our knowledge, there are no statutes or regulations of the
United States or the State of new York or provisions of the DGCL that are
required to be described in the Prospectuses that are not described as required
(except that we express no opinion as to the Federal Communications Act or other
federal statutes or regulations of the Federal Communications Commission
affecting digital radio satellite broadcasting).
(xvi) All descriptions in the Registration Statement of contracts and
other documents to which the Company or its subsidiary are a party are accurate
in all material respects; to our knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments
required to be described or referred to in the Registration Statement or to be
filed as exhibits thereto other than those described or referred to therein or
filed or incorporated by reference as exhibits thereto.
(xvii) To our knowledge, (a) neither the Company nor its subsidiary is
in violation of its charter or by-laws and (b) except as described in the
Registration Statement, no default by the Company or its subsidiary exists in
the due performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument that is described or
referred to in the Registration Statement or the Prospectuses or filed or
incorporated by reference as an exhibit to the Registration Statement.
A-3
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<PAGE>
(xviii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency of the State of New York or the United States (other than
under the 1933 Act and the 1933 Act Regulations, which were made, or as may be
required under the securities or blue sky laws of the various states, as to
which we express no opinion) or under the DGCL is necessary or required in
connection with the due authorization, execution and delivery of the U.S.
Purchase Agreement and the International Purchase Agreement by the Company or
for the offering, issuance, sale or delivery of the Securities.
(xix) The execution, delivery and performance of the U.S. Purchase
Agreement and the International Purchase Agreement and the consummation of the
transactions contemplated in the U.S. Purchase Agreement, the International
Purchase Agreement and in the Registration Statement (including the issuance and
sale of the Securities, and the use of the proceeds from the sale of the
Securities as described in the Prospectuses under the caption "Use Of Proceeds")
and compliance by the Company with its obligations under the U.S. Purchase
Agreement and the International Purchase Agreement do not and will not, whether
with or without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in Section
1(a)(xi) of the Purchase Agreements) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary pursuant to, any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or any other agreement or
instrument, filed as an exhibit to or described in the Registration Statement to
which the Company or its subsidiary is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or its
subsidiary is subject (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not have a Material Adverse Effect), nor will
such action result in any violation of the provisions of the charter or by-laws
of the Company or its subsidiary, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court of the State of New York or the United
States having jurisdiction over the Company or its subsidiary or any of their
respective properties, assets or operations.
(xx) The Company is not, and upon consummation of the Stock Offerings
and the Units Offering will not be, an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Companies Act of 1940, as amended.
(xxi) The Rights under the Company's Shareholder Rights Plan to which
holders of the Securities will be entitled have been duly authorized and validly
issued.
(xxii) The Voting Trust Agreement constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws
A-4
<PAGE>
<PAGE>
relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law); the provisions of the Voting Trust Agreement
create a "voting trust" as provided in Section 218 under the Delaware General
Corporation Law.
In addition, although we have not undertaken to investigate or verify
independently, and are not passing upon and do not assume any responsibility
for, the accuracy, completeness or fairness of the contents of the Registration
Statement or the Prospectuses (except with respect to certain matters of
corporate law, as set forth in paragraphs 5, 14 and 16 above), in connection
with the preparation of the Registration Statement and the Prospectuses, we have
participated in conferences with representatives and counsel of Merrill Lynch
and with certain officers and employees of, and counsel and independent
certified public accountants for, the Company, at which conferences the contents
of the Registration Statement and the Prospectuses and related matters were
discussed, and advise you that nothing has come to our attention that would lead
us to believe that the Registration Statement or any amendment thereto,
including the Rule 430A Information and Rule 434 Information (if applicable),
(except for financial statements and schedules and other financial data included
or incorporated by reference therein or omitted therefrom, as to which we need
make no statement), at the time such Registration Statement or any such
amendment became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectuses or any
amendment or supplement thereto (except for financial statements and schedules
and other financial data included or incorporated by reference therein or
omitted therefrom, as to which we need make no statement), at the time the
Prospectuses were issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of the federal communications laws of the United
States, upon the opinion of Wiley, Rein & Fielding, special counsel to the
Company (which opinion shall be dated and furnished to Merrill Lynch at the
Closing Time, shall be satisfactory in form and substance to counsel for Merrill
Lynch and shall expressly state that Merrill Lynch may rely on such opinion as
if it were addressed to Merrill Lynch), provided that Paul, Weiss, Rifkind,
Wharton & Garrison shall state in their opinion that they believe that they and
Merrill Lynch are justified in relying upon such opinion, and (B), as to matters
of fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-5
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<PAGE>
Exhibit B
FORM OF OPINION OF REGULATORY COUNSEL TO THE COMPANY
(A) (1) the execution, and delivery and performance of the Purchase
Agreements relating to the Stock Offerings and the Units Offering and the
consummation of the transactions contemplated therein and in the Prospectuses
used in connection with the Stock Offerings and the Units Offering, the
consummation of the Stock Offerings, the Units Offering and the Exchange Offer
and compliance by the Company with its obligations thereunder do not violate (i)
the Federal Communications Act of 1934, as amended (the "Communications Act"),
(ii) any rules or regulations of the Federal Communications Commission ("FCC")
applicable to the Company or its subsidiaries, (iii) any state
telecommunications law, rules or regulations ("State Law") applicable to the
Company or its subsidiaries, and (iv) to the best of such counsel's knowledge,
any decree from any court, and (2) no consent, approval, authorization or order
of or filing with the FCC or any state authority overseeing telecommunications
matters ("State Authority"), is necessary for the execution, delivery and
performance of the Purchase Agreements relating to the Stock Offerings and the
Units Offering, the consummation of the Stock Offerings, the Units Offering and
Exchange Offer and except for consents, approvals, authorizations or orders of
or qualifications as have already been obtained and except to the extent that
the failure to obtain such consents, approvals, authorizations or orders or to
qualify with the FCC or any State Authority would not, individually or in the
aggregate, have a material adverse effect on the prospects, condition (financial
or otherwise) or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole;
(B) Except as described in the Prospectuses used in connection with the
Stock Offerings and the Units Offering, (1) each of the Company and all of its
subsidiaries have made all reports and filings, and paid all fees, required by
the FCC and the State Authorities, and have all certificates, orders, permits,
licenses, authorizations, consents and approvals of and from, and have made all
filings and registrations, with the FCC and the State Authorities necessary to
own, lease, license and use its properties and assets and to conduct the
business now operated by them or intended to be operated by them in the manner
described in the Prospectuses used in connection with the Stock Offerings and
the Units Offering; and (2) neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the violation, revocation or
modification of any such certificates, orders, permits, licenses,
authorizations, consents or approvals, or the qualification or rejection of any
such filing or registration, the effect of which, singly or in the aggregate,
would have a material adverse effect on the prospects, condition, financial or
otherwise, earnings, operations or business of the Company and its subsidiaries
now operated by them or intended to be operated by them in the manner described
in the Prospectuses used in connection with the Stock Offerings and the Units
Offering, taken as a whole;
B-1
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(C) neither the Company nor any of its subsidiaries is in violation of,
or in default under the Communications Act, the telecommunications rules or
regulations of the FCC or State Law, the effect of which, singly or in the
aggregate, would have a material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries, taken as a whole;
(D) to the best of such counsel's knowledge after due inquiry (i) no
adverse judgment, decree or order of the FCC or any State Authority has been
issued against the Company or any of its subsidiaries and (ii) no litigation,
proceeding, inquiry or investigation has been commenced or threatened against
the Company or any of its subsidiaries before or by the FCC or any State
Authority which, if decided adversely to the Company's interest, would have a
material adverse effect on the Company and its subsidiaries, taken as a whole;
and
(E) the statements in the Prospectuses used in connection with the Stock
Offerings and the Units Offering under the captions "Risk Factors - Continuing
Oversight by the FCC," "Risk Factors - Application of Export Control
Regulations, "Risk Factors - Competition," "Business - Competition," and
"Business - Government Regulation," insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to therein,
fairly summarize the matters referred to therein.
B-2
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Exhibit C
FORM OF OPINION OF PATENT COUNSEL TO THE COMPANY
(A) The Company has received the following U.S. patents: ________, and
no facts have come to the attention of such counsel that have led such counsel
to express an opinion that any of such patents is unenforceable or invalid.
(B) Such counsel is not aware of any pending or threatened action, suit,
proceeding or claim by others that the Company is infringing or otherwise
violating any patents or other proprietary information of others.
(C) Such counsel has no knowledge of any adversarial legal or
governmental proceedings or interference proceedings pending relating to patents
of the Company; and
(D) the statements in the Prospectuses used in connection with the Stock
Offerings and the Units Offering under the captions "Risk Factors--Uncertain
Protection" and "Business--Technology, Patents and Trademarks," insofar as such
statements constitute a summary of the legal matters, documents or proceedings
referred to therein, fairly summarize the matters referred to therein.
C-1
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Exhibit D
FORM OF OPINION OF OTHER
INTELLECTUAL PROPERTY COUNSEL TO THE COMPANY
(A) To such counsel's knowledge, the Applications are still pending and
all filings required to be made by the date of such opinion have been made.
(B) Such counsel is not aware of any pending or threatened action, suit,
proceeding or claim by others that the Company is infringing or otherwise
violating any trademarks of others.
(C) Aside from the pending Applications, we have no knowledge of any
pending or threatened adversarial legal or governmental proceedings or
interference proceedings relating to the Applications.
D-1
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FORM OF LOCK-UP AGREEMENT Exhibit E
[ ], 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Lehman Brothers Inc.
C.E. Unterberg, Towbin,
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281
Re: Proposed Public Offering by CD Radio Inc.
-----------------------------------------
Dear Ladies and Gentlemen:
The undersigned, a stockholder [and an officer and/or director] of CD
Radio Inc., a Delaware corporation (the "Company"), understands that Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Lehman Brothers Inc. propose to enter into a Purchase Agreement (the
"Purchase Agreement") with the Company providing for the public offering of
shares (the "Securities") of the Company's common stock, par value $0.001 per
share (the "Common Stock"). In recognition of the benefit that such an offering
will confer upon the undersigned as a stockholder [and an officer and/or
director] of the Company, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with each underwriter to be named in the Purchase Agreement that, during a
period of 180 days from the date of the Purchase Agreement, the undersigned will
not, without the prior written consent of Merrill Lynch, directly or indirectly,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer any shares of the
Company's Common Stock or any securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of disposition, or file any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock, whether any such swap or transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise; provided
that the foregoing shall not apply to transfers
E-1
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of shares of Common Stock by operation of law. During such 180-day period, the
undersigned (a) may make gifts of shares of Common Stock or securities
convertible into Common Stock, or may transfer to its affiliates shares of
Common Stock or securities convertible into Common Stock, upon the condition
that such donees or transferees agree to be bound by the foregoing restriction
in the same manner as it applies to the undersigned and (b) may sell shares of
Common Stock pursuant to an exchange offer for all of the outstanding shares of
Common Stock.
Very truly yours,
Signature: _____________________________
Print Name: ____________________________
E-2
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PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 Avenue of the Americas
New York, New York 10019-6064
November 19, 1997
CD Radio Inc.
1001 22nd Street N.W.
Washington DC 20037
CD Radio Inc. --
Registration Statement on Form S-3
Registration No. 333-34767
Ladies and Gentlemen:
In connection with the above-captioned Registration Statement
(the "Registration Statement"), filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations promulgated thereunder (the "Rules"), we have been
requested by CD Radio Inc., a Delaware corporation (the "Company"), to furnish
our opinion as to the legality of the shares of the Common Stock, par value
$.001 per share (the "Common Stock"), registered thereunder.
In connection with the furnishing of this opinion, we have
reviewed (i) the Registration Statement (including all amendments thereto filed
on or prior to the date hereof); (ii) the Company's Certificate of Incorporation
and the By-laws of the Company; and (iii) records of certain of the Company's
corporate proceedings. We also have examined and relied upon representations as
to factual matters contained in certificates of officers of the Company, and
have made such other investigations of fact and law and have examined and relied
upon the originals, or copies certified or
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CD Radio Inc. 2
otherwise identified to our satisfaction, of such documents, records,
certificates or other instruments, and upon such factual information otherwise
supplied to us, as in our judgment are necessary or appropriate to render the
opinion expressed below. In addition, we have assumed, without independent
investigation, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity of original documents
to all documents submitted to us as certified, photostatic, reproduced or
conformed copies, the authenticity of all such latter documents and the legal
capacity of all individuals who have executed any of the documents.
Based upon the foregoing, we are of the opinion that when issued
and paid for pursuant to the Purchase Agreement and the U.S. Purchase Agreement
the Common Stock will be duly authorized, validly issued, fully paid and
nonassessable.
Our opinion expressed above is limited to the General Corporation
Law of the State of Delaware. Please be advised that no member of this firm is
admitted to practice in the State of Delaware. Our opinion is rendered only with
respect to laws, and the rules, regulations and orders thereunder, which are
currently in effect.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Opinions" contained in the Prospectus included in the Registration Statement. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required by the Act or the Rules.
Very truly yours,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
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CD Radio Inc. 3
Prepared by:
--------------------------------
Jonathan G. L. King
Signed by:
--------------------------------
Mitchell S. Fishman
Reviewed by:
--------------------------------
Seymour Hertz
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Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of CD Radio Inc. on Form S-3 (No. 333-34767) of our report dated March 27, 1997,
on our audits of the consolidated financial statements of CD Radio Inc. as of
December 31, 1995 and 1996, for the years ended December 31, 1994, 1995 and
1996, and for the period May 17, 1990 (date of inception) to December 31, 1996,
which report is included in CD Radio Inc.'s Annual Report on Form 10-K, as
amended by the Annual Report on Form 10-K/A, for the year ended December 31,
1996. We also consent to the references to our firm under the captions "Summary
Consolidated Financial Data," "Selected Historical Financial Information" and
"Independent Accountants."
/s/ COOPERS & LYBRAND L.L.P.
------------------------------
Coopers & Lybrand L.L.P.
Washington, D.C.
November 19, 1997
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