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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CD RADIO INC.
(Exact Name of Registrant as Specified in Its Charter)
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)
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<S> <C> <C>
DELAWARE 4832 52-1700207
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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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)
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Copies to:
CHRISTOPHER J. BARRY, ESQ.
RANDAL R. JONES, ESQ.
BOGLE & GATES P.L.L.C.
TWO UNION SQUARE, 601 UNION STREET
SEATTLE, WASHINGTON 98101
206-682-5151
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Approximate date of commencement of proposed sale to the public: At such time
or from time to time after the effective date of this Registration Statement as
the respective Selling Stockholders shall determine.
If the only 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. [X]
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. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER SHARE (3) PRICE (3) REGISTRATION FEE
(1,2)
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Common Stock 9,061,740 $16.1875 $146,686,916.25 $44,451
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(1) Includes the registration for resale of all shares of Common Stock
issuable upon conversion of or otherwise in respect of 5,400,000
shares of the Registrant's 5% Delayed Convertible Preferred Stock
(the "5% Preferred") issued in a private placement in April 1997.
Estimated solely for purposes of calculating the registration fee
and assumes that all of the shares of the 5% Preferred are
converted into shares of Common Stock based on a conversion date of
May 14, 1997.
(2) Pursuant to Rule 416 under the Securities Act of 1933, as amended,
such number of shares of Common Stock registered hereby shall
include an indeterminate number of shares of Common Stock that may
be issued in connection with a stock split, stock dividend,
recapitalization or similar event.
(3) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) and based on the average of the bid and
asked price of the Common Stock of the Registrant reported on the
NASDAQ SmallCap Market on May 15, 1997.
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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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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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.
SUBJECT TO COMPLETION, DATED MAY 19, 1997
PROSPECTUS
9,061,740 SHARES*
CD RADIO INC.
COMMON STOCK
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This Prospectus pertains to the offer and sale from time to time of up
to 9,061,740 shares (the "Shares") of common stock, par value $0.001 per share
(the "Common Stock"), of CD Radio Inc. ("CD Radio" or the "Company") by or for
the account of certain of the Company's stockholders (collectively, the
"Selling Stockholders"). See "Selling Stockholders."
The Shares offered hereby may be sold by the Selling Stockholders
directly or through agents, underwriters or dealers as designated from time to
time or through a combination of such methods. The Company will receive none
of the proceeds from any sale of Shares by or for the account of the Selling
Stockholders. The Selling Stockholders and any broker-dealers that participate
with one or more of the Selling Stockholders in the distribution of the Shares
may be deemed to be underwriters and any commissions received or profit
realized by them in connection with the resale of the Shares might be deemed to
be underwriting discounts and commissions under the Securities Act of 1933, as
amended (the "Securities Act"). See "Selling Stockholders" and "Plan of
Distribution." The Company has agreed to bear all expenses relating to this
registration, other than underwriting discounts and commissions. In addition,
the Company has agreed to indemnify the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act. See "Selling
Stockholders" and "Plan of Distribution." The Common Stock is quoted on the
NASDAQ SmallCap Market under the symbol "CDRD". On May 12, 1997, the closing
bid price of the Common Stock as reported by NASDAQ was $18.
*The shares of Common Stock offered hereby include the resale of such
presently indeterminate number of shares of Common Stock as shall be issued in
respect of all shares of Common Stock issuable upon conversion of 5,400,000
shares of the Company's 5% Delayed Convertible Preferred Stock, par value
$0.001 (the "5% Preferred Stock"), issued in a private placement in April 1997.
The number of shares of Common Stock indicated to be issuable in connection
with such transaction and offered for resale hereby is an estimate determined
in accordance with a formula based on the market prices of the Common Stock and
date of conversion, as described in this Prospectus, and is subject to
adjustment and could be materially less or more than such estimated amount
depending upon factors which cannot be predicted by the Company at this time,
including, among others, the future market price of the Common Stock. If,
however, the 5% Preferred Stock was converted on May 14, 1997, the Company
would be obligated to issue a total of approximately 9,061,740 shares of Common
Stock if all 5,400,000 shares of 5% Preferred Stock outstanding as of May 14,
1997 were converted on such date. This presentation is not intended to
constitute a prediction as to the future market price of the Common Stock or as
to the number of shares of Common Stock into which the 5% Preferred Stock will
be converted. See "Risk Factors--Effect of Conversion of Convertible Preferred
Stock; Potential Common Stock Adjustment."
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SEE "RISK FACTORS" BEGINNING ON PAGE THREE OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Shares may be offered from time to time in negotiated transactions
or otherwise at market prices prevailing at the time of each sale, subject to
the right of the Selling Stockholders to reject any order in whole or in part.
THE DATE OF THIS PROSPECTUS IS ______________________, 1997.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street N.W., Washington, D.C. 20549, a Registration
Statement on Form S-3 (the "Registration Statement") under the Securities Act,
and the rules and regulations promulgated thereunder, with respect to the
Shares offered pursuant to this Prospectus. This Prospectus, which is part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits thereto. Certain financial and
other information relating to the Company is contained in the documents
indicated below under "Incorporation of Certain Documents By Reference" which
are not presented herein or delivered herewith. For further information with
respect to the Company and the Shares, reference is made to the Registration
Statement and such exhibits, copies of which may be examined without charge at,
or obtained upon payment of prescribed fees from, the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and will also be available for inspection and copying at
the regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048 and at Citicorp Center, 500 W. Madison Street,
Suite 1400, Chicago, Illinois 60661-2511.
Statements contained in this Prospectus as to the contents of any
contract or other document which is filed as an exhibit to the Registration
Statement are not necessarily complete, and each such statement is qualified in
its entirety by reference to the full text of such contract or document.
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 Commission. Such reports, proxy statements and other information can
be inspected and copied at the locations described above. Copies of such
materials can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, DC 20549, at prescribed
rates, or by reference to the Company on the Commission's World Wide Web page
(http:\\www.sec.gov). In addition, the Common Stock is listed on the NASDAQ
SmallCap Market. Material filed by the Company can be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
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/A for the year ended
December 31, 1996.
2. The Company's Current Report on Form 8-K dated April 10, 1997.
3. The Company's Current Report on Form 8-K dated May 2, 1997.
4. The Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1997.
5. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed pursuant to
Section 12(b) of the Exchange Act, and declared effective on
September 13, 1994 (including any amendment or report filed for
the purpose of updating such description).
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference in and to be
a part of this Prospectus from the date of filing of such reports and
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 foregoing documents referred to above which have been or may be
incorporated herein by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Requests for such documents should be
directed to: CD Radio Inc., Sixth Floor, 1001 22nd Street, N.W., Washington,
D.C. 20037.
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THE COMPANY
The Company is a pioneer in the emerging satellite-to-car broadcasting
industry ("satellite radio"). The Company is engaged in the development of a
subscription based satellite radio system for the nationwide broadcast of 30
channels of commercial-free, compact disc quality music programming and up to
20 channels of all-news, all-sports, and all-talk programming. The Company's
primary market is expected to be operators of cars and trucks throughout the
continental United States. The Company plans to broadcast its service, to be
called CD Radio, via its own custom designed and built satellite system
utilizing technology developed by the Company.
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. On April 29, 1993, the Company purchased all of the
outstanding stock of Sky-Highway Radio Corp., a Colorado corporation ("SHRC"),
at the time a competing applicant for an FCC license to launch and operate a
satellite radio service. Thereafter, the Company caused SHRC to withdraw its
license application and discontinue operations. Unless the context otherwise
indicates, the term "Company" as used herein refers to CD Radio Inc. and its
subsidiaries, Satellite CD Radio, Inc. and SHRC. The Company's executive
offices are located at Sixth Floor, 1001 22nd Street N.W., Washington, D.C.
20037, and its telephone number is (202) 296-6192.
RECENT DEVELOPMENTS
The Company was a winning bidder at an FCC auction on April 2, 1997 of
a license (the "FCC License") to permit it to build, launch and operate its
satellites to provide a satellite radio broadcast service with a winning bid of
$83,346,000.
In April 1997, the Company sold in a private placement $135 million of
5% Delayed Convertible Preferred Stock, convertible to common stock at
conversion prices based on discounts to future market prices. The purpose of
the sale is to finance the payment of the purchase price for the FCC License
and for working capital prior to the completion of subsequent financings.
FORWARD-LOOKING STATEMENTS
Certain statements in this Registration Statement on Form S-3
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. For example, the Company's service,
CD Radio, is in the planning and development stage and the descriptions set
forth herein as to how the Company plans to implement, market and operate the
service are forward-looking statements, and are subject to change based on
future developments, the Company's experience and known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or developments in the Company's industry, to
differ materially from the anticipated results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to: risk of not receiving from the FCC the FCC License in
a timely manner; potential risk of delay; increased costs of construction and
launch of necessary satellites; dependence on satellite construction and
launch contractors; risk of launch failure; unproven market acceptance of the
Company's services; the continuing losses of the Company; reliance on unproven
technology; need for substantial additional financing and other risks and
uncertainties described under "Risk Factors" in this Registration Statement on
Form S-3. Certain of the forward-looking statements contained in this
Registration Statement are identified with cross references to this section
and/or to specific risks identified under "Risk Factors."
RISK FACTORS
The Shares offered hereby involve 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 offered hereby. This Registration Statement and
documents incorporated herein contain forward-looking statement within the
meaning of Section 27A of the Securities Act. Discussion containing such
forward-looking
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statements may be found in the material within this Registration Statement
generally as well as within the documents listed under "Incorporation of
Certain Documents by Reference" and documents subsequently filed pursuant to
Section 13(a), 13(c), 14 and 15(d) of the Exchange Act. Actual events or
results could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth below and the matters set
forth in the Registration Statement generally. The Company cautions the reader
that this list of factors may not be exhaustive.
Development Stage Company; Continuing Losses
The Company's proposed service, CD Radio, is in its initial stage of
development. Since its inception, the Company's activities have been
concentrated on applying for necessary licenses, technology development,
strategic planning, and market research. The Company has incurred aggregate net
losses of approximately $18,500,000, from its inception on May 17, 1990 through
December 31, 1996, including net losses of approximately $2,800,000 or $0.29
per share, during the year ended December 31, 1996. The Company anticipates
that it will not achieve any revenue from operations until the second half of
1999 at the earliest, and that revenue from operations, if and when achieved,
will not be sufficient to cover operating expenses until the second half of
2000 at the earliest. The ability of the Company to begin to achieve
profitability will depend upon a number of factors, including timely receipt of
all necessary FCC authorizations, successful and timely construction and
deployment of its satellite system, the development and manufacture of
satellite radios by consumer electronics manufacturers and the successful
marketing of CD Radio. There can be no assurance that any of the foregoing
will be accomplished, that CD Radio will be placed in operation, that the
Company will attain a satisfactory market share or that the Company will
achieve profitability.
Need for Substantial Additional Financing
The Company was a winning bidder in the auction for one of two FCC
Licenses on April 2, 1997 with a bid of $83,346,000. The Company estimates
that assuming receipt of the FCC License it will require cash in the aggregate
amount of at least $500 million, plus the cost of the FCC License, to fund the
construction and launch of the Company's satellites and the commencement of CD
Radio and to provide cash reserves for the first year of service. See
"Forward-Looking Statements." The estimates assume that service will commence
in the Fall of 1999 and do not include interest costs or any payments that may
be required to holders of the 5% Preferred Stock as a result of failure to
satisfy certain requirements under the terms of the 5% Preferred Stock
financing in a timely manner. Additional funds, however, would be required in
the event of delay, cost overruns, launch failure or other adverse
developments. Further additional financing also would be required for the
Company to redeem the 5% Preferred Stock. The Company anticipates funding its
projected cash requirements through the completion of additional public or
private equity and debt financings. The Company does not have financing
commitments in place sufficient to fund the implementation of CD Radio service,
and there can be no assurance that the Company will be able to obtain
additional financing on favorable terms, if at all, or that it will be able to
do so on a timely basis. Failure to secure necessary financing on a timely
basis could result in delays and increases in the cost of satellite
construction or launch or other activities necessary to put CD Radio in
operation, could cause the Company to default on its commitments to its
satellite construction or launch contractors or others, could render the
Company unable to put CD Radio in operation and could force the Company to
discontinue operations or seek a purchaser. See "-- Risk of Delay; Effect of
Delay on Financing Requirements." The issuance by the Company of additional
equity securities could cause substantial dilution of the existing
stockholders' interest in the Company.
Risk of Delay; Effect of Delay on Financing Requirements
The Company is currently targeting the second half of 1999 for the
commencement of CD Radio. The Company's ability to meet that objective will
depend on several factors, including receipt of the FCC License by the third
quarter of 1997. There can be no assurance as to when the FCC will award the
FCC License. A significant delay in the timely development, construction,
launch and commencement of operation of CD Radio could have a material adverse
effect on the Company. Delay could result from a variety of causes, including
delays associated with FCC authorizations, inability to obtain necessary
financing in a timely manner, delays in design, development, construction or
testing of satellites, the national broadcast studio or other aspects of the CD
Radio system, changes of technical specifications, delay in commercial
availability of satellite radios, failure of the Company's vendors to perform
as anticipated or a delayed or unsuccessful satellite launch. During any period
of delay, the Company would continue to have significant cash requirements,
including capital expenditures, administrative and overhead costs, contractual
obligations and debt service that could materially increase the aggregate
amount of funding required to complete the preparations necessary to permit the
Company to commence operating CD Radio. Financing may not be available on
favorable terms or at all during periods of delay. In its order setting forth
the terms in which FCC Licenses would be awarded, the FCC imposed timing
requirements with respect to the implementation of service authorized under the
FCC Licenses. Licensees would be required to begin satellite construction
within one year; to launch and begin operating their first satellite within
four years; and to begin operating their entire system within six years.
Failure to meet these timing requirements could result in loss of the FCC
License.
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Delay also could cause the Company to be placed at a competitive disadvantage
in relation to a competitor who succeeds in beginning operations earlier than
the Company, or prevent the Company from putting CD Radio into service.
Government Regulation; No Assurance of FCC License
The receipt of an FCC License to construct, launch and operate its satellites
is a prerequisite to the Company's ability to offer CD Radio. The Company was a
winning bidder in the auction for the FCC License. However, there is no
assurance that the FCC will award the Company the FCC License or that such
award would be made in a timely fashion.
Changes in ownership of the Company's stock since the cutoff date for
satellite radio license applications, including the sale of the shares of
Common Stock in the Company's initial public offering, required the Company to
obtain an exemption from the FCC to permit the Company's license application to
be processed. The Company applied for such an exemption on February 2, 1994,
and the FCC released a ruling granting the request on June 8, 1994, conditioned
on the current stockholders and officers of the Company remaining in actual
control of Satellite CD Radio, Inc. Additional equity financings and sales of
common stock by persons who were stockholders on the cutoff date could also
result in further changes in ownership of the Company's stock and could require
the Company to obtain an exemption from the FCC.
In its order setting forth the terms in which FCC Licenses would be awarded,
the FCC imposed certain milestones with respect to the implementation of
service authorized under the FCC Licenses. See "-- Risk of Delay; Effect of
Delay on Financing Requirements."
Changes in law, FCC regulations or international agreements relating to
communications policy generally or to matters relating specifically to the
services proposed by the Company could affect the Company's ability to obtain
its FCC License or the manner in which its proposed service would be regulated.
5% Delayed Convertible Preferred Stock
In April 1997, the Company sold an aggregate of $135 million of the 5%
Preferred Stock. The terms of the 5% Preferred Stock provide that it is
convertible to Common Stock at discounts from future market prices of the
Common Stock, which could result in substantial dilution to holders of Common
Stock. The terms of issuance of the 5% Preferred Stock also require payments in
the amount of 3% of the aggregate liquidation preference per month if the
Company fails within certain prescribed periods to increase the number of
authorized shares of Common Stock; to reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the 5% Preferred Stock, at least such number of its
Common Stock that is the greater of (i) 10 million shares and (ii) 1.5 times
the number as shall from time to time be sufficient to effect the conversion of
all outstanding shares of the 5% Preferred Stock; to obtain any governmental
approvals necessary for the conversion of 5% Preferred Stock; or to maintain
an effective registration statement under the Securities Act of 1933 with
respect to the resale of Common Stock issuable upon conversion of the 5%
Preferred Stock. The terms of the 5% Preferred Stock also require the Company
to repurchase some or all of the 5% Preferred Stock upon the occurrence of
certain specified events. If payment or repurchase obligations were to arise
under the terms of the 5% Preferred Stock, the Company's financial condition
could be materially adversely affected. The Company has applied for FCC
approval of the conversion of the 5% Preferred Stock, but there can be no
assurance that such approval will be obtained by the Company. See "Description
of Securities."
Reliance on Unproven Technology
The CD Radio system is designed to use two satellites in geosynchronous orbit
that transmit identical signals to a new generation of satellite radios in cars
and trucks. The Company has conducted simulation testing and demonstrations of
CD Radio with a prototype receiver installed in an automobile. The satellite
system and other aspects of the CD Radio service, however, will use certain
technology that has yet to be tested using orbiting satellites or a satellite
radio suitable for commercial production. While management believes that the
technology developed by the Company will allow the service to operate as
planned, there can be no assurance that the CD Radio system will function as
currently contemplated.
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Dependence upon Satellites and Contractors; Risk of Launch Failure
The Company's business will depend upon the successful construction and
launch of its satellites which will be used to transmit CD Radio. The Company
will rely upon its satellite vendor, Space Systems/Loral, for the timely
delivery of its satellites. Failure of Space Systems/Loral to deliver
functioning satellites in a timely manner could materially adversely affect the
Company's business.
The Company is also dependent on its satellite launch vendor, Arianespace,
for the construction of launch vehicles and the successful launch of its
satellites. Satellite launches are subject to significant risks, including
satellite destruction or damage during launch or failure to achieve proper
orbital placement. According to an insurance industry source, approximately 15%
of insured commercial satellite launches by all launch contractors since 1965
have resulted in total loss. Launch failure rates vary from period to period
and from contractor to contractor. While past experience is not necessarily
indicative of future performance, Arianespace has advised the Company that as
of March 18, 1997 it has successfully completed 81 of 86 launches
(approximately 94%) since beginning commercial operations in 1984. Satellites
also could be defective or could be damaged or fail in orbit. As part of its
risk management program, the Company plans to construct a third (back-up)
satellite and to obtain insurance covering failed launch vehicle replacement.
The launch of a replacement satellite would delay the commencement or
continuation of the Company's operations for not less than six months, which
could have an adverse effect on the demand for the Company's services, as well
as the Company's revenues and results of operations. The launch or in-orbit
failure of two of the Company's satellites could delay the commencement or
continuation of the Company's operations for three years or more, which would
have a material adverse effect on the Company.
Uncertain Market Acceptance
There are currently no satellite radio services such as CD Radio in
commercial operation in the United States. As a result, the extent of the
potential demand for such services and the degree to which the Company's
proposed service will meet that demand cannot be estimated with certainty, and
there can be no assurance that there will be sufficient demand for CD Radio
service to enable the Company to achieve profitable operations. The success of
CD Radio in gaining market acceptance will be affected by a number of factors
beyond the Company's control, including consumers' willingness to pay
subscription fees to obtain satellite radio broadcasts, the cost, availability
and consumer acceptance of satellite radios, marketing and pricing strategies
of competitors, development of alternative technologies and general economic
conditions.
Unavailability of Satellite Radios
The Company's business strategy requires that subscribers to CD Radio
purchase satellite radios to receive the service. Satellite radios are not
currently commercially available and the Company is unaware of any manufacturer
currently developing such radios for commercial sale. The ultimate success of
the Company's service will therefore depend in significant part on the
willingness of at least one consumer electronics manufacturer to develop and
manufacture these radios. Although the Company intends to foster the
development of commercially available satellite radios, there can be no
assurance that a manufacturer will develop such radios in a timely manner or at
all, or that if commercially developed such radios will be affordable in price.
The failure of one or more consumer electronics manufacturers to develop
satellite radios for commercial sale in a timely manner would have a material
adverse effect on the Company's business.
Music Royalty Payments
In connection with its proposed music programming, the Company will be
required to negotiate and enter into royalty arrangements with copyright owners
of sound recordings and with performing rights societies, such as the American
Society of Composers, Authors and Publishers ("ASCAP"), Broadcast Music, Inc.
("BMI"), SESAC, Inc. ("SESAC"), and recording owners under the Digital
Recordings Act of 1995. The amount of these royalties is yet to be negotiated
and there can be no assurance that any royalty arrangements negotiated by the
Company will be on terms favorable to the Company.
Development of Business and Management of Growth
The Company has not yet commenced CD Radio service. To operate successfully,
the Company must develop and implement systems for operational and financial
management, programming, marketing, subscriber registration and management,
billing and collection of subscriber fees and other functions, and must hire
and train personnel to perform these functions. The Company expects to
experience significant and rapid growth in the scope and complexity of its
business as it proceeds with the development of its satellite radio system and
the commencement of CD Radio service.
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Growth is likely to place a substantial strain on the Company's management,
operational, financial and accounting resources. Failure to develop and
implement effective systems for the performance of all of the functions
necessary to the effective provision of its service and management of its
subscriber base and business, and failure to manage growth effectively, would
have a material adverse effect on the Company's business.
Competition
The Company will be seeking market acceptance of its proposed service in a
new, untested market and will compete with established conventional radio
stations, which do not rely on subscription fees for their operations. Many
radio stations also offer information programming of a local nature such as
local news or traffic which the Company will be unable to offer. The Company
also expects to compete directly with American Mobile Satellite Corporation,
which is principally owned by the Hughes division of General Motors, and which
has financial, management and technical resources which greatly exceed those of
the Company.
Dependence on Chief Executive Officer
The Company is highly dependent during its development phase on the services
of David Margolese, Chairman and Chief Executive Officer, who is responsible
for the Company's operations and strategic planning. The loss of the services
of Mr. Margolese during the development stage of the Company could have a
material adverse effect upon the business and prospects of the Company.
Proposed Business Dependent Upon Regulatory Approval
The Company has concentrated its efforts on the development and preparation
of its proposed service, CD Radio. The timely receipt of an FCC License to
construct, launch and operate its satellites is a prerequisite to the Company's
ability to offer CD Radio. If the Company is not awarded the FCC License
despite being a winning bidder in the auction, the Company would be forced to
identify an alternative business plan and use for any remaining capital
resources. Such an alternative plan could involve a change in focus to a
related or unrelated business activity, or dissolution of the Company. No
consideration has been given to any alternative activity or use of funds. There
can be no assurance that the Company would be able to identify or effectively
pursue any such alternative in a manner that would benefit the Company or its
stockholders.
Uncertain Patent Protection
The Company has been granted certain U.S. patents covering various types of
satellite radio technology. There can be no assurance, however, that the
Company's U.S. patents will not be challenged, invalidated or circumvented by
others. Litigation, which could result in substantial cost to the Company, may
be necessary to enforce the Company's patents or to determine the scope and
validity of other parties' proprietary rights, and there can be no assurance of
success in any such litigation.
Although the Company believes that patent protection may provide benefits to
the Company, the Company does not believe that its business is dependent on
obtaining patent protection or successfully defending any such patents against
infringement by others.
Limited Prior Public Market; Potential Volatility of Stock Price
The Company's Common Stock has been traded on the NASDAQ SmallCap Market
since September 13, 1994 and on April 30, 1997 submitted an application to be
traded on the NASDAQ National Market. There can be no assurance that an active
public market will continue for the Common Stock, or that the market price for
the Common Stock will not decline below its current price. Such price may be
influenced by many factors, including, but not limited to, investor perception
of the Company and its industry and general economic and market conditions. The
trading price of the Common Stock could be subject to wide fluctuations in
response to announcements of business and technical developments by the Company
or its competitors, quarterly variations in operating results, and other events
or factors. In addition, stock markets have experienced extreme price
volatility in recent years. This volatility has had a substantial effect on the
market prices of development stage companies, at times for reasons unrelated to
their operating performance. Such broad market fluctuations may adversely
affect the price of the Common Stock.
7
<PAGE> 9
Possible Delisting of Common Stock from NASDAQ; Possible Adverse Effect on
Trading Market
The Common Stock is quoted on the NASDAQ SmallCap Market and the Company has
applied for listing on the NASDAQ National Market. There are a number of
continuing requirements that must be met in order for the Common Stock to
remain eligible for quotation on NASDAQ. In order to continue to be quoted on
NASDAQ, a company must maintain $2 million in total assets, a $200,000 market
value of the public float and $1 million in total capital and surplus. In
addition, continued quotation requires two marketmakers and a minimum bid price
of $1.00 per share; provided, however, that if a company falls below such a
minimum bid, it will remain eligible for continued quotation on NASDAQ if the
market value of the public float is at least $3 million and the company has $2
million in capital and surplus. The failure to meet these maintenance criteria
in the future could result in the delisting of the Company's Common Stock from
NASDAQ. In such event, trading, if any, in the Common Stock may then continue
to be conducted in the non-NASDAQ over-the-counter market. As a result, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Company's Common Stock. In November
1996, NASDAQ approved changes to its quantitative and qualitative standards for
issuers listing on NASDAQ, subject to public comment and approval by the
Commission. Among the proposed changes are the elimination of the alternative
test for issuers failing to meet the minimum bid price of $1.00, an increase in
the quantitative standards for both the NASDAQ National Market and the NASDAQ
SmallCap Market, and the corporate governance requirements applicable to the
NASDAQ National Market would be applicable to the NASDAQ SmallCap Market.
In addition, if the Common Stock were delisted from trading on NASDAQ and the
trading price of the Common Stock were less than $5.00 per share, trading in
the Common Stock would also be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, which require additional
disclosure by broker dealers in connection with any trades involving a stock
defined as a penny stock (generally, any non-NASDAQ equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers may discourage
broker-dealers from effecting transactions in penny stocks, which could reduce
the liquidity of the shares of Common Stock and thereby have a material adverse
effect on the trading market for the securities.
Possible Adverse Effect of State Blue Sky Restrictions on Secondary Trading of
Common Shares
The Company believes that its Common Stock is eligible for sale on a
secondary market basis in most states based on various exemptions to state
qualification requirements. Limitations on, or the absence of those exemptions,
will under certain circumstances restrict the ability of a holder to transfer
the Common Stock to non-institutional buyers in some states. This could
adversely affect the liquidity of the Common Stock.
Anti-takeover Provisions
The Company's Board of Directors has the authority to issue up to 10,000,000
shares of Preferred Stock in one or more series and to determine the price,
rights, preferences and privileges of those shares without any further vote or
action by the stockholders, and 5,400,000 of such Preferred Shares are issued
and outstanding. The Board of Directors of the Company has solicited the
consent of its stockholders to a proposal to increase the number of
authorized shares of Preferred Stock to 50,000,000. Any issuance of Preferred
Stock with voting and conversion rights may adversely affect the voting power
of the holders of Common Stock. The Company has sold 5,400,000 shares of the 5%
Preferred Stock, convertible into shares of common stock, and such issuance
could have the effect of making it more difficult for a third party to acquire
a majority of the outstanding voting stock of the Company. In addition, the
Company may become subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which could have the effect of delaying
or preventing a change of control of the Company or adversely affect the market
price of the Company's Common Stock. In addition, the severance provisions of
employment agreements with certain members of the Company's management provide
for payments that could discourage an attempted change in control of the
Company.
8
<PAGE> 10
USE OF PROCEEDS
The Shares offered hereby are being registered for the account of the
Selling Stockholders and, accordingly, the Company will not receive any of the
proceeds from the sale of the Shares.
SELLING STOCKHOLDERS
The Shares being offered for resale by the Selling Stockholders were
acquired in connection with the April 1997 private placement and include the
Common Stock issuable upon conversion of the 5% Preferred Stock. The term
"Selling Stockholder" includes all persons acquiring securities in the
Placement and persons acquiring such securities in permitted transfers from
original holders thereof pursuant to the Preferred Stock Investment Agreement
in transactions not requiring registration under the Securities Act. In
connection with the Placement, the Company granted the Selling Stockholders
certain registration rights pursuant to which the Company agreed to use its
best efforts to keep the registration, of which this Prospectus is a part,
effective for at least two years from the date hereof.
The following table sets forth certain information regarding the
ownership of shares of Common Stock by the Selling Stockholders as of May 14,
1997, and as adjusted to reflect the sale of the Shares. The information in
the table concerning the Selling Stockholders who may offer Common Shares
hereunder from time to time is based on information provided to the Company by
such stockholders, except for the assumed conversion ratio of shares of the 5%
Preferred Stock into Common Stock, which is based solely on the assumptions
discussed above or referenced in footnote (2) to the table. Information
concerning such Selling Stockholders may change from time to time and any
changes of which the Company is advised will be set forth in a Prospectus
Supplement to the extent required. See "Plan of Distribution."
<TABLE>
<CAPTION>
COMMON SHARES MAXIMUM NUMBER OF COMMON SHARES OWNED
OWNED COMMON SHARES TO BE AFTER OFFERING (1)
PRIOR TO OFFERING SOLD --------------------
NAME (2) IN THE OFFERING NUMBER PERCENT
- ----------------------------------------- ------------------- -----------------------------------------------
<S> <C> <C> <C> <C>
Salomon Brothers Inc 83,905 83,905 0 *
Fidelity Summer Street Trust: 168,260 168,260 0 *
Fidelity Capital & Income Fund (3)
The Value Realization Fund, L.P. 19,686 19,686 0 *
GRS Partners II 3937 3937 0 *
The Canyon Value Realization Fund 28,873 28,873 0 *
(Cayman) Ltd.
Dickstein & Co., L.P. 22,310 22,310 0 *
Dickstein International Limited 3937 3937 0 *
Global Bermuda Limited 52,498 52,498 0 *
Partnership
Lakeshore International, Limited 26,249 26,249 0 *
Elliott Associates, L.P. (4) 314,981 314,981 0 *
Westgate International, L.P. (4) 209,987 209,987 0 *
Everest Capital International, Ltd. (5) 1,908,260 1,908,260 0 *
Everest Capital Fund, L.P. (5) 716,582 716,582 0 *
Grace Brothers, Ltd. (5) 629,962 629,962 0 *
</TABLE>
9
<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C>
MacKay-Shields Financial Corporation 1,527,658 1,527,658 0 *
(5)
The Ravich Revocable Trust of 1989 108,669 108,669 0 *
TCW Shared Opportunity Fund II 104,994 104,994 0 *
Stonehill Offshore Partners 31,498 31,498 0 *
Limited (5)
Stonehill Partners, L.P. (5) 115,165 115,165 0 *
GRS Partners III (5) 30,515 30,515 0 *
Aurora Limited Partnership (5) 19,686 19,686 0 *
Herta and Paul Amir Family Trust 25,724 25,724 0 *
The Wolens Family Trust 1312 1312 0 *
Long View Partners (4) 26,249 26,249 0 *
Cumberland Partners (4) 183,739 183,739 0 *
JMG Capital Partners, L.P. 26,249 26,249 0 *
CC Investments, Ltd. (4) 157,490 157,490 0 *
Continental Casualty Company (6) 1,870,461 1,870,461 0 *
Greenlight Capital, L.P. 59,059 59,059 0 *
Greenlight Capital Offshore, Ltd. 19,686 19,686 0 *
Lloyd I. Miller Trust A-4 Dated 7875 7875 0 *
9/19/80, Amended and Restated 9/20/83
</TABLE>
10
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C>
Milfam II, L.P. 7875 7875 0 *
The Milner Trust 13,124 13,124 0 *
Post Balanced Fund, L.P. 104,994 104,994 0 *
UBS Securities LLC 430,293 430,293 0 *
======================== ========================= ============ -----------
Total 9,061,740 9,061,740 0 *
======================== ========================= ============
</TABLE>
- -----------------
* Less than 1%.
(1) Assumes that all of the Selling Stockholders will sell all Shares during
the effective period.
(2) Assumes that the Company will receive FCC approval for the conversion of the
5% Preferred Stock (which has not been obtained) and 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 May 14, 1997 and that all dividends on shares of the 5%
Preferred Stock are accrued but unpaid. The actual number of shares of
Common Stock offered hereby is subject to change and could be materially
less or more than the estimated amount indicated depending upon factors
which cannot be predicted by anyone at this time, including, among others,
application of the conversion provisions based on market prices prevailing
prior to the actual date of conversion, the applicable discount based on the
date of conversion and whether dividends on shares of 5% Preferred Stock are
paid in cash or added to the Liquidation Preference (as defined below). In
order to calculate the number of shares of 5% Preferred Stock beneficially
held, divide the amount included in the column captioned "Common Shares
Beneficially Owned Prior to the Offering", by 1.6781. This presentation is
not intended to constitute a prediction as to the future market price of the
Common Stock , as to the number of shares of Common Stock into which the 5%
Preferred Stock will be converted or as to when holders will elect to
convert shares of the 5% Preferred Stock into shares of Common Stock. The
shares of 5% Preferred Stock were issued in the 1997 Private Placement. See
"Risk Factors -5% Delayed Convertible Preferred Stock."
(3) This entity is an investment company or a portfolio of an investment
company registered under Section 8 of the Investment Company Act of 1940,
as amended, advised by Fidelity Management & Research Company ("FMR Co.").
FMR Co. is a Massachusetts corporation and an investment advisor
registered under Section 203 of the Investment Advisers Act of 1940, as
amended, and provides investment advisory services to the entity mentioned
above, and to other registered investment companies and to certain other
funds which are generally offered to a limited group of investors. FMR Co.
is a wholly-owned subsidiary of FMR Corp. ("FMR"), a Massachusetts
corporation.
(4) The Selling Stockholder has agreed that it will not, following any
conversion of its 5% Preferred Stock, be the beneficial owner of more than
4.99% of the outstanding Common Stock unless it chooses to waive this
restriction upon 61 days prior notice to the Company. Beneficial ownership
is presented herein without regard to such limitation.
(5) The Selling Stockholder has agreed that it will not, following any
conversion of its 5% Preferred Stock, 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. The notice period of
61 days was changed to two days in the case of the entities for which
MacKay-Shields has acted as fund manager, which include the following:
Mainstay VP Series Fund, Inc., on behalf of its High Yield Corporate Bond
Portfolio; The Mainstay Funds, on behalf of its High Yield Corporate Bond
Fund Series; The Brown & Williamson Master Retirement Trust; Police
Officers Pension System of the City of Houston; Highbridge Capital
Corporation; and The Mainstay Funds, on behalf of the Strategic Income Fund
Series. Beneficial ownership is presented herein without regard to such
limitation.
(6) Holds 5% Preferred Stock on behalf of itself and on behalf of its
Designated A/C High Yield fund.
No Selling Stockholder has held any position or office, or
other material relationship with the Company or any of its predecessors or
affiliates within the past three years.
DESCRIPTION OF SECURITIES
The Company's Certificate of Incorporation provides for
authorized capital of 60,000,000 shares, consisting of 50,000,000 shares of
Common Stock, par value $0.001 per share, and 10,000,000 shares of Preferred
Stock, par value $0.001 per share.
As of May 8, 1997, the Company had 10,313,391 shares of Common
Stock outstanding held of record by 98 persons, and had reserved for issuance
1,815,000 shares of Common Stock with respect to outstanding options and
options available for issuance pursuant to the Company's stock option plan.
COMMON STOCK
Holders of the Company's Common Stock are entitled to cast one
vote for each share held of record on all matters acted upon at any
stockholders' meeting and to dividends if, as and when declared by the Board of
Directors out of funds legally available therefor. There are no cumulative
voting rights. In the event of any liquidation, dissolution or winding up of
the Company, each holder of the Company's Common Stock will be entitled to
participate, subject to the rights of any outstanding Preferred Stock, ratably
in all assets of the Company remaining after payment of liabilities. Holders of
the Company's Common Stock have no preemptive or conversion rights. All
outstanding shares of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to issue shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof including dividend rights, conversion
rights, voting rights, redemption rights, liquidation preferences and the
number of shares constituting any series, without any further vote or action by
the stockholders.
11
<PAGE> 13
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 defeat a proposed take-over of the Company, or
with terms making the removal of management more difficult. Under certain
circumstances, this could have the effect of decreasing the market price of the
Common Stock.
5% Delayed Convertible Preferred Stock
On March 19, 1997, the Board of Directors authorized the issuance of
up to 8,000,000 shares of the 5% Preferred Stock. As of May 8, 1997, the
Company had 5,400,000 shares of the 5% Preferred Stock outstanding held of
record by 48 entities, and had agreed to grant a warrant to purchase an
additional 486,000 shares at $25.00 per share.
Dividends. Each share of the 5% Preferred Stock is entitled to
receive dividends at the rate of $1.25 per annum, payable semi-annually on
April 15 and October 15 of each year, in preference to any payment made on any
other shares of capital stock of the Company. Any dividend payable on the 5%
Preferred Stock may be paid, at the option of the Company, either (i) in cash
or (ii) by adding the amount of such dividend to the Liquidation Preference (as
defined below). Each share of the 5% Preferred Stock is also entitled to a
liquidation preference of $25 per share, plus all accrued but unpaid dividends
(the "Liquidation Preference"), in preference to any other class or series of
capital stock of the Company. Other than the consent rights described below
with respect to certain corporate actions, and except as otherwise provided by
applicable law, holders of the 5% Preferred Stock have no voting rights.
Conversion. The 5% Preferred Stock is convertible into shares of
Common Stock at any time, provided that the Company is not obligated to honor
any request for conversion of the 5% Preferred Stock at any time certain
governmental approvals of the issuance of the Common Stock upon such conversion
have not been obtained. If such approvals (other than with respect to a holder
or group of holders holding more than 50% of the voting securities of the
Company) are not obtained by 360 days after the First Closing date, the Company
shall, at the request of any holder, repurchase the shares of the 5% Preferred
Stock held by such holder at a purchase price per share equal to the sum of the
Liquidation Preference plus any other cash payments due to such holder ("Cash
Payments"), divided by 72.125% (the "Maximum Price"). The number of shares of
Common Stock issuable upon conversion of the shares of the 5% Preferred Stock
will equal the Liquidation Preference of the shares being converted plus any
Cash Payments divided by the then-effective conversion price applicable to the
Common Stock (the "Conversion Price"). The Conversion Price, as of any date up
to and including November 15, 1997, is determined in accordance with a formula
based on market prices of the Common Stock or actual prices at which the
converting holder sold the Common Stock, in either case multiplied by an amount
equal to 1 minus the Applicable Percentage. At any date after November 15,
1997, the Conversion Price is determined in accordance with a formula based on
market prices of the Common Stock between October 15, 1997 and November 15,
1997, market prices of the Common Stock during the three consecutive trading
days immediately preceding the date of conversion or actual prices at which the
converting holder sold the Common Stock, in any case multiplied by 72.125%. The
Applicable Percentage is as follows:
<TABLE>
<CAPTION>
Conversion after the
Following Date Applicable Percentage
-------------------- ---------------------
<S> <C>
4/15/97 14.375%
5/15/97 18.125%
6/15/97 19.875%
7/15/97 21.625%
8/15/97 23.250%
9/15/97 24.875%
10/15/97 25.000%
11/15/97 27.875%
</TABLE>
The 5% Preferred Stock is at all times subject to adjustment for customary
anti-dilution events such as stock splits, stock dividends, reorganizations and
certain mergers affecting the Common Stock. After three years after the date
of original issuance of the 5% Preferred Stock, the Company may require the
holders of the 5% Preferred Stock to convert such shares into Common Stock at
the then applicable Conversion Price and all Cash Payments due on a date
specified in the notice of forced conversion. However, the conversion shall
not occur if the Company has commenced bankruptcy proceedings, ceased
operations or shall be in default for money borrowed in excess of $50 million.
12
<PAGE> 14
Required Redemption. The Company must also reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the 5% Preferred Stock, at least such
number of its Common Stock that is the greater of (i) 10 million shares and
(ii) 1.5 times the number as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the 5% Preferred Stock. The Company
has agreed to take such corporate action necessary to increase its number of
authorized shares of Common Stock to at least 100 million shares on or before
the 90th calendar day after the First Closing. If the Company does not have
sufficient shares of Common Stock reserved to effect such conversion and fails
to take such corporate action necessary to authorize or reserve sufficient
shares of Common Stock, then at any time at the request of any holder of shares
of the 5% Preferred Stock, the Company shall purchase from such holder the
number of shares of the 5% Preferred Stock equal to such holder's pro-rata
share of the number of shares of the 5% Preferred Stock that would not be able
to be converted due to an insufficient number of shares of Common Stock
reserved for such purpose at the Maximum Price. In addition, if prior to the
earlier of April 21, 1998 or the closing of a Qualifying Offering (as defined
below), the FCC awards more than two licenses permitting the licensee to
provide satellite digital audio radio services and more than two licensees
commence or announce an intention to commence satellite digital audio radio
services, then upon the request of the holders of more than one-third of the
outstanding shares of the 5% Preferred Stock, the Company shall purchase
one-half of the shares of the 5% Preferred Stock held by each requesting
stockholder at a purchase price per share equal to the sum of the Liquidation
Preference plus any Cash Payments divided by 1 minus the Applicable Percentage.
If a reorganization occurs, each holder of the 5% Preferred Stock may require
the Company to redeem the 5% Preferred Stock at the Maximum Price. A
Reorganization is defined as any reorganization or any reclassification of the
Common Stock or other capital stock of the Company or any consolidation or
merger of the Company with or into any other corporation or corporations or a
sale of all or substantially all of the assets of the Company. If the holder
chooses not to require the Company to redeem such holder's shares, the shares
will be convertible into the number of shares or other property to which a
holder of the number of shares of Common Stock deliverable upon conversion of
such share of 5% Preferred Stock not so redeemed would have been entitled upon
the reorganization.
Redemption. The 5% Preferred Stock may be redeemed in whole but not in
part at the Maximum Price by the Company at any time beginning on the date that
is 10 months after the date of original issuance of the 5% Preferred Stock,
plus one day for each day during which (x) a registration statement has not
been declared effective with respect to the Common Stock issuable upon
conversion of the 5% Preferred Stock by the 90th calendar day after the
original issuance of the 5% Preferred Stock or (y) any such registration
statement is suspended or the related prospectus is not current, complete or
otherwise usable. The Company may not exercise its right of redemption unless
(i) the average closing price of the Common Stock as reported in the Wall
Street Journal for the 20 consecutive trading days prior to the notice of
redemption shall equal or exceed $18 per share (subject to adjustments) and
(ii) the shares of Common Stock issuable upon conversion of the 5% Preferred
Stock are registered for resale by an effective registration under the
Securities Act of 1933, as amended. The Company also may redeem the 5%
Preferred Stock in whole but not in part at the Maximum Price if the Company
sells Common Stock for cash in an amount not less than $100 million in a
registered underwritten public offering prior to October 15, 1997 ("Qualifying
Offering").
Dilution of Common Stock. The exact number of shares issuable upon
conversion of all of the 5% Preferred Stock cannot currently be estimated but,
generally, such issuances of Common Stock will vary inversely with the market
price of the Common Stock. The holders of Common Stock ownership interest will
be materially diluted by conversion of the 5% Preferred Stock, which dilution
will depend on, among other things, the future market price of the Common Stock
and conversion elections made by holders of the 5% Preferred Stock. The terms
of the 5% Preferred Stock do not provide for any limit on the number of shares
of Common Stock which the Company may be required to issue in respect thereof.
Cash Payments. The private placement agreement relating to the sale
of the 5% Preferred Stock specifies certain circumstances in which the Company
must make a cash payment to each holder of the 5% Preferred Stock (or
underlying securities issued or issuable upon conversion of the 5% Preferred
Stock). The Company must make a cash payment equal to 3% of the Liquidation
Preference per month to each holder if the Company fails: (i) within 90 days of
the date of the First Closing to increase the number of authorized shares of
Common Stock to at least 100 million shares; (ii) within 90 days of the date of
the First Closing to file and cause to be declared effective a registration
statement under the Securities Act of 1933 with respect to the resale of Common
Stock issuable upon conversion of the 5% Preferred Stock; (iii) within 90 days
of the date of the First Closing to obtain any governmental approvals necessary
for the conversion of the 5% Preferred Stock; (iv) to honor any request for
conversion of the 5% Preferred Stock except as permitted by the terms and
conditions of the 5% Preferred Stock; or (v) to maintain the listing of the
Common Stock on Nasdaq, the New York Stock Exchange or the American Stock
Exchange. A similar cash payment must be made if, after effecting a
registration
13
<PAGE> 15
statement with respect to the resale of Common Stock issuable upon conversion
of the 5% Preferred Stock, the use of the prospectus is suspended for more than
60 cumulative days in the aggregate in any twelve month period. In addition,
if the Company fails at any time to reserve a sufficient number of shares of
Common Stock for issuance upon conversion of the 5% Preferred Stock, it must
make a cash payment equal to 3% of the Liquidation Preference (proportionately
reduced by the amount of shares that are so authorized and reserved) per month
to the holders of the 5% Preferred Stock. The private placement agreement also
provides that prior to the completion of a Qualifying Offering, the Company may
not undertake to conduct any debt or equity financing that is not pari passu or
junior to the 5% Preferred Stock in seniority, structure and maturity.
Consent of the holders of a majority of the 5% Preferred Stock is
required before the Company may take certain corporate actions or pay dividends
on Common Stock and certain other corporate actions taken in connection with a
partial repurchase of 5% Preferred Stock require the consent of all holders of
5% Preferred Stock.
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholders may be
effected from time to time in one or more transactions (which may involve block
transactions), in special offerings, exchange distributions and/or secondary
distributions, in negotiated transactions, in settlement of short sales of
Common Stock, or a combination or such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Such transactions may be effected on a stock
exchange, on the over-the-counter market, or privately. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from one or more of the
Selling Stockholders for whom they may act as agent (which compensation may be
in excess of customary commissions). Without limiting the foregoing, such
brokers may act as dealers by purchasing any and all of the Shares covered by
this Prospectus either as agents for others or as principals for their own
accounts and reselling such securities pursuant to this Prospectus. The
Selling Stockholders and any broker-dealers or other persons acting on the
behalf that participate with such Selling Stockholders in the distribution of
the Shares may be deemed to be underwriters and any commissions received or
profit realized by them on the resale of the Shares may be deemed to be
underwriting discounts and commissions under the Securities Act. As of the
date of this Prospectus, the Company is not aware of any agreement, arrangement
or understanding between any broker or dealer and any of the Selling
Stockholders with respect to the offer or sale of the Shares pursuant to this
Prospectus.
At the time that any particular offering of Shares is made, to the
extent required by the Securities Act, a prospectus supplement will be
distributed, setting forth the terms of the offering, including the aggregate
number of Shares being offered, the names of any underwriters, dealers or
agents, any discounts, commissions and other items constituting compensation
from the Selling Stockholders and any discounts, commissions or concessions
allowed or reallowed or paid to dealers.
The Selling Stockholders may from time to time pledge the Shares owned
by them to secure margin or other loans made to one or more of the Selling
Stockholders. Thus, the person or entity receiving the pledge of any of the
Shares may sell them, in a foreclosure sale or otherwise, in the same manner as
described above for a Selling Stockholder.
The Company will not receive any of the proceeds from any sale of the
Shares by the Selling Stockholders offered hereby.
Pursuant to the Preferred Stock Investment Agreement, the Company has
agreed to indemnify the Selling Stockholders against certain liabilities,
including liabilities under the Securities Act. The Company shall bear
customary expenses incident to the registration of the Shares for the benefit
of the Selling Stockholders in accordance with the Preferred Stock Investment
Agreement, other than underwriting discounts and commissions directly
attributable to the sale of such securities by or on behalf of the Selling
Stockholders.
The Company has agreed to use its best efforts to keep the
Registration Statement of which this Prospectus is a part effective for at
least two years from ___________, 1997.
14
<PAGE> 16
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for the Company by Bogle & Gates P.L.L.C., Seattle,
Washington.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in this Prospectus from the Company's Annual Report on Form 10-K/A
have been audited by Coopers & Lybrand L.L.P., independent accountants, as
indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
15
<PAGE> 17
================================================================================
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS IN CONNECTION CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
------------------------
PAGE
----
Available Information . . . . . . . . . . . . 2
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . 3
Recent Developments . . . . . . . . . . . . . 3
Forward-Looking Statements. . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . 3
Use Of Proceeds . . . . . . . . . . . . . . . 9
Selling Stockholders. . . . . . . . . . . . . 9
Description of Securities . . . . . . . . . . 11
Plan of Distribution . . . . . . . . . . . . 14
Legal Matters . . . . . . . . . . . . . . . . 15
Experts . . . . . . . . . . . . . . . . . . . 15
9,061,740 SHARES
COMMON STOCK
(without par value)
[CD RADIO LOGO]
----------------
PROSPECTUS
----------------
, 1997
================================================================================
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Company in connection
with the shares of Common Stock being registered. All of the amounts shown are
estimates except the Securities and Exchange registration fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------
<S> <C>
Securities and Exchange Commission Registration Fee . . . . . . . $ 44,451
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . *
Accounting Fees and Expenses. . . . . . . . . . . . . . . . . . . *
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . *
----------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
======================
</TABLE>
* To be completed by amendment.
The Selling Stockholders will pay no portion of the foregoing
expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law, the Company's
Amended and Restated Certificate of Incorporation provides that directors of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derives an improper personal benefit. In addition, the
Company's By-Laws provide that the Company shall indemnify all directors and
officers and may indemnify employees and certain other persons to the full
extent and in the manner permitted by Section 145 of the Delaware General
Corporation Law, as amended from time-to-time. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and, therefore, is unenforceable.
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
4.1 Form of Preferred Stock Investment Agreement (Incorporated by
reference to Exhibit 10.24 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996)
4.2 First Amendment to the Preferred Stock Investment Agreement
(Incorporated by reference to Exhibit 10.24.1 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996)
4.3 Second Amendment to the Preferred Stock Investment Agreement
(Incorporated by reference to Exhibit 10.24.1 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996)
5.1 * Opinion of Bogle & Gates P.L.L.C.
23.1* Consent of Bogle & Gates P.L.L.C. (included in Exhibit 5.1)
23.2 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney (see page II-4)
</TABLE>
* To be filed by amendment.
II-1
<PAGE> 19
ITEM 17. UNDERTAKINGS.
(a) Rule 415 Offering.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of this Registration Statement (or the
most recent post-effective amendment thereof), which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement;
Provided, however, that the undertakings set forth in paragraphs
(a)(1)(i) and (a)(1)(ii) above do not apply if this Registration Statement is
on Form S-3, Form S-8 or Form F-3, and the information required to be included
in a post-effective amendment by those paragraphs is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities as that time shall be deemed to be
the initial bona fide offering thereof;
(3) To remove from registration by means of
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) Filings Incorporating Subsequent Exchange Act Documents by
Reference.
The undersigned Registrant hereby undertakes that, for the
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) 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.
(h) Indemnification for Liabilities.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15
above, 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 of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expense 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 of 1933 and will be
governed by the final adjudication of such issue.
II-2
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
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 May 9, 1997.
CD RADIO INC.
/s/ DAVID MARGOLESE
-------------------
David Margolese
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
David Margolese and Lawrence F. Gilberti, or either of them, his/her
attorneys-in-fact, with the power of substitution, for him/her in any and all
capacities, to sign any amendments to this Registration Statement, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/David Margolese Chairman and Chief Executive Officer May 9, 1997
------------------------------------------ (Principal Financial and Principal
David Margolese Accounting Officer)
/s/Robert D. Briskman Director May 12, 1997
------------------------------------------
Robert D. Briskman
/s/Lawrence F. Gilberti Director May 15, 1997
------------------------------------------
Lawrence F. Gilberti
/s/ Peter K. Pitsch Director May 13, 1997
------------------------------------------
Peter K. Pitsch
/s/ Jack Z. Rubinstein Director May 10, 1997
------------------------------------------
Jack Z. Rubinstein
/s/ Ralph V. Whitworth Director May 13, 1997
------------------------------------------
Ralph V. Whitworth
</TABLE>
II-3
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------ ----------- ----
<S> <C>
4.1 Form of Preferred Stock Investment Agreement (Incorporated by reference
to Exhibit 10.24 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996)
4.2 First Amendment to the Preferred Stock Investment Agreement
(Incorporated by reference to Exhibit 10.24.1 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996)
4.3 Second Amendment to the Preferred Stock Investment Agreement
(Incorporated by reference to Exhibit 10.24.1 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996)
5.1 * Opinion of Bogle & Gates P.L.L.C.
23.1 * Consent of Bogle & Gates P.L.L.C. (included in Exhibit 5.1)
23.2 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney (see page II-4)
</TABLE>
* To be filed by amendment.
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
CD Radio Inc. on Form S-3 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 the CD Radio Inc. Annual Report on Form 10-K/A.
Coopers & Lybrand L.L.P.
Rockville, Maryland
May 15, 1997
