<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1997
REGISTRATION NO. 333-34761
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CD RADIO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4899 52-1700207
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</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)
------------------------
COPY TO:
LEONARD V. QUIGLEY
MITCHELL S. FISHMAN
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
212-373-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE(1)
<S> <C> <C> <C> <C>
10 1/2% Series C Convertible Preferred Stock, without par
value.................................................... 2,000,000 shares -- --
Series D Convertible Preferred Stock, without par value.... 7,000,000 shares -- --
Common Stock, par value $0.001 per share................... (2)
Total................................................. -- $ 35,369
</TABLE>
(1) Calculated pursuant to Rule 457(f)(2) under the Securities Act of 1933 based
on the $120,016,756.00 book value of the 5% Delayed Convertible Preferred
Stock to be received by the Registrant in exchange for the shares of 10 1/2%
Series C Convertible Preferred Stock offered hereby. This fee was paid in
connection with the initial filing of this Registration Statement.
(2) This Registration Statement also relates to such additional indeterminate
number of shares of Common Stock as may be issued upon (i) conversion of the
10 1/2% Series C Convertible Preferred Stock, (ii) conversion of the Series
D Convertible Preferred Stock and (iii) the payment of dividends, at the
option of the Company, on the 10 1/2% Series C Preferred Stock in accordance
with the terms thereof. Pursuant to Rule 457(i), no filing fee is required.
------------------------
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>
SUBJECT TO COMPLETION, DATED OCTOBER 16, 1997
PROSPECTUS
CD RADIO INC.
OFFER TO EXCHANGE
10 1/2% SERIES C CONVERTIBLE PREFERRED STOCK
FOR 5% DELAYED CONVERTIBLE PREFERRED STOCK
------------------------
CD Radio Inc. (the 'Company') hereby offers, upon the terms and subject to
the conditions set forth in this Prospectus (the 'Prospectus') and in the
accompanying Letter of Transmittal (the 'Letter of Transmittal'), to exchange
(the 'Exchange Offer') up to 1,932,073 shares of its new 10 1/2% Series C
Convertible Preferred Stock (the 'New Preferred Stock') for up to all of the
outstanding shares of its 5% Delayed Convertible Preferred Stock (the '5%
Preferred Stock') at a rate of one share of New Preferred Stock for each $100 in
Exchange Rate Liquidation Preference represented by shares of 5% Preferred Stock
not previously converted. The 'Exchange Rate Liquidation Preference' shall be
the amount determined by dividing (x) the liquidation preference of the shares
of 5% Preferred Stock being exchanged (including accrued and unpaid dividends
thereon, if any) by (y) 0.696145. On November 13, 1997, the assumed expiration
date of the Exchange Offer, the Exchange Rate Liquidation Preference will be
approximately $37.00 per share of 5% Preferred Stock. The liquidation preference
of each share of New Preferred Stock (the 'Liquidation Preference') will be
equal to $100.00. The Company will pay cash to exchanging holders of 5%
Preferred Stock in lieu of issuing fractional shares of New Preferred Stock.
Holders of New Preferred Stock will be entitled to the payment of dividends
commencing on November 15, 2002 as described below. As of September 30, 1997,
there were 5,222,608 shares of 5% Preferred Stock outstanding.
In conjunction with the Exchange Offer, the Company is soliciting (the
'Solicitation') consents ('Consents') from the holders of record of its Common
Stock, par value $.001 per share (the 'Common Stock'), and its 5% Preferred
Stock on October 1, 1997 (the 'Record Date') to a proposed amendment (the
'Proposed Amendment') to the Certificate of Designations of the 5% Preferred
Stock (the 'Certificate of Designations') (i) to allow the Company to redeem the
5% Preferred Stock (to the extent not previously converted) in whole or in part
upon the sale of any equity or debt securities in one or more offerings (each
such offering, a 'Qualifying Offering') occurring on or prior to December 30,
1997 for gross proceeds in an aggregate cash amount of not less than $100
million and (ii) to amend certain of the redemption provisions relating to the
requirements for the delivery of a notice of redemption in connection therewith.
If the Proposed Amendment is adopted, then upon the consummation of the
Qualifying Offerings, for aggregate proceeds of $100 million the Company will be
permitted to redeem the shares of 5% Preferred Stock held by holders who do not
tender their shares of 5% Preferred Stock in the Exchange Offer. The Company is
conducting the Solicitation pursuant to a separate Consent Solicitation
Statement dated on or about the date hereof (the 'Consent Solicitation
Statement'). The Company will make no separate payment for Consents delivered in
the Solicitation. Consents from the holders of a majority of the issued and
outstanding Common Stock and 5% Preferred Stock, respectively (the 'Requisite
Consents'), must be obtained in order to adopt the Proposed Amendment, and once
the Requisite Consents are obtained, the Certificate of Designations will be
amended to reflect the Proposed Amendment regardless of whether the Exchange
Offer is consummated. THE COMPANY IS NOT ASKING HOLDERS OF THE 5% PREFERRED
STOCK FOR A PROXY AND SUCH HOLDERS ARE REQUESTED NOT TO SEND THE COMPANY A
PROXY.
The Exchange Offer is one component of a financing transaction that
includes an underwritten public offering of 3,500,000 shares of Common Stock
(the 'Stock Offering') and an underwritten public offering of the Company's
Senior Discount Notes due 2007 for gross proceeds of $150 million (the 'Notes
Offering' and, together with the Stock Offering, the 'Offerings'). Separate
registration statements have been filed for each of the Stock Offering and the
Notes Offering, and such offers will be made by separate prospectuses. The
consummation of the Exchange Offer is not conditioned upon the consummation of
either the Notes Offering or the Stock Offering. Each of the Offerings is
conditioned upon consummation of the Exchange Offer.
The Exchange Offer will expire at 12:00 Midnight, New York City time, on
November 13, 1997, unless extended (the 'Expiration Date'). Tenders of 5%
Preferred Stock may be withdrawn at any time prior to the Expiration Date and,
unless accepted for exchange by the Company, may be withdrawn at any time after
forty business days after the date of this Prospectus.
The Exchange Offer is conditioned upon, among other things, (i) receipt by
the Company of the Requisite Consents to the Proposed Amendment, (ii) a minimum
of 95% of the issued and outstanding shares of 5% Preferred Stock being tendered
for exchange and not withdrawn prior to the Expiration Date and (iii) the
General Conditions (as defined herein). There can be no assurance that these
conditions will be satisfied or waived. The Company reserves the right to waive
certain of the conditions to the Exchange Offer and to amend or modify the
Exchange Offer at any time for any reason. See 'The Exchange Offer -- Expiration
Date; Extension; Amendments' and ' -- Conditions of the Exchange Offer.'
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 24 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN EVALUATING THE EXCHANGE OFFER.
------------------------
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 Dealer Manager for the Exchange Offer is:
MERRILL LYNCH & CO.
------------------------
The date of this Prospectus is October , 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>
CERTAIN PERSONS PARTICIPATING IN THE EXCHANGE OFFER MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NEW
PREFERRED STOCK AND THE COMMON STOCK, OR EITHER OF THEM. SPECIFICALLY, THE
DEALER MANAGER MAY BID FOR AND PURCHASE NEW PREFERRED STOCK AND COMMON STOCK, OR
EITHER OF THEM, IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
'MARKET AND TRADING INFORMATION.'
IN CONNECTION WITH THE EXCHANGE OFFER AND THE STOCK OFFERING, THE DEALER
MANAGER AND CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE 'MARKET AND TRADING INFORMATION.'
------------------------
(cover continued from previous page)
The terms of the Preferred Stock Investment Agreement (as defined herein)
require that the Company not undertake to conduct any debt or equity financing
that is not either pari passu or junior to the 5% Preferred Stock in seniority,
structure and maturity until the Company completes a Pre-Amendment Qualifying
Offering (as defined herein).
IF THE PROPOSED AMENDMENT IS NOT APPROVED BY THE COMPANY'S STOCKHOLDERS AND
ANY SHARES OF 5% PREFERRED STOCK REMAIN OUTSTANDING AFTER THE EXCHANGE OFFER,
THE COMPANY WILL NOT BE PERMITTED TO UNDERTAKE ANY DEBT OR EQUITY FINANCING THAT
IS SENIOR TO THE 5% PREFERRED STOCK. THE COMPANY DOES NOT INTEND TO COMMENCE THE
OFFERINGS UNTIL THE SOLICITATION IS SUBSTANTIALLY COMPLETED AND THE NOTES
OFFERING WILL NOT BE CONSUMMATED UNLESS THE EXCHANGE OFFER AND THE SOLICITATION
ARE COMPLETED AND NO SHARES OF 5% PREFERRED STOCK REMAIN OUTSTANDING. SEE 'THE
EXCHANGE OFFER -- TERMS OF THE EXCHANGE OFFER,' ' -- THE SOLICITATION' AND 'THE
PROPOSED AMENDMENT.'
The terms of the New Preferred Stock (including dividend rate, liquidation
preference and conversion and redemption rights) differ in material respects
from the terms of the 5% Preferred Stock for which it may be exchanged pursuant
to the Exchange Offer. For a comparison of certain material terms of the New
Preferred Stock and the 5% Preferred Stock, see 'Prospectus
Summary -- Comparison of New Preferred Stock and 5% Preferred Stock.'
The annual dividend rate per share of the New Preferred Stock will be an
amount equal to 10.5% of the sum of (x) the liquidation preference of the New
Preferred Stock and (y) all accrued and unpaid dividends, if any, whether or not
declared, from the date of issuance of the shares of New Preferred Stock to the
applicable dividend payment date. Dividends on the shares of New 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 in each year thereafter. In addition, accrued
dividends on the shares of New Preferred Stock will be paid on the redemption
date of any share of New Preferred Stock redeemed by the Company, on the
purchase date of any share of New Preferred Stock purchased by the Company
pursuant to an Offer to Purchase (as defined herein) or on the conversion date
of any share of New 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 New Preferred Stock that are converted by the holders
thereof prior to the First Scheduled Dividend Payment Date, unless such shares
of New Preferred Stock are converted on or prior to a redemption date by holders
thereof electing to convert such shares after having received a notice of
redemption for such shares. Dividends may be paid in cash, shares of Common
Stock or any combination thereof at the option of the Company. Common Stock
issued to pay dividends will be valued at the average closing price of the
Common Stock as reported in The Wall Street Journal for the 20 consecutive
trading days immediately preceding the date of such payment. Dividends on the
shares of New Preferred Stock will be paid to the holders of record of the
shares of New Preferred Stock on a record date, not more than 40 days nor fewer
than 10 days preceding the payment date thereof. See 'Description of New
Preferred Stock -- Dividends.'
Except as described below, the shares of New 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
2
<PAGE>
<PAGE>
November 15, 2002, the Company may redeem shares of New Preferred Stock, in
whole or in part, at a redemption price of 100% of the Liquidation Preference of
the shares of New 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 the outstanding shares of New Preferred Stock, in
whole or in part, initially at a redemption price of 105.25% of the Liquidation
Preference of the shares of New Preferred Stock redeemed and thereafter at
prices declining ratably to 100% of the Liquidation Preference of the shares of
New Preferred Stock redeemed from and after November 15, 2005, plus accrued and
unpaid dividends, if any, whether or not declared, to the redemption date. In
addition, within 30 days of the closing of the Debt Offering (as defined
herein), the Company may redeem up to 50% of the outstanding shares of New
Preferred Stock at a redemption price of 100% of the Liquidation Preference of
the shares of New Preferred Stock redeemed, plus accrued and unpaid dividends,
if any, whether or not declared, to the redemption date. On November 15, 2012,
the Company is required to redeem all outstanding shares of New Preferred Stock
at a redemption price of 100% of the Liquidation Preference, plus accrued and
unpaid dividends, if any, to the redemption date. The New Preferred Stock will
not be subject to any mandatory sinking fund redemption. See 'Description of New
Preferred Stock -- Redemption.'
Upon the occurrence of a Change in Control (as defined herein), the Company
must make an offer to purchase all outstanding shares of New Preferred Stock at
a purchase price in cash equal to 101% of its Liquidation Preference, plus all
accrued and unpaid dividends, if any, to the date such shares are purchased. See
'Description of New Preferred Stock -- Change in Control.'
Each share of New Preferred Stock may be converted at any time at the
option of the holder, into a number of shares of Common Stock calculated by
dividing the Liquidation Preference of the New 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 New 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 New
Preferred Stock, but will be subject to adjustment for the occurrence of certain
corporate events affecting the Common Stock. Accrued dividends will be paid on
the conversion date on any shares of New Preferred Stock converted into shares
of Common Stock on or after the First Scheduled Dividend Payment Date. No
accrued dividends will be paid, and the holders thereof will not be entitled to
receive any dividends, on any shares of New Preferred Stock converted prior to
the First Scheduled Dividend Payment Date, unless such shares of New Preferred
Stock are converted on or prior to a redemption date by holders electing to
convert such shares after having received a notice of redemption for such
shares. See 'Description of New Preferred Stock -- Conversion.'
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 New
Preferred Stock shall be exchanged automatically (the 'Automatic Exchange') for
shares of the Company's Series D Convertible Preferred Stock with an initial
liquidation preference of $102.50 per share (the 'Series D Preferred Exchange')
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 New Preferred Stock held by any holder. The
'Automatic Exchange Rate Liquidation Preference' for the shares of New Preferred
Stock shall be $69.6145 per share (the amount determined by multiplying (x) the
Liquidation Preference for the shares of New Preferred Stock (without accrued
and unpaid dividends thereon) by (y) 0.696145). The Company will pay cash to
holders of New Preferred Stock in lieu of issuing fractional shares of Series D
Preferred Stock in the Automatic Exchange. For a description of the terms,
preferences and rights of the Series D Preferred Stock, see 'Description of
Capital Stock -- Series D Preferred Stock.'
FOR FEDERAL INCOME TAX PURPOSES, IT IS NOT CLEAR WHETHER THE EXCHANGE OF 5%
PREFERRED STOCK FOR NEW PREFERRED STOCK WILL BE A TAXABLE EVENT IN ITS ENTIRETY.
IF IT IS A TAXABLE EVENT IN ITS ENTIRETY, GAIN OR LOSS WILL BE RECOGNIZED. FOR A
DISCUSSION OF THESE AND OTHER UNITED
3
<PAGE>
<PAGE>
STATES FEDERAL INCOME TAX CONSIDERATIONS RELEVANT TO THE EXCHANGE OFFER,
SEE 'CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.'
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE DEALER MANAGER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE NEW PREFERRED STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NEW
PREFERRED STOCK BY ANYONE IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
AVAILABLE 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 and other information with the Securities and Exchange
Commission (the 'Commission'). Such reports and information may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: New York Regional Office, 7 World Trade Center, New
York, New York 10048; and Chicago Regional Office, Suite 1400, Northwestern
Atrium Center, 500 W. Madison Street, Chicago, Illinois 60661-2511; and copies
of such material can be obtained from the Public Reference Section of the
Commission, 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. (the 'NASD'), 1735 K Street, N.W., Washington, D.C.
20006, which supervises the Nasdaq SmallCap 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-4 (herein, together with all amendments and exhibits, the 'Registration
Statement') under the Securities Act of 1933, as amended (the 'Securities Act').
The Company has also filed a Schedule 13E-4 Issuer Tender Offer Statement (the
'Schedule 13E-4') with the Commission with respect to the Exchange Offer. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information, exhibits and undertakings contained in the Registration
Statement and the Schedule 13E-4. This Prospectus does not contain all of the
information set forth in the Registration Statement and the Schedule 13E-4,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission, and to which reference is hereby made. For further
information, reference is hereby made to the Registration Statement, and the
financial schedules and exhibits filed as a part thereof and to the Schedule
13E-4 and the exhibits thereto. The Registration Statement (including the
exhibits thereto) can be obtained by mail or inspected and copied at the public
reference facilities maintained by the Commission as provided in the prior
paragraph.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are hereby incorporated by reference in this Prospectus:
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 Current Report on Form 8-K dated April 10, 1997.
5. The Company's Current Report on Form 8-K dated May 2, 1997.
4
<PAGE>
<PAGE>
6. The Company's Current Report on Form 8-K dated June 17, 1997.
7. The Company's Current Report on Form 8-K dated July 8, 1997.
8. The Company's Current Report on Form 8-K dated August 19, 1997.
9. The Company's Current Report on Form 8-K dated October 7, 1997.
10. 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.
11. Issuer Tender Offer Statement on Schedule 13E-4.
Each document filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
Expiration Date shall be deemed to be incorporated by reference into this
Prospectus from the date of filing of such document. 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 the Registration
Statement and this Prospectus to the extent that a statement contained herein or
in any subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE TO
ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF ANY OF THE 5% PREFERRED STOCK, TO
WHOM A COPY OF THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF
ANY SUCH PERSON. REQUESTS SHOULD BE DIRECTED TO SECRETARY, CD RADIO INC., SIXTH
FLOOR, 1001 22ND STREET, N.W., WASHINGTON, D.C. 20037. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS ANY REQUEST SHOULD BE MADE BY FIVE BUSINESS DAYS PRIOR
TO THE EXPIRATION DATE.
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.
5
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................................................... 4
Documents Incorporated by Reference........................................................................ 4
Special Note Regarding Forward-Looking Statements.......................................................... 5
Prospectus Summary......................................................................................... 7
Risk Factors............................................................................................... 24
Proposed Financing......................................................................................... 34
Use of Proceeds............................................................................................ 36
Price Range of Common Stock................................................................................ 36
Dividend Policy............................................................................................ 36
Capitalization............................................................................................. 37
Selected Historical Financial Information.................................................................. 38
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 39
The Exchange Offer......................................................................................... 44
Accounting Treatment....................................................................................... 51
Market and Trading Information............................................................................. 51
The Proposed Amendment..................................................................................... 52
Business................................................................................................... 53
Management................................................................................................. 69
Principal Stockholders..................................................................................... 76
Description of New Preferred Stock......................................................................... 81
Description of Series D Preferred Stock.................................................................... 88
Description of Certain Indebtedness........................................................................ 91
Description of Capital Stock............................................................................... 95
Shares Eligible for Future Sale............................................................................ 101
Certain United States Federal Income Tax Consequences...................................................... 102
Legal Opinions............................................................................................. 108
Independent Accountants.................................................................................... 108
</TABLE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus. Holders
of 5% Preferred Stock 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, (i) the information in this Prospectus,
other than the historical financial information, assumes and gives effect to the
proposed sale by the Company of 3,500,000 shares of Common Stock (the 'Stock
Offering') and the concurrent offering by the Company of Senior Discount Notes
due 2007 (the 'Notes') for gross proceeds of $150 million (the 'Notes Offering'
and, together with the Stock Offering, the 'Offerings'), and (ii) 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 received one of two
licenses from the Federal Communications Commission (the 'FCC') to build, launch
and operate a national satellite radio broadcast system. The Company has
recently 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 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 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 programming. The
Company's planned multiplicity of formats currently is not available to
motorists in any market within the United States.
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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 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 percent 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 will cover the
entire continental United States, enabling listeners 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.
8
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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 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
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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 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 area. 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
Developed and patented its miniature satellite dish antenna
1994 Completed an initial public offering of its Common Stock
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 $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.'
PROPOSED FINANCING
The Exchange Offer is part of a proposed financing transaction, which
includes the Stock Offering and the Notes Offering, that is intended to raise
capital to partially finance the construction and launch
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of the Company's satellites and for general corporate purposes. The Company
expects that the Offerings will result in net proceeds to the Company of
approximately $201.5 million, approximately $58.7 million from the Stock
Offering (based on an assumed offering price of $18.44 per share, the closing
price of the Company's Common Stock at September 30, 1997) and approximately
$142.8 million from the Notes Offering. The Company will receive no proceeds
from the Exchange Offer. See 'Proposed Financing.'
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, construction and launch into orbit of two
satellites, the rapid creation of an organization and the management of growth.
The Company estimates that it will require approximately $660.1 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
$491.6 million of funds, leaving anticipated additional cash needs of
approximately $168.5 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 exchanging
stockholders.
------------------------
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 one of two FCC licenses to launch
and operate the satellites that are needed to offer CD Radio. 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. The Company
has a Web site at www.cdradio.com.
THE EXCHANGE OFFER
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The Exchange Offer........................... The Company is offering to exchange pursuant to the Exchange Offer
up to 1,932,073 shares of its New Preferred Stock for up to all of
the outstanding shares of its 5% Preferred Stock at a rate of one
share of New Preferred Stock for each $100 in Exchange Rate
Liquidation Preference represented by shares of 5% Preferred Stock
not previously converted. The 'Exchange Rate Liquidation
Preference' shall be the amount determined by dividing (x) the
liquidation preference of the shares of 5% Preferred Stock being
exchanged (including accrued and unpaid dividends thereon, if
any), by (y) 0.696145. On November 13, 1997, the assumed
expiration date of the Exchange Offer, the Exchange Rate
Liquidation Preference will be approximately $37.00 per share of
5% Preferred Stock. The Liquidation Preference of each share of
New Preferred Stock will be equal to $100.00. The terms of the New
Preferred Stock (including the dividend rate, liquidation
preference and conversion and redemption rights) differ in
material respects from the terms of the 5% Preferred Stock for
which it may be exchanged pursuant to this Exchange Offer. As of
September 30, 1997, there were 5,222,608 shares of 5% Preferred
Stock outstanding. For a
</TABLE>
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<S> <C>
comparison of certain material terms of the New Preferred Stock
and the 5% Preferred Stock, see ' -- Comparison of New Preferred
Stock and 5% Preferred Stock.' The 5% Preferred Stock was originally
issued in April 1997. See 'The Exchange Offer -- Terms of the
Exchange' and ' -- Terms and Conditions of the Letter of Transmittal,'
'Description of New Preferred Stock' and 'Description of Capital
Stock -- 5% Preferred Stock.'
The Exchange Offer is open to all holders of 5% Preferred Stock.
Concurrent Consent Solicitation.............. In conjunction with the Exchange Offer and pursuant to the Consent
Solicitation Statement, the Company is soliciting Consents from
its stockholders of record on October 1, 1997 (the 'Record Date')
to the Proposed Amendment.
Under the Company's Amended and Restated Certificate of
Incorporation, as currently in effect, the Company may redeem the
shares of 5% Preferred Stock (to the extent not previously
converted), in whole but not in part, following a sale by the
Company of Common Stock for net cash proceeds to the Company in an
amount not less than $100 million in a registered underwritten
public offering prior to October 15, 1997. The Company is
soliciting the consent of its stockholders, including the holders
of the 5% Preferred Stock, on the Record Date to the Proposed
Amendment that would, among other things, permit the Company to
redeem the 5% Preferred Stock (to the extent not previously
converted) in whole or in part upon the sale of any equity or debt
securities in one or more offerings occurring after the date of
the initial issuance of the 5% Preferred Stock and on or prior to
December 30, 1997 for gross proceeds in an aggregate cash amount
of not less than $100 million. See 'The Proposed Amendment.'
If the Proposed Amendment is adopted, then upon the consummation
of the Qualifying Offerings, for aggregate proceeds of $100
million the Company will be permitted to redeem the shares of 5%
Preferred Stock held by holders who do not tender their shares of
5% Preferred Stock in the Exchange Offer.
The terms of the Preferred Stock Investment Agreement (as defined
herein) require that the Company not undertake to conduct any debt
or equity financing that is not either pari passu or junior to the
5% Preferred Stock in seniority, structure and maturity until the
Company completes a Pre-Amendment Qualifying Offering (as defined
herein). If the Proposed Amendment is not approved by the
Company's stockholders and any shares of 5% Preferred Stock remain
outstanding after the Exchange Offer is consummated, the Company
will not be permitted to undertake any debt or equity financing
that is senior to the 5% Preferred Stock. The Company does not
intend to commence the Offerings until the Solicitation is
substantially completed and the
</TABLE>
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<S> <C>
Notes Offering will not be consummated unless the Exchange Offer
and the Solicitation are completed and no shares of 5% Preferred
Stock remain outstanding.
The Requisite Consents from holders on the Record Date of a
majority of the issued and outstanding shares of 5% Preferred
Stock and Common Stock, respectively, must be obtained in order to
adopt the Proposed Amendment. If the Proposed Amendment is
adopted, then each non-exchanging holder of 5% Preferred Stock
will be bound by the Proposed Amendment regardless of whether such
holder consented to the Proposed Amendment. The Company intends to
amend the Certificate of Designations to reflect the Proposed
Amendment as promptly as practicable after it obtains the
Requisite Consents. See 'The Exchange Offer -- The Consent
Solicitation' and 'The Proposed Amendment.'
Consent Payment.............................. The Company will not make a separate payment for Consents
delivered in the Solicitation.
Dividend Payments............................ Dividends on the 5% Preferred Stock accepted for exchange pursuant
to the Exchange Offer that are accrued and unpaid from April 10,
1997 to the date of issuance of the shares of New Preferred Stock
will be included in the calculation of the Exchange Rate
Liquidation Preference of the 5% Preferred Stock in determining
the number of shares of New Preferred Stock to be received by the
holders of the 5% Preferred Stock participating in the Exchange
Offer. The Company will pay cash to exchanging holders in lieu of
issuing fractional shares of New Preferred Stock. The annual
dividend rate per share of the New Preferred Stock will be an
amount equal to 10.5% of the sum of (x) the liquidation preference
of the New Preferred Stock and (y) all accrued and unpaid
dividends, if any, whether or not declared, from the date of
issuance of the shares of New Preferred Stock to the applicable
dividend payment date. Dividends on the shares of the New
Preferred Stock will be cumulative, accruing quarterly and, when
and as declared by the Board of Directors of the Company, will be
payable initially on November 15, 2002 (the 'First Scheduled
Dividend Payment Date') and on February 15, May 15, August 15 and
November 15 in each year thereafter.
Expiration Date.............................. The Exchange Offer will expire at 12:00 midnight, New York City
time, on November 13, 1997, unless extended (the 'Expiration
Date'). See 'The Exchange Offer -- Expiration Date; Extension;
Amendments' and ' -- Acceptance of 5% Preferred Stock for
Exchange; Delivery of New Preferred Stock.'
Exchange Date................................ The date of acceptance for exchange of the shares of 5% Preferred
Stock (the 'Exchange Date') will be the Expiration Date. Shares of
New Preferred Stock will be delivered as promptly as practicable
thereafter.
</TABLE>
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<TABLE>
<S> <C>
Conditions of the Exchange Offer............. The Exchange Offer is conditioned upon, among other things, (i)
receipt by the Company of the Requisite Consents to the Proposed
Amendment, (ii) a minimum of 95% of the issued and outstanding
shares of 5% Preferred Stock being tendered for exchange and not
withdrawn prior to the Expiration Date and (iii) the General
Conditions (as defined herein). There can be no assurance that
these conditions will be satisfied or waived. The Company reserves
the right to waive certain of the conditions to the Exchange Offer
and to amend or modify the Exchange Offer at any time for any
reason. See 'The Exchange Offer -- Expiration Date; Extension;
Amendments' and ' -- Conditions of the Exchange Offer.'
Withdrawal Rights............................ The tender of shares of 5% Preferred Stock pursuant to the
Exchange Offer may be withdrawn at any time prior to the
Expiration Date and unless accepted for exchange by the Company,
may be withdrawn at any time after forty business days after the
date of this Prospectus. Withdrawal of tendered shares of 5%
Preferred Stock will be deemed a rejection of the Exchange Offer.
See 'The Exchange Offer -- Withdrawal Rights.'
Procedures for Tendering..................... See 'The Exchange Offer -- Tender Procedure.'
Federal Income Tax Consequences.............. As a result of certain provisions of the Taxpayer Relief Act of
1997 it is not clear whether the exchange of shares of 5%
Preferred Stock for shares of New Preferred Stock will be a
taxable event in its entirety. If it is a taxable event in its
entirety, gain or loss will be recognized. For a discussion of
these and other United States federal income tax considerations
relevant to the Exchange Offer, see 'Certain United States Federal
Income Tax Consequences.'
Use of Proceeds.............................. There will be no cash proceeds to the Company from the exchange
pursuant to the Exchange Offer. See 'Use of Proceeds.'
No Dissenters' Rights........................ Holders of shares of 5% Preferred Stock do not have any appraisal
or dissenters' rights under the Delaware General Corporation Law
or the Certificate of Designations. See 'The Exchange
Offer -- Dissenters' Rights.'
Dealer Manager............................... Merrill Lynch & Co. ('Merrill Lynch') is serving as Dealer Manager
in connection with the Exchange Offer. See 'The Exchange
Offer -- Dealer Manager.'
Exchange Agent............................... IBJ Schroder Bank & Trust Company is serving as Exchange Agent in
connection with the Exchange Offer. See 'The Exchange
Offer -- Exchange Agent.'
Consequence of Failure to Exchange........... Holders of shares of 5% Preferred Stock who do not exchange their
shares of 5% Preferred Stock for shares of New Preferred Stock
pursuant to the Exchange Offer or whose shares of 5% Preferred
Stock are not accepted for exchange will continue to hold such
shares of 5% Preferred Stock and will be entitled to all the
rights and preferences, and will be subject to all of the
limitations, applicable thereto. Assuming the Requisite Consents
are obtained,
</TABLE>
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<S> <C>
however, the terms of such 5% Preferred Stock will have been
revised pursuant to the Proposed Amendment. To the extent that
shares of 5% Preferred Stock are tendered and accepted in the
Exchange Offer, the liquidity and trading market for untendered
shares of 5% Preferred Stock, and the terms upon which such shares
could be sold, could be adversely affected. See 'Risk
Factors -- Reduced Trading Market for 5% Preferred Stock' and 'The
Exchange Offer -- Consequence of Failure to Exchange.'
Potentially Limited Market for New Preferred
Stock...................................... The New Preferred Stock will be a new issue of securities with no
established trading market. The Company has been advised by
Merrill Lynch that it intends to make a market in the New
Preferred Stock but is not obligated to do so and may discontinue
market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the New
Preferred Stock. The trading market for the 5% Preferred Stock
generally has not been liquid. See 'Market and Trading
Information.'
Restrictions on Transfer..................... Subject to certain exceptions, holders of shares of New Preferred
Stock issued in the Exchange Offer and holders of New Preferred
Stock who convert such shares into shares of Common Stock
('Converted Stock') will not be permitted to sell, grant any
option to purchase or otherwise transfer or dispose of
(collectively, 'Transfer') any shares of New Preferred Stock or
Converted Stock, as the case may be, until the later to occur of
(i) the 181st day following the Stock Offering or (ii) the 181st
day following consummation of the Exchange Offer (such later date
being herein referred to as the 'Lock-Up Expiration Date');
provided, however, that if a holder is prevented by applicable law
from owning assets subject to such restrictions on Transfer, such
restrictions shall be inapplicable to such holder and the Company
will have a right of first refusal with respect to all shares of
New Preferred Stock held by such holder that is exercisable for a
period of 90 days from the date an agreement to sell shares of New
Preferred Stock is reached with a potential buyer at any time on
or prior to the Lock-Up Expiration Date. See 'Risk
Factors -- Restrictions on Transfer' and 'Description of New
Preferred Stock -- Restrictions on Transfer.'
</TABLE>
COMPARISON OF NEW PREFERRED STOCK AND 5% PREFERRED STOCK
The following is a brief summary comparison of certain of the principal
terms of the New Preferred Stock and the 5% Preferred Stock.
<TABLE>
<CAPTION>
NEW PREFERRED STOCK 5% PREFERRED STOCK
----------------------------------------- -----------------------------------------
<S> <C> <C>
Dividends.................. The annual dividend rate per share of the The annual dividend rate per share of 5%
New Preferred Stock will be an amount Preferred Stock is an amount equal to
equal to 10.5% of the sum of (x) the $1.25. Dividends on the shares of 5%
liquidation preference of the New Preferred Stock, when and as declared by
Preferred Stock and the Board of
</TABLE>
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<TABLE>
<CAPTION>
NEW PREFERRED STOCK 5% PREFERRED STOCK
----------------------------------------- -----------------------------------------
<S> <C> <C>
(y) all accrued and unpaid dividends, if Directors of the Company, are cu-
any, whether or not declared, from the mulative, accruing daily, and payable on
date of issuance of the shares of New April 15th and October 15th of each year.
Preferred Stock to the applicable Any dividend payable on the shares of 5%
dividend payment date. Dividends on the Preferred Stock may be paid, at the
shares of the New Preferred Stock will be option of the Company, either (i) in cash
cumulative, accruing quarterly and, when or (ii) by adding the amount of such
and as declared by the Board of Directors dividend to the liquidation preference of
of the Company, will be payable quarterly the 5% Preferred Stock. See 'Description
initially on November 15, 2002 (the of Capital Stock -- 5% Preferred
'First Scheduled Dividend Payment Date') Stock -- Dividends.'
and on February 15, May 15, August 15 and
November 15 in each year thereafter. In
addition, accrued dividends on shares of
New Preferred Stock will be paid on the
redemption date of any share of New
Preferred Stock redeemed by the Company,
on the purchase date of any share of New
Preferred Stock purchased by the Company
pursuant to an Offer to Purchase (as
defined herein) or on the conversion date
of any share of New 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 New Preferred
Stock that are converted by the holders
thereof prior to the First Scheduled
Dividend Payment Date, unless such shares
of New 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 aver-
age closing price of the Common Stock as
reported in The Wall Street Journal for
the 20 consecutive trading days
immediately preceding the date of such
payment. Dividends on the shares of New
Preferred Stock will be paid to the
holders of record of shares of the New
Preferred Stock on a record date not more
than 40 days nor fewer than 10 days
preceding the payment date thereof. See
'Description of New Preferred
Stock -- Dividends.'
Mandatory Redemption....... On November 15, 2012, the Company is If the Company does not have sufficient
required to redeem all outstanding shares shares of Common Stock reserved to effect
of New Preferred Stock at a redemption the conversion of all outstanding shares
price of 100% of the 5% Pre-
</TABLE>
16
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NEW PREFERRED STOCK 5% PREFERRED STOCK
----------------------------------------- -----------------------------------------
<S> <C> <C>
of the Liquidation Preference, plus ferred Stock, then at any time at the
accrued and unpaid dividends, if any, to request of any holder of 5% Preferred
the redemption date. Stock, the Company must 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 (as defined herein). In
addition, if prior to the earlier of
April 21, 1998 or the closing of a
Pre-Amendment Qualifying Offering (as
defined herein), the FCC awards more than
two licenses (including the license
awarded to the Company) permitting the
licensee to provide satellite digital
audio radio services and more than two
licensees (including the Company)
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 must purchase one-half
of the shares of the 5% Preferred Stock
held by each requesting shareholder at a
purchase price per share equal to the sum
of the liquidation preference for the 5%
Preferred Stock plus any Cash Payments
(as defined herein) divided by the
Applicable Multiplier (as set forth
below). See 'Description of Capital
Stock -- 5% Preferred Stock -- Required
Redemption.'
Optional Redemption........ Except as described below, the shares of The shares of 5% Preferred Stock may be
New Preferred Stock may not be redeemed redeemed, in whole but not in part, at a
by the Company at its option prior to redemption price equal to the sum of the
November 15, 2002. From and after liquidation preference for the 5%
November 15, 1999 and prior to November Preferred Stock plus any Cash Payments at
15, 2002, the Company may redeem shares the option of the Company at any time
of New Preferred Stock, in whole or in beginning on the date that is ten months
part, at a redemption price of 100% of after the date of original issuance of
the Liquidation Preference of the shares the 5% Preferred Stock, plus one day for
of New Preferred Stock redeemed, plus ac- each day during which any registration
crued and unpaid dividends, if any, statement with respect to the Common
whether or not declared, to the Stock issuable upon conversion of the
redemption date, if the average closing shares of 5% Preferred Stock is suspended
price of the Common Stock as reported in or the related prospectus is not current,
The Wall Street Journal for the 20 complete or otherwise usable. The Company
consecutive trading days prior to the may not exercise its right of redemption
notice of redemption thereof equals or unless (i) the average closing price of
exceeds $31.50 per share (subject to the Common Stock as reported in The
adjustments). From
</TABLE>
17
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NEW PREFERRED STOCK 5% PREFERRED STOCK
----------------------------------------- -----------------------------------------
<S> <C> <C>
and after November 15, 2002, the Company Wall Street Journal for the 20 consec-
may redeem shares of New Preferred Stock, utive trading days prior to the notice of
in whole or in part, initially at a redemption shall equal or exceed $18 per
redemption price of 105.25% of the share (subject to adjustments) and (ii)
Liquidation Preference of the shares of the shares of Common Stock issuable upon
New Preferred Stock redeemed and conversion of the shares of 5% Preferred
thereafter at prices declining ratably to Stock are registered for resale by an
100% of the Liquidation Preference of the effective registration statement under
shares of New Preferred Stock redeemed the Securities Act. The Company also may
from and after November 15, 2005, plus redeem the shares of 5% Preferred Stock,
accrued and unpaid dividends, if any, to in whole but not in part, at the Maximum
whether or not declared, the redemption Price if the Company sells Common Stock
date. In addition, within 30 days of the for cash in an amount not less than $100
closing of the Debt Offering (as defined million in a registered underwritten
herein), the Company may redeem up to 50% public offering on or prior to October
of the outstanding shares of New 15, 1997 (a 'Pre-Amendment Qualifying
Preferred Stock at a redemption price of Offering'). The Company is soliciting the
100% of the Liquidation Preference of the consent of its stockholders, including
shares of New Preferred Stock redeemed, the holders of the 5% Preferred Stock, on
plus accrued and unpaid dividends, if the Record Date to the Proposed Amendment
any, whether or not declared, to the to the Certificate of Designations that
redemption date. The New Preferred Stock would permit the Company to redeem the
will not be subject to any mandatory shares of 5% Preferred Stock, in whole or
sinking fund redemption. See 'Description in part, upon the sale of any equity or
of New Preferred Stock -- Redemption.' debt securities in one or more offerings
occurring after the date of the initial
issuance of the 5% Preferred Stock and on
or prior to December 30, 1997 for gross
proceeds in an aggregate cash amount of
not less than $100 million. See 'Proposed
Financing' and 'Description of Capital
Stock -- 5% Preferred Stock --
Redemption.'
Conversion................. Each share of New Preferred Stock may be Shares of 5% Preferred Stock are
converted at any time at the option of convertible at the option of the holder
the holder, unless previously redeemed, at any time into shares of Common Stock,
into a number of shares of Common Stock provided that the Company is not
calculated by dividing the Liquidation obligated to honor any request for
Preference of the New Preferred Stock conversion of the 5% Preferred Stock at
(without accrued and unpaid dividends) by any time if certain governmental
a conversion price (the 'Conversion approvals of the issuance of the Common
Price') equal to (x) prior to the date of Stock upon such conversion have not been
the first underwritten public offering of obtained. If such approvals (other than
the Company's Common Stock following the with respect to a conversion resulting in
initial issuance of the New Preferred a holder or group of holders holding more
Stock, $21.00 and (y) thereafter, the than 50% of the voting securities of the
lower of $21.00 per share or the issue Company) are not obtained within 270 days
price per share of the Common Stock in after the Initial Registration Deadline
such underwritten public offering. The (as defined in the Preferred Stock
Conversion Price will not be adjusted at Investment Agreement (as defined
any time for accrued and unpaid divi- herein)), the Company must, at the
dends on the shares of New Preferred request of any holder, repurchase the
Stock, but will be subject to shares of the 5% Preferred Stock held by
such holder at a
</TABLE>
18
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NEW PREFERRED STOCK 5% PREFERRED STOCK
----------------------------------------- -----------------------------------------
<S> <C> <C>
adjustment for the occurrence of certain purchase price per share equal to the sum
corporate events affecting the Common of the liquidation preference of the 5%
Stock. Accrued dividends will be paid on Preferred Stock plus any other cash
the conversion date on any shares of New payments due to such holder (the 'Cash
Preferred Stock converted into shares of Payments'), divided by 0.72125 (the
Common Stock on or after the First 'Maximum Price'). The number of shares of
Scheduled Dividend Payment Date. No Common Stock issuable upon conversion of
accrued dividends will be paid, and the the shares of the 5% Preferred Stock will
holders thereof will not be entitled to equal the liquidation preference of the
receive any dividends, on any shares of shares of 5% Preferred Stock being
New Preferred Stock converted prior to converted plus any Cash Payments divided
the First Scheduled Dividend Payment by the then-effective conversion price
Date, unless such shares of New Preferred applicable to the Common Stock (the '5%
Stock are converted on or prior to a Preferred Conversion Price'). The 5%
redemption date by holders electing to Preferred Conversion Price, as of any
convert such shares after having received date up to and including November 15,
a notice of redemption for such shares. 1997, is determined in accordance with a
See 'Description of New Preferred formula based on market prices of the
Stock -- Conversion.' Common Stock or actual prices at which
the converting holder sold shares of
Common Stock, in either case, multiplied
by the Applicable Multiplier. The
Applicable Multiplier decreases each
month, from 0.75125 for conversions
occurring after September 15, 1997, to 0.72125
for conversions occurring after November
15, 1997. For a complete list of the
Applicable Multipliers, see 'Description
of Capital Stock -- 5% Preferred
Stock -- Conversion.' At any date after
November 15, 1997, the 5% Preferred
Conversion Price is determined in
accordance with a formula based on the
lowest of (i) market prices of the Common
Stock between October 15, 1997 and
November 15, 1997, (ii) market prices of
the Common Stock during the three
consecutive trading days immediately
preceding the date of conversion or (iii)
actual prices at which the converting
holder sold the shares of Common Stock,
in each case, multiplied by. The 5% Pre-
ferred Stock is at all times subject to
customary anti-dilution adjustments for
events such as stock splits, stock
dividends, reorganizations and certain
mergers affecting the Common Stock. See
'Description of Capital Stock -- 5%
Preferred Stock -- Conversion.'
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 'Auto-
</TABLE>
19
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NEW PREFERRED STOCK 5% PREFERRED STOCK
----------------------------------------- -----------------------------------------
<S> <C> <C>
matic Exchange Date'), all outstanding
shares of New Preferred Stock shall be
exchanged automatically (the 'Automatic
Exchange') for shares of the Company's
Series D Convertible Preferred Stock (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
New Preferred Stock held by any holder.
The Automatic Exchange Rate Liquidation
Preference for the shares of New
Preferred Stock shall be $69.6145 per
share (the amount determined by
multiplying (x) the Liquidation
Preference for the shares of New
Preferred Stock (without accrued and
unpaid dividends thereon) by (y)
0.696145). The Company will pay cash to
holders of New Preferred Stock in lieu of
issuing fractional shares of Series D
Preferred Stock in the Automatic
Exchange. For a description of the terms,
preferences and rights of the Series D
Preferred Stock, see 'Description of
Capital Stock.'
Liquidation................ The Liquidation Preference of each share The liquidation preference of each share
of New Preferred Stock will be equal to of 5% Preferred Stock is equal to $25.00
$100.00. See 'Description of New plus an amount equal to accrued and
Preferred Stock -- Liquidation.' unpaid dividends on such share of 5%
Preferred Stock. See 'Description of
Capital Stock -- 5% Preferred
Stock -- Dividends.'
Cash Payments.............. None. The Company must make a monthly Cash
Payment in an amount per share equal to
3% of the liquidation preference of the
shares of 5% Preferred Stock or the
equivalent in securities issued or
issuable upon conversion to each holder
if the Company fails (i) 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 (ii) to maintain the
listing of the Common Stock on Nasdaq,
the New York Stock Exchange or the
American Stock Exchange. A similar Cash
Payment must be made if, after effecting
a registration statement with respect to
the resale of Common Stock issuable upon
conversion of the shares of 5% Preferred
Stock, the use of the prospectus is
suspended
</TABLE>
20
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NEW PREFERRED STOCK 5% PREFERRED STOCK
----------------------------------------- -----------------------------------------
<S> <C> <C>
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 shares of 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
shares of 5% Preferred Stock. See
'Description of Capital Stock -- 5%
Preferred Stock -- Cash Payments.'
Change in Control.......... If a Change in Control (as defined below) If a Reorganization (as defined below)
occurs, the Company must make an offer to occurs or is proposed, each holder of
purchase all outstanding shares of New shares of 5% Preferred Stock may require
Preferred Stock at a purchase price in the Company to redeem the shares of 5%
cash equal to 101% of the Liquidation Preferred Stock at the Maximum Price. A
Preference, plus all accrued and unpaid 'Reorganization' is defined as any
dividends, if any, whether or not reorganization or any reclassification of
declared, to the date such shares are the Common Stock or other capital stock
purchased. See 'Description of New of the Company or any consolidation or
Preferred Stock -- Change in Control.' 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 of
shares of 5% Preferred Stock chooses not
to require the Company to redeem such
holder's shares, the shares will be
convertible into the number of shares of
stock or other securities or property
(including cash) to which a holder of the
number of shares of Common Stock
deliverable upon conversion of such share
of 5% Preferred Stock not so redeemed
would have been entitled upon the
Reorganization. See 'Description
of Capital Stock -- 5% Preferred
Stock -- Required Redemption.'
Limitations on Debt and
Equity Financing......... None. Pursuant to the Preferred Stock In-
vestment Agreement, prior to the
completion of a Pre-Amendment Qualifying
Offering, the Company must not undertake
to conduct any debt or equity financing
that is not either pari passu or junior
to the 5% Preferred Stock in seniority,
structure and maturity. See 'Proposed
Financing' and 'Description of Capital
Stock -- 5% Preferred Stock.'
Restrictions on
Transfer................. Subject to certain exceptions, holders of None.
New Preferred Stock issued in the
Exchange Offer and holders of
</TABLE>
21
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NEW PREFERRED STOCK 5% PREFERRED STOCK
----------------------------------------- -----------------------------------------
<S> <C> <C>
New Preferred Stock who convert such New
Preferred Stock into shares of Common
Stock ('Converted Stock') will not be
permitted to sell, grant any option to
purchase or otherwise transfer or dispose
of (collectively, 'Transfer') any New
Preferred Stock or Converted Stock, as
the case may be, until the later to occur
of (i) the 181st day following the Stock
Offering or (ii) the 181st day following
consummation of the Exchange Offer (such
later date being herein referred to as
the 'Lock-Up Expiration Date'); pro-
vided, however, that if a holder is
prevented by applicable law from owning
assets subject to such restrictions on
Transfer, such restrictions shall be
inapplicable to such holder and the
Company will have a right of first
refusal with respect to all shares of New
Preferred Stock held by such holder that
is exercisable for a period of 90 days
from the date an agreement to sell shares
of New Preferred Stock is reached with a
potential buyer at any time on or prior
to the Lock-Up Expiration Date. See 'Risk
Factors -- Restrictions on Transfer' and
'Description of New Preferred
Stock -- Restrictions on Transfer.'
Forced Conversion.......... None. Three years or more after the date of
original issuance of the 5% Preferred
Stock, the Company may require the
holders of the 5% Preferred Stock to
convert such shares into Common Stock at
the then applicable 5% Preferred Con-
version Price and all Cash Payments due
on a date specified in the notice of
forced conversion. However, the Company
will not have the right to require such
conversion if the Company has commenced
bankruptcy proceedings, has ceased
operations or is in default for money
borrowed in excess of $50 million.
</TABLE>
22
<PAGE>
<PAGE>
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 six months ended June 30, 1996 and 1997 is derived
from unaudited consolidated financial statements incorporated herein by
reference. In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
that are necessary for a fair presentation of the financial position and results
of operations for these periods. The selected consolidated financial data should
be read in conjunction with the Consolidated Financial Statements and related
notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------ -------
(IN THOUSANDS, EXCEPT SHARE AND 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) (1,204) (835)
Net loss per share of Common Stock ................ $ (.23) $ (.79) $ (.48) $ (.23) $ (.29) $ (.13) $ (4.28)(1)
Weighted average shares of Common Stock
and Common Stock equivalents
outstanding ..................................... 6,715 8,284 8,398 9,224 9,642 9,358 10,307
Accretion on 5% Preferred Stock added to
liquidation preference .......................... $-- $-- $-- $-- $-- $-- $ (1,406)
Deemed dividend on 5% Preferred Stock ............. $-- $-- $-- $-- $-- $-- $(43,313)
Deficiency in the coverage of combined
fixed charges and preferred dividends
by earnings before fixed charges and
preferred dividend(2) ........................... $-- $-- $-- $-- $-- $-- $(45,554)
Ratio of earnings to combined fixed
charges and preferred dividends(3) .............. N.A. N.A. N.A. N.A. N.A. N.A. N.A.
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
-------------------------------------------------- ------------------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ----------- ----------
(IN THOUSANDS)
<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 $ 30,184
Designated cash(4)....................... -- -- -- -- -- -- 66,677
Working capital (deficit)................ 1,399 (250) 2,908 1,741 4,442 1,293 30,424
Total assets............................. 2,292 1,663 3,971 2,334 5,065 1,874 124,354
Deficit accumulated during the
development stage...................... (2,965) (9,533) (13,598) (15,705) (18,536) (16,909) (62,683)
Stockholders' equity..................... 1,791 505 3,431 1,991 4,898 1,486 12,286
Book value per share..................... .48 1.19
</TABLE>
- ------------
(1) Includes a deemed dividend on the Company's 5% Preferred Stock of $43.3
million, or $4.20 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) For the purpose of this calculation, the deficiency is computed as the
Company's net loss adjusted for the accretion on the 5% Preferred Stock and
the deemed dividend on the 5% Preferred Stock.
(3) Because the Company has not generated revenues from earnings for the periods
described, the ratio of earnings to fixed charges is not material.
(4) 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.
23
<PAGE>
<PAGE>
RISK FACTORS
Prospective exchanging stockholders should carefully consider, in addition
to the other information set forth elsewhere in this Prospectus, the factors set
forth below. 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 June 30, 1997, the Company has had no
revenues and has incurred aggregate net losses of approximately $19.4 million,
including net losses of approximately $2.8 million during the year ended
December 31, 1996 and $0.8 million during the six months ended June 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 $660.1 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
$491.6 million of funds, leaving anticipated additional cash needs of
approximately $168.5 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 'Proposed Financing.' The
Company anticipates funding its projected cash requirements through the
completion of additional debt and equity financings. 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
$272.8 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 necessary
financing on a timely basis could result in delays and increases in the cost of
satellite
24
<PAGE>
<PAGE>
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 holders of shares of New Preferred
Stock received pursuant to the Exchange Offer who convert their shares of New
Preferred Stock into shares of Common Stock.
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 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.
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, Patents and Trademarks.'
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
25
<PAGE>
<PAGE>
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 August 8, 1997, 84 of 89 Arianespace launches (or
approximately 94%) have been completed successfully since May 1984. See
'Business -- The CD Radio Delivery System -- The Satellites -- Launch Services.'
However, the Ariane 5, the particular launch vehicle intended for the launches
of the Company's satellites, has had only one launch, which was a failure, and
is untested in flight. The next launch of an Ariane 5 currently is planned for
October 1997. In the event of a significant delay in the Ariane 5 program, the
Company has the right to request launch on an Ariane 4 launch vehicle. There is
no assurance that Arianespace's launches of the Company's satellites will be
successful. Satellites also may fail to achieve a proper orbit or be damaged in
space. See ' -- Limited Life of Satellites; In-orbit Failure.' As part of its
risk management program, the Company plans to construct a third, backup
satellite and to obtain insurance covering a replacement launch to the extent
required to cover risks not assumed by Arianespace under the Arianespace Launch
Contract. See ' -- Insurance Risks.' The launch of a replacement satellite would
delay the commencement or continuation of the Company's commercial operations
for a period of at least several months, which could have a material adverse
effect on the demand for the Company's services and on its revenues and results
of operations. See 'Business -- The CD Radio Delivery System -- The
Satellites -- Launch Services.'
UNCERTAIN MARKET ACCEPTANCE
There is currently no satellite radio service such as CD Radio in
commercial operation in the United States. As a result, the extent of the
potential demand for such a service and the degree to which the Company's
proposed service will meet that demand cannot be estimated with certainty, and
there can be no assurance that there will be sufficient demand for CD Radio to
enable the Company to achieve significant revenues or cash flow or profitable
operations. The success of CD Radio in gaining market acceptance will be
affected by a number of factors beyond the Company's control, including the
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willingness of consumers to pay subscription fees to obtain satellite radio
broadcasts, the cost, availability and consumer acceptance of radio cards,
S-band radios and miniature satellite dish antennas, the marketing and pricing
strategies of competitors, the development of alternative technologies or
services and general economic conditions. See 'Business -- The Radio Market,'
'Business -- The CD Radio Service,' 'Business -- Marketing Strategy,'
'Business -- The CD Radio Delivery System' and 'Business -- Competition.'
LIMITED LIFE OF SATELLITES; IN-ORBIT FAILURE
A number of factors will affect the useful lives of the Company's
satellites, including the quality of construction, the expected gradual
environmental degradation of solar panels, the amount of fuel on board and the
durability of component parts. Random failure of satellite components could
result in damage to or loss of a satellite. In rare cases, satellites could also
be damaged or destroyed by electrostatic storms or collisions with other objects
in space. If the Company is required to launch the spare satellite, due to
failure of the launch or in-orbit failure of one of the operational satellites,
its operational timetable would be delayed for approximately six months or more.
The launch or in-orbit failure of two satellites would require the Company to
arrange for additional satellites to be built and could delay the commencement
or continuation of the Company's operations for three years or more. The
Company's satellites are expected to have useful lives of approximately 15
years, after which their performance in delivering CD Radio is expected to
deteriorate. There can be no assurance, however, of the specific longevity of
any particular satellite. The Company's operating results would be adversely
affected in the event the useful life of its initial satellites is significantly
shorter than 15 years.
INSURANCE RISKS
Pursuant to the Loral Satellite Contract and the Arianespace Launch
Contract, the Company is the beneficiary of certain limited warranties with
respect to the services provided under each agreement. However, these limited
warranties do not cover a substantial portion of the risks inherent in satellite
launches or in-orbit operations, and the Company will have to obtain insurance
to adequately protect against such risks.
The Arianespace Launch Contract contains a provision entitling the Company
to a replacement launch in the event of a launch failure caused by the launch
vehicle used to launch the Company's satellites. In such event, the Company
would utilize the spare satellite that it is having constructed. Thus, the
Company does not intend to purchase additional insurance for launch failure of
the launch vehicle. The Company intends to insure against other contingencies,
including a failure during launch caused by factors other than the launch
vehicle and/or a failure involving the second or third satellite in a situation
in which the spare satellite has been used to replace the first or second
satellite. Any adverse change in insurance market conditions may result in an
increase, which may be substantial, in the insurance premiums paid by the
Company. There is no assurance that launch insurance will be available or, if
available, that it can be obtained at a cost or on terms acceptable to the
Company.
If the launch of either of the Company's two satellites is a full or
partial failure or if, following launch, either of the satellites does not
perform to specifications, there may be circumstances in which insurance will
not fully reimburse the Company for its expenditures with respect to the
applicable satellite. In addition, the Company has not acquired insurance that
would reimburse the Company for business interruption, loss of business and
similar losses which might arise from such events or from delay in the launch of
either of the satellites. Any insurance obtained by the Company also will likely
contain certain exclusions and material change conditions that are customary in
the industry. See 'Business -- The CD Radio Delivery System -- The
Satellites -- Risk Management and Insurance.'
RISK ASSOCIATED WITH CHANGING TECHNOLOGY
The industry in which the Company operates is characterized by rapid
technological advances and innovations. There is no assurance that one or more
of the technologies utilized or under development by the Company will not become
obsolete, or that its services will be in demand at the time they are offered.
The Company will be dependent upon technologies developed by third parties to
implement
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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. See 'Business -- The CD Radio Delivery System,'
'Business -- Marketing Strategy,' and 'Business -- Technology, Patents and
Trademarks.'
NEED TO OBTAIN RIGHTS TO PROGRAMMING
In connection with its music programming, the Company will be required to
negotiate and enter into royalty arrangements with performing rights societies,
such as The American Society of Composers, Authors and Publishers ('ASCAP'),
Broadcast Music, Inc. ('BMI') and SESAC, Inc. ('SESAC'). These organizations
collect royalties and distribute them to songwriters and music publishers.
Copyright users negotiate a fee with these organizations based on a percentage
of advertising and/or subscription revenues. Broadcasters currently pay a
combined total of approximately 3% of their revenues to the performing rights
societies. The Company also will be required to negotiate similar arrangements,
pursuant to the Digital Performance Right in Sound Recordings Act of 1995 (the
'Digital Recording Act'), with the owners of the sound recordings. The
determination of certain royalty arrangements with the owners of sound
recordings under the Digital Recordings Act currently are subject to arbitration
proceedings. The Company believes that it will be able to negotiate royalty
arrangements with these organizations and the owners of sound recordings, but
there can be no assurance as to the terms of any such royalty arrangements
ultimately negotiated or established by arbitration.
DEVELOPMENT OF BUSINESS AND MANAGEMENT OF GROWTH
The Company has not yet commenced CD Radio broadcasts. The Company expects
to experience significant and rapid growth in the scope and complexity of its
business as it proceeds with the 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
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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 on October 10, 1997 (the
'IB Order'). Although the FCC License is effective immediately, it is subject to
reconsideration at the International Bureau, and review by the full Commission.
Thereafter, any party may file an appeal with the FCC or the U.S. Court of
Appeals. The Company cannot predict the ultimate outcome of any of these
proceedings.
In order to ensure compliance with the transfer of control and 'cut-off'
rule restrictions contained in the Communications Act of 1934, as amended (the
'Communications Act'), any future assignments or transfers of control of the
Company's license must be approved by the FCC. There can be no assurance that
the FCC would approve any such transfer or assignment.
The term of the FCC License with respect to each satellite is eight years,
commencing from the date each satellite is declared operational after having
been inserted into orbit. Upon the expiration of the term with respect to each
satellite, the Company will be required to apply for a renewal of the relevant
license. Although the Company believes that the FCC will grant such renewals
absent significant misconduct on the part of the Company, there can be no
assurance that such renewals in fact will be obtained.
The CD Radio system is designed to permit CD Radio to be received by
motorists in all outdoor locations where the vehicle has an unobstructed
line-of-sight with one of the Company's satellites. However, in certain areas
with high concentrations of tall buildings, such as urban cores, or in tunnels,
signals from both satellites will be blocked and reception will be adversely
affected. Therefore, the Company plans to install terrestrial repeating
transmitters to rebroadcast CD Radio in certain urban areas. The FCC has not yet
established rules governing the application procedure for obtaining
authorizations to construct and operate terrestrial repeating transmitters. The
Company cannot predict the outcome of this process. In addition, in connection
with the installation and operation of the terrestrial repeating transmitters,
the Company will need to obtain the rights to use the roofs of certain
structures where the repeating transmitters will be installed. There can be no
assurance that the Company can obtain such roof rights on acceptable terms or in
appropriate locations for the operation of CD Radio. Also, the FCC Licensing
Rules (as defined herein) require that the Company complete frequency
coordination with Canada and Mexico. There can be no assurance that the Company
will be able to coordinate use of this spectrum or will be able to do so in a
timely manner.
Changes in law, FCC regulations or international agreements relating to
communications policy generally or to matters relating specifically to the
services to be offered by the Company could affect the Company's ability to
retain the FCC License and 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 action is subject to being revisited in a
future proceeding.
The FCC has indicated that it may in the future impose public service
obligations, such as channel set-asides for educational programming, on
satellite radio licensees. The Company cannot predict whether the FCC will
impose public service obligations or the impact that any such obligations, if
imposed, would have on the Company.
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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 United States 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 was the
other successful bidder for an FCC License. AMSC, which is owned in part by the
Hughes Electronics Corporation subsidiary of General Motors Corporation, has
financial, management and technical resources that greatly exceed those of the
Company. See 'Business -- Competition.' In addition, the FCC could grant new
licenses which would enable further competition to broadcast satellite radio.
Although successful bidders for such new licenses 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 could
have a material adverse effect on the Company.
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.
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.
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LIMITED PUBLIC MARKET FOR COMMON STOCK
The Common Stock has been traded in the Nasdaq SmallCap Market since
September 13, 1994. 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.
POSSIBLE ADVERSE EFFECT OF STATE BLUE SKY RESTRICTIONS ON SECONDARY TRADING OF
COMMON STOCK
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market. If the application is not approved, it may have an adverse
impact on secondary trading of the Common Stock. 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
50,000,000 shares of preferred stock (the 'Preferred Stock') in one or more
series and to determine the price, rights, preferences and privileges of those
shares without any further vote or action by the stockholders. Of that amount,
8,000,000 shares have been designated as 5% Preferred Stock, of which 5,222,608
shares were issued and outstanding as of September 30, 1997. A further 7,000,000
shares of Preferred Stock have been designated New Preferred Stock, of which up
to 1,932,594 shares will be issued and outstanding following the completion of
the Exchange Offer and 7,000,000 shares of Preferred Stock have been designated
Series D Preferred Stock. In addition, the Company intends to adopt a
stockholders rights plan. Any issuance of Preferred Stock, including Preferred
Stock with voting and conversion rights, as well as the New 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
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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, the Company will be required to make an Offer to
Purchase the Notes, after issuance thereof, and the New 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
New Preferred Stock that might be delivered by holders of the Notes or the New
Preferred Stock seeking to accept the offer. After the issuance of the Notes,
the failure of the Company to make or consummate such 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 New Preferred Stock when due will give the holders of a majority
of the New 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
David Margolese, the Chief Executive Officer of the Company, currently
beneficially owns approximately 15.1% of the outstanding Common Stock, and upon
consummation of the Stock Offering, is expected to beneficially own
approximately 11.8% of the outstanding Common Stock. In addition, Darlene
Friedland, who currently owns approximately 21.7% of the outstanding Common
Stock has entered into a voting trust agreement pursuant to which all of her
shares of Common Stock have been placed into a voting trust providing Mr.
Margolese, as trustee, with sole power to vote such shares in his discretion.
See 'Principal Stockholders.' Accordingly, Mr. Margolese, either acting alone or
together with other existing stockholders, would be able 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
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Offerings 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 Offering, the Company will have
16,077,884 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, 9,795,896 shares will be freely tradeable without restriction
under the Securities Act unless such shares are purchased in the Stock Offering
by 'affiliates' of the Company, as such term is defined in Rule 144 under the
Securities Act (the 'Affiliates'). Of the remaining 6,281,988 shares of Common
Stock, 3,547,488 shares are 'restricted securities' as that term is defined in
Rule 144 under the Securities Act (the 'Restricted Shares'). Restricted Shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act. Up to 1,642,000 of the Restricted Shares held by the directors
and certain officers of the Company will be eligible for sale, subject to the
restrictions of Rule 144, upon expiration of certain lock-up agreements entered
into between each of such directors and officers of the Company and the
underwriters of the Stock Offering (the 'Lock-up Agreements'), 180 days after
the effective date of the Stock Offering. 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, Darlene Friedland has
entered into a lock-up agreement relating to her 2,734,500 shares lasting for a
period ending, on a cumulative basis, as to 25% of the shares of Common Stock
she owns, 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.
RISK OF INABILITY TO REPURCHASE THE NEW PREFERRED STOCK UPON A CHANGE OF CONTROL
If a Change in Control (as defined herein) occurs and an Offer to Purchase
(as defined herein) 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
shares of New Preferred Stock that might be delivered by holders of the New
Preferred Stock seeking to accept the Offer to Purchase. The failure of the
Company to consummate the Offer to Purchase or pay the purchase price for the
New Preferred Stock when due will give the holders of a majority of the New
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.
See 'Description of New Preferred Stock -- Change of Control' and ' -- Voting
Rights.'
LACK OF ESTABLISHED TRADING MARKET FOR NEW PREFERRED STOCK
The New Preferred Stock constitutes a new issue of securities of the
Company with no established trading market. The liquidity of the New Preferred
Stock will be affected by the number of shares of 5% Preferred Stock accepted in
the Exchange Offer. There can be no assurance that an active market for the New
Preferred Stock will develop or be sustained in the future. Although the Dealer
Manager has indicated to the Company that it intends to make a market in the New
Preferred Stock, it is not obligated to do so and may discontinue any such
market-making at any time without notice. Accordingly, no assurance can be given
as to the liquidity of, or trading markets for, the New Preferred Stock. See
'Market and Trading Information.'
REDUCED TRADING MARKET FOR 5% PREFERRED STOCK
To the extent shares of 5% Preferred Stock are tendered and accepted in the
Exchange Offer or redeemed pursuant to their terms and/or the number of holders
of 5% Preferred Stock is reduced to
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below certain levels, the liquidity and trading market for shares of 5%
Preferred Stock outstanding following the Exchange Offer, and the terms upon
which such shares could be sold, could be adversely affected.
The Company may in the future seek to acquire untendered shares of 5%
Preferred Stock in open market or privately negotiated transactions, through
subsequent exchange offers, redemptions or otherwise. The Company's decision to
make such acquisitions is dependent on many factors, including market conditions
at the time of any contemplated acquisition. Accordingly, the Company cannot
predict whether and to what extent it will acquire any additional shares of 5%
Preferred Stock and the consideration to be paid therefor. See 'The Exchange
Offer -- Consequences of Failure to Exchange.'
PROPOSED FINANCING
In order to raise a portion of the additional funds required to
commercialize its proposed CD Radio service, the Company plans to issue
3,500,000 shares of its Common Stock in a registered public offering
underwritten by Merrill Lynch, Lehman Brothers Inc. and Unterberg Harris and its
Notes for gross proceeds of $150 million in a registered public offering
underwritten by Merrill Lynch and Lehman Brothers Inc. The Offerings will be
made by means of separate prospectuses relating to the Common Stock and the
Notes, respectively, in accordance with the requirements of the Securities Act.
The Common Stock, when issued, would rank junior, and the Notes, when issued,
would rank senior, to the New Preferred Stock in respect of dividends and
distribution of assets of the Company in liquidation.
The net proceeds of the Offerings to the Company are estimated to be
approximately $201.5 million (approximately $58.7 million from the offering of
Common Stock (based on an assumed offering price of $18.44 per share, the
closing price of the Company's Common Stock at September 30, 1997) and
approximately $142.8 million from the offering of the Notes) after deducting
estimated underwriting discounts and commissions and other expenses payable by
the Company.
The Company expects to use the net proceeds of the Offerings to partially
finance the construction and launch of the Company's satellites. In addition,
net proceeds of the Offerings will be used for general corporate purposes,
including marketing and working capital. There can be no assurance that the
Offerings will be completed or as to the terms on which the Company will be able
to sell the Common Stock or Notes that may be offered.
The Company estimates that it will require approximately $660.1 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
$491.6 million of funds, leaving anticipated additional cash needs of
approximately $168.5 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. 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.
Under the Company's Amended and Restated Certificate of Incorporation, as
currently in effect, the Company may redeem the 5% Preferred Stock (to the
extent it has not been previously converted), in whole but not in part,
including following a sale by the Company of Common Stock for cash in an amount
of not less than $100 million in a registered underwritten public offering prior
to October 15, 1997. The Company is soliciting the consent of its stockholders,
including the holders of the 5% Preferred Stock, on the Record Date to an
amendment to the Certificate of Designations that would permit the Company to
redeem the 5% Preferred Stock (to the extent not previously converted) in whole
or in part upon the sale of any equity or debt securities in one or more
offerings occurring after
34
<PAGE>
<PAGE>
the date of the initial issuance of the 5% Preferred Stock and on or prior to
December 30, 1997 for gross proceeds in an aggregate cash amount of not less
than $100 million.
The terms of the Preferred Stock Investment Agreement, dated October 23,
1996, as amended, between the Company and each purchaser of 5% Preferred Stock
(the 'Preferred Stock Investment Agreement') require that any additional
financings by the Company be pari passu or junior to the 5% Preferred Stock in
seniority, structure and maturity until the Company completes a Pre-Amendment
Qualifying Offering. If the Proposed Amendment is not approved by the Company's
stockholders and any shares of 5% Preferred Stock remain outstanding after the
Exchange Offer, the Offerings would not constitute a Pre-Amendment Qualifying
Offering and the issuance of the Notes would not be permitted by the terms of
the Preferred Stock Investment Agreement.
35
<PAGE>
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
PRICE RANGE OF COMMON STOCK
The Common Stock began trading on the Nasdaq SmallCap Market on September
13, 1994 under the symbol 'CDRD' and has been trading there since that time. The
following table sets forth the high and low prices for the Common Stock, as
reported by Nasdaq, for the periods indicated below. The prices set forth below
reflect interdealer quotations, without retail markups, markdowns, fees or
commissions and do not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------------- ---------------
<S> <C> <C>
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
</TABLE>
On October 14, 1997, the closing bid price of the Common Stock on the
Nasdaq SmallCap Market was $23.50 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.
36
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of the Company
as of June 30, 1997 (i) on an historical basis; (ii) on a pro forma basis,
giving effect to the sale in August 1997 of Common Stock to Loral Space for net
proceeds of $24.5 million; (iii) as adjusted for the Exchange Offer (assuming
100% acceptance by holders of 5% Preferred Stock) after deducting Dealer Manager
fees and other estimated expenses; and (iv) as adjusted for the estimated net
proceeds from the sale of 3,500,000 shares of Common Stock pursuant to the Stock
Offering (at an assumed offering price of $18.44 per share, the closing price of
the Company's Common Stock at September 30, 1997, after deducting the
underwriting discounts and commissions and estimated offering expenses) and the
sale of Notes for net proceeds of $142.8 million pursuant to the Notes Offering.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------------------------------
PRO FORMA AS PRO FORMA AS
ADJUSTED FOR FURTHER
THE ADJUSTED FOR
EXCHANGE THE
ACTUAL PRO FORMA OFFER OFFERINGS
-------- --------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Cash and cash equivalents................................ $ 30,184 $ 54,684 $ 50,518 $252,022
Designated cash(1)....................................... 66,677 66,677 66,677 66,677
-------- --------- ------------ ------------
Total cash and cash equivalents.......................... $ 96,861 $121,361 $117,195 $318,699
-------- --------- ------------ ------------
-------- --------- ------------ ------------
Senior Discount Notes.................................... $ -- -- $ -- $150,000
5% Delayed Convertible Preferred Stock, 5,400,000 shares
issued and outstanding, actual and pro forma(2)........ 111,855 111,855 -- --
10 1/2% Series C Convertible Preferred Stock, no par
value, 1,932,853 shares issued and outstanding, pro
forma as adjusted and as further adjusted.............. -- -- 193,285 193,285
Common Stock, $.001 par value; 10,313,391 shares issued
and outstanding, actual; 12,218,879 shares issued and
outstanding, pro forma and as adjusted; and 15,718,879
shares issued and outstanding, as further adjusted(3).. 10 12 12 16
Additional paid in capital............................... 75,425 99,923 43,757 102,407
Subscription receivable.................................. (466) (466) (466) (466)
Deficit accumulated during the development stage......... (62,683) (62,683) (92,113) (92,113)
-------- --------- ------------ ------------
Total Capitalization................................ $124,141 $148,641 $144,475 $353,129
-------- --------- ------------ ------------
-------- --------- ------------ ------------
</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) All capitalization excludes warrants issuable by the Company as of June 30,
1997 to purchase 486,000 shares of 5% Preferred Stock.
(3) All capitalization information excludes: (i) options outstanding as of June
30, 1997 to purchase 1,733,000 shares of Common Stock and (ii) warrants
issuable as of June 30, 1997 to purchase 2,000,000 shares of Common Stock.
37
<PAGE>
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected consolidated financial data for the Company set forth below
with respect to the statements of operations for the years ended December 31,
1994, 1995 and 1996 and with respect to the balance sheets at December 31, 1995
and 1996 are derived from the consolidated financial statements of the Company,
audited by Coopers & Lybrand L.L.P., independent accountants, incorporated
herein by reference. The selected consolidated financial data for the Company
with respect to the balance sheets at December 31, 1992, 1993 and 1994 and with
respect to the statement of operations data for the years ended December 31,
1992 and 1993, are derived from the Company's audited consolidated financial
statements, which are not incorporated herein by reference. The financial
information as of and for the six months ended June 30, 1996 and 1997 is derived
from unaudited consolidated financial statements incorporated herein by
reference. In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
that are necessary for a fair presentation of the financial position and results
of operations for these periods. The selected consolidated financial data should
be read in conjunction with the Consolidated Financial Statements and related
notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE AND 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) (1,204) (835)
Net loss per share of Common Stock ....................... $ (.23) $ (.79) $ (.48) $ (.23) $ (.29) $ (.13) $ (4.28)(1)
Weighted average shares of Common Stock and
Common Stock equivalents outstanding ................... 6,715 8,284 8,398 9,224 9,642 9,358 10,307
Accretion on 5% Preferred Stock added to
liquidation preference ................................. $-- $-- $-- $-- $-- $-- $ (1,406)
Deemed dividend on 5% Preferred Stock .................... $-- $-- $-- $-- $-- $-- $(43,313)
Deficiency in the coverage of combined
fixed charges and preferred dividends by
earnings before fixed charges and
preferred dividend(2) .................................. $-- $-- $-- $-- $-- $-- $(45,554)
Ratio of earnings to combined fixed charges
and preferred dividends(3) ............................. N.A. N.A. N.A. N.A. N.A. N.A. N.A.
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- --------- --------- --------- --------- --------
(IN THOUSANDS)
<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 $ 30,184
Designated cash(4) ................. -- -- -- -- -- -- 66,677
Working capital (deficit) .......... 1,399 (250) 2,908 1,741 4,442 1,293 30,424
Total assets ....................... 2,292 1,663 3,971 2,334 5,065 1,874 124,354
Deficit accumulated during the
development stage ................ (2,965) (9,533) (13,598) (15,705) (18,536) (16,909) (62,683)
Stockholders' equity ............... 1,791 505 3,431 1,991 4,898 1,486 12,286
Book value per share ............... .48 1.19
</TABLE>
- ------------
(1) Includes a deemed dividend on the Company's 5% Preferred Stock of $43.3
million, or $4.20 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) For the purpose of this calculation, the deficiency is computed as the
Company's net loss adjusted for the accretion on the 5% Preferred Stock and
the deemed dividend on the 5% Preferred Stock.
(3) Because the Company has not generated revenues from earnings for the periods
described, the ratio of earnings to fixed charges is not material.
(4) 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.
38
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<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.
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 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 ten 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
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
The Company recorded net losses of $835,000 and $1,204,000 for the six
months ended June 30, 1997 and 1996, respectively, and $354,000 and $687,000 for
the three months ended June 30, 1997 and 1996, respectively. The Company's total
operating expenses were $2,128,000 and $1,239,000 for the six months ended June
30, 1997 and 1996, respectively, and were $1,591,000 for the three months ended
June 30, 1997 compared to $702,000 for the three months ended June 30, 1996.
39
<PAGE>
<PAGE>
Legal, consulting and regulatory fees increased for the six month ended
June 30, 1997 to $1,246,000 from $575,000 for the six months ended June 30,
1996, and increased to $1,009,000 from $347,000 for the three months ended June
30, 1997 and 196, respectively. These levels of expenditures are the result of
increased activity since winning an auction for the FCC License.
Research and development costs were $35,000 and $52,000 for the six months
ended June 30, 1997 and 1996, respectively, and $15,000 and $25,000 for the
three months ended June 30, 1997 and 1996, respectively. The Company completed
the majority of such activities in 1994.
Other general and administrative expenses increased for the six months
ended June 30, 1997 to $847,000 from $612,000 for the six months ended June 30,
1996 and to $566,000 from $330,000 for the three months ended June 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 $160,000 for the six month period ended June 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 $1,298,000 for the six months ended June
30, 1997, from $45,000 in the six months ended June 30, 1996 and to $1,237,000
from $20,000 for the three months ended June 30, 1997 and 1996, respectively,
was the result of a higher average cash balance during the second quarter of
1997. The cash and cash equivalents on hand were primarily obtained from the 5%
Preferred Stock offering in April 1997.
YEARS 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.
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.
40
<PAGE>
<PAGE>
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 June 30, 1997, the Company had working capital of approximately
$30,424,000 compared to $4,442,000 at December 31, 1996. The increase in working
capital was primarily the result of remaining cash proceeds from the preferred
stock offering in April 1997. Approximately $66.7 million of the proceeds from
the preferred stock offering was classified as designated cash reflecting the
balance then due the FCC when the FCC License was awarded.
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 $660.1 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 $491.6 million of funds, leaving
anticipated additional cash needs of approximately $168.5 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 'Proposed Financing.'
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
$272.8 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 Contract, except for payments made for each of the two
launches prior to the execution of the Arianespace Launch Contract, are due
between November 1997 and July 1999 for the first launch, and, for the second
launch, the period 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
41
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<PAGE>
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 June 30, 1997, the Company had received a total of $186.8 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 not extended, the Company will be required to
repay the Tranche A Loans in full, together with accrued interest and all fees
and other amounts due, approximately three months before the applicable launch
date, which will be prior to the time CD Radio commences commercial operations.
There can be no assurance that the Company will have sufficient funds to make
such repayment.
The AEF Agreements impose restrictions on the Company's ability to incur
additional indebtedness, make investments or permit liens on certain assets of
the Company, other than liens in favor of AEF. If AEF determines that the
Tranche A Loans are eligible for conversion into term loans, the Company will
also be subject to provisions restricting its ability to change its capital
structure or organizational documents or to merge, consolidate or combine with
another entity. If the Tranche A Loans are converted, the Company's obligations
to AEF will be secured by a lien on specified assets of the Company, including
the satellites and, to the extent permitted by applicable law, the FCC License.
See 'Description of Certain Indebtedness -- Vendor Financing.'
Pursuant to a Multiparty Agreement among the Company, AEF and Arianespace
in connection with the AEF Agreements, if the Company is unable to obtain
sufficient financing to complete the construction and launch of the satellites,
or if the Company terminates the Arianespace Launch Contract, the Company will
be required to pay Arianespace a termination fee ranging from 5% to 40% of the
launch services price, based on the proximity of the date of termination to the
scheduled launch date. The termination fee will be payable prior to the time the
Company commences commercial operations and there can be no assurance that the
Company will have sufficient funds to pay this fee.
The Loral Satellite Contract provides for payments to be made in
installments, subject to achievement by Loral of certain milestones in the
manufacture of the satellites. Loral has agreed to defer payment of $20 million
from two milestone payments due in June and September of 1998. The deferred
amount will be paid in four installments of $5 million, with the first payment
to be made twenty-seven months after the delivery of the first satellite, the
second payment to be made twenty-seven 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, 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, 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
42
<PAGE>
<PAGE>
quality, and of substantially equivalent value relative to the amount of the
secured obligations, and on the same terms and covenants, as the Company has
provided or may provide to any other party under any and all of its loan, credit
and other similar agreements. There currently is no such security interest.
After giving effect to the Offerings and the AEF Agreements, the Company
expects it will require an additional $168.5 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 holders of 5% Preferred
Stock who receive shares of New Preferred Stock pursuant to the Exchange Offer
and subsequently convert such shares into Common Stock. If additional financing
were not available on a timely basis, the Company would be required to delay
satellite and/or launch vehicle construction in order to conserve cash to fund
continued operations, which would cause delays in the commencement of operations
and increased costs. See 'Risk Factors -- Need for Substantial Additional
Funding.'
The amount and timing of the Company's actual cash requirements will depend
upon numerous factors, including costs associated with the construction and
deployment of its satellite system and the rate of growth of its business
subsequent to commencing service, costs of financing and the possibility of
unanticipated costs. Additional funds would be required in the event of delay,
cost overruns, launch failure, launch services or satellite system change
orders, or any shortfalls in estimated levels of operating cash flow, or to meet
unanticipated expenses.
As a result of the issuance of the Notes and the expected incurrence of
significant additional indebtedness required to meet its capital requirements,
the Company will have substantial indebtedness. The Company's ability to meet
all of its debt service obligations when due may require it to refinance its
then outstanding indebtedness. No assurance can be given that the Company will
be able to generate sufficient cash flow to service its indebtedness or be able
to refinance indebtedness. The Indenture will contain, and debt instruments
governing any future indebtedness of the Company are expected to contain,
restrictions on, among other things, the ability of the Company to incur
additional indebtedness.
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THE EXCHANGE OFFER
GENERAL
Participation in the Exchange Offer is voluntary and holders of shares of
5% Preferred Stock should carefully consider whether to accept. Neither the
Board of Directors of the Company nor the Company makes any recommendation to
holders of shares of 5% Preferred Stock as to whether to tender or refrain from
tendering in the Exchange Offer. Holders of shares of 5% Preferred Stock are
urged to consult their financial and tax advisors in making their own decisions
on what action to take in light of their own particular circumstances.
The Exchange Offer is open to all holders of shares of 5% Preferred Stock.
PURPOSE OF THE EXCHANGE OFFER
The principal purpose of the Exchange Offer is to improve the Company's
capital structure and to prevent dilution to the holders of the Company's Common
Stock by replacing the 5% Preferred Stock, which, particularly after November
1997, may be convertible into an increasing number of shares of Common Stock,
with New Preferred Stock, which has a higher dividend rate, but less favorable
conversion rights. The Exchange Offer is part of the financing transaction that
also includes the Stock Offering and the Notes Offering. The consummation of the
Exchange Offer is not conditioned upon the consummation of either the Notes
Offering or the Stock Offering. Each of the Offerings is conditioned upon
consummation of the Exchange Offer.
Upon consummation of the Exchange Offer, all shares of 5% Preferred Stock
tendered, accepted and not withdrawn will be retired.
PURPOSE OF THE SOLICITATION
The principal purpose of the Solicitation is to amend the Certificate of
Designations to allow the Company to redeem the 5% Preferred Stock (to the
extent not previously converted), in whole or in part, upon the consummation of
one or more Qualifying Offerings occurring after the date of the initial
issuance of the 5% Preferred Stock and on or prior to December 30, 1997 for
gross proceeds in an aggregate cash amount of not less than $100 million. The
Proposed Amendment, if approved by the Company's stockholders, will provide the
Company with additional flexibility in consummating the Offerings. If the
Proposed Amendment is adopted, then upon the consummation of the Qualifying
Offerings, for aggregate proceeds of $100 million the Company will be permitted
to redeem the shares of 5% Preferred Stock held by holders who do not tender
their shares of 5% Preferred Stock in the Exchange Offer.
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal, up to 1,932,073
shares of its New Preferred Stock for up to all of the outstanding shares of its
5% Preferred Stock at a rate of one share of New Preferred Stock for each $100
in Exchange Rate Liquidation Preference represented by shares of 5% Preferred
Stock not previously converted. The 'Exchange Rate Liquidation Preference' shall
be the amount determined by dividing (x) the actual liquidation preference of
the shares of 5% Preferred Stock being exchanged (including accrued and unpaid
dividends thereon, if any) by (y) 0.696145. On November 13, 1997, the assumed
expiration date of the Exchange Offer, the Exchange Rate Liquidation Preference
will be approximately $37.00 per share of 5% Preferred Stock. The Liquidation
Preference of each share of New Preferred Stock will be equal to $100.00. The
Company will pay cash to exchanging holders of 5% Preferred Stock in lieu of
issuing fractional shares of New Preferred Stock. The terms of the New Preferred
Stock (including the dividend rate, liquidation preference and conversion and
redemption rights) differ in material respects from the terms of the 5%
Preferred Stock for which it may be exchanged pursuant to this Exchange Offer.
See 'Description of New Preferred Stock' and 'Description of Capital Stock -- 5%
Preferred Stock.' The 5% Preferred Stock was originally issued in April 1997. As
of September 30, 1997, there were 5,222,608 shares of 5% Preferred Stock
outstanding.
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Tendering holders of the shares of 5% Preferred Stock will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of the shares
of 5% Preferred Stock pursuant to the Exchange Offer.
THE SOLICITATION
In conjunction with the Exchange Offer and pursuant to the Consent
Solicitation Statement, the Company is soliciting Consents from the holders of
record on the Record Date of the Common Stock and the 5% Preferred Stock to the
Proposed Amendment.
Under the Company's Amended and Restated Certificate of Incorporation, as
currently in effect, the Company may redeem the shares of 5% Preferred Stock (to
the extent it has not been previously converted), in whole but not in part,
following a sale by the Company of Common Stock for cash in an amount of not
less than $100 million in a registered underwritten public offering prior to
October 15, 1997. The Company is soliciting the consent of its stockholders,
including the holders of the 5% Preferred Stock, on the Record Date to the
Proposed Amendment to the Certificate of Designations (i) to allow the Company
to redeem the shares of 5% Preferred Stock (to the extent not previously
converted), in whole or in part, upon the sale of any equity or debt securities
in one or more offerings occurring after the date of the initial issuance of the
5% Preferred Stock and on or prior to December 30, 1997 for gross proceeds in an
aggregate cash amount of not less than $100 million and (ii) to amend certain of
the redemption provisions relating to the requirements for the delivery of a
notice of redemption in connection therewith. See 'The Proposed Amendment.'
The terms of the Preferred Stock Investment Agreement require that the
Company 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
until the Company completes a Pre-Amendment Qualifying Offering. If the Proposed
Amendment is not approved by the Company's stockholders and any shares of 5%
Preferred Stock remain outstanding after the Exchange Offer, the Company will
not be permitted to issue any debt or equity financing that is senior to the 5%
Preferred Stock. The Company does not intend to commence the Offerings until the
Solicitation is substantially completed and the Notes Offering will not be
consummated unless the Exchange Offer and the Solicitation are completed and no
shares of the 5% Preferred Stock remain outstanding.
The Requisite Consents from the holders of a majority of the issued and
outstanding shares of 5% Preferred Stock and the Common Stock, respectively, on
the Record Date must be obtained in order to adopt the Proposed Amendment. The
Company intends to amend the Certificate of Designations to reflect the Proposed
Amendment as promptly as practicable after it obtains the Requisite Consents. If
the Proposed Amendment is adopted, then each non-exchanging holder will be bound
by the Proposed Amendment regardless of whether such holder consented to the
Proposed Amendment.
THE COMPANY WILL MAKE NO SEPARATE PAYMENT FOR CONSENTS DELIVERED IN THE
SOLICITATION.
EXPIRATION DATE; EXTENSION; AMENDMENTS
The Exchange Offer will expire on the Expiration Date. The term 'Expiration
Date' means 12:00 midnight, New York City time, on November 13, 1997, unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term 'Expiration Date' shall mean the latest
time and date on which the Exchange Offer, as so extended by the Company, shall
expire. The Company reserves the right to extend the Exchange Offer at any time
and from time to time by giving oral or written notice to the Exchange Agent and
making a public announcement thereof. There can be no assurance that the Company
will exercise its right to extend the Exchange Offer. During any extension of
the Exchange Offer, all shares of 5% Preferred Stock previously tendered and not
withdrawn pursuant to the Exchange Offer will remain subject to the Exchange
Offer subject to the right of a tendering holder to withdraw its shares of 5%
Preferred Stock. See ' -- Withdrawal Rights.'
The Company also expressly reserves the right, subject to applicable law,
(i) to delay acceptance for exchange of any shares of 5% Preferred Stock or
terminate the Exchange Offer and not accept for
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exchange any shares of 5% Preferred Stock and promptly return all such shares to
the tendering holders thereof in the event that any of the conditions specified
in ' -- Conditions of the Exchange Offer' below are not satisfied or waived by
the Company or to comply with applicable law, by giving oral or written notice
of such delay or termination to the Exchange Agent, (ii) to waive any condition
to the Exchange Offer and accept all shares of 5% Preferred Stock previously
tendered pursuant thereto, (iii) to amend the Exchange Offer in any respect or
(iv) to terminate, cancel, withdraw or otherwise amend or modify the Exchange
Offer at any time for any reason. If the Exchange Offer is so amended, the term
'Exchange Offer' shall mean the Exchange Offer as so amended. The reservation by
the Company of the right to delay acceptance for exchange of shares of 5%
Preferred Stock is subject to the provisions of Rule 13e-4 and Rule 14e-1(c)
under the Exchange Act, which require that the Company pay the consideration
offered or return the shares of 5% Preferred Stock deposited by or on behalf of
holders thereof promptly after the termination or withdrawal of the Exchange
Offer.
Any extension, delay, termination or amendment of the Exchange Offer will
be followed as promptly as practicable by a public announcement thereof. Without
limiting the manner in which the Company may choose to make a public
announcement of any extension, delay, termination or amendment of the Exchange
Offer, the Company will have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by issuing a release to the
Dow Jones News Service, except in the case of an announcement of an extension of
the Exchange Offer, in which case the Company will have no obligation to
publish, advertise or otherwise communicate such announcement other than by
issuing a notice of such extension by press release or other public
announcement, which notice will be issued no later than 9:00 A.M., New York City
time, on the next business day after the previously scheduled Expiration Date.
TENDER PROCEDURE
The tender to the Company of shares of 5% Preferred Stock by a holder
thereof pursuant to one of the procedures set forth below and the acceptance
thereof by the Company will constitute a binding agreement between such holder
and the Company in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal. This Prospectus, together with
the Letter of Transmittal, will first be sent out on or about October 16, 1997,
to all holders of shares of 5% Preferred Stock known to the Company and the
Exchange Agent.
A holder of shares of 5% Preferred Stock may tender the same by properly
completing and signing the Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to the Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the shares of 5% Preferred Stock being
tendered and any other documents required by the Letter of Transmittal, to the
Exchange Agent at its address set forth on the Letter of Transmittal on or prior
to the Expiration Date (or complying with the procedure for book-entry transfer
described below).
THE METHOD OF DELIVERY OF THE SHARES OF 5% PREFERRED STOCK AND ALL OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER
INSURANCE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE
EXPIRATION DATE. NO LETTERS OF TRANSMITTAL OR SHARES OF 5% PREFERRED STOCK
SHOULD BE SENT TO THE COMPANY.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the shares of 5% Preferred
Stock at the book-entry transfer facility for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of the shares of 5% Preferred Stock by causing such
book-entry transfer facility to transfer such shares of 5% Preferred Stock into
the Exchange Agent's account with respect to the 5% Preferred Stock in
accordance with the book-entry transfer facility's procedures for such transfer.
Although delivery of the shares of 5% Preferred Stock may be effected through
book-entry transfer into the Exchange Agent's
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accounts at the book-entry transfer facility, an appropriate Letter of
Transmittal with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth on the Letter of Transmittal on or prior
to the Expiration Date.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the shares of 5% Preferred Stock (or a confirmation of book-entry
transfer of such shares of 5% Preferred Stock into the Exchange Agent's account
at the book-entry transfer facility) is received by the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of shares of 5% Preferred
Stock will be determined by the Company, whose determination will be final and
binding. The Company reserves the absolute right to reject any shares of 5%
Preferred Stock not properly tendered or the acceptance for exchange of which
may, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the absolute right to waive any defect or irregularity in the tender of
any shares of 5% Preferred Stock. Unless waived, any defects or irregularities
in connection with tenders of shares of 5% Preferred Stock for exchange must be
cured within such reasonable period of time as the Company will determine. None
of the Company, the Exchange Agent or any other person will be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering shares of 5% Preferred Stock for exchange (the
'Transferor') exchanges, assigns and transfers the shares of 5% Preferred Stock
to the Company and irrevocably constitutes and appoints the Exchange Agent as
the Transferor's agent and attorney-in-fact to cause the shares of 5% Preferred
Stock to be assigned, transferred and exchanged. The Transferor represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the shares of 5% Preferred Stock and to acquire shares of New Preferred
Stock issuable upon the exchange of such tendered shares of 5% Preferred Stock,
and that, when the same are accepted for exchange, the Company will acquire good
and unencumbered title to the tendered shares of 5% Preferred Stock, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or the
Company to be necessary or desirable to complete the exchange, assignment and
transfer of tendered shares of 5% Preferred Stock or transfer ownership of such
shares of 5% Preferred Stock on the account books maintained by a book-entry
transfer facility. All authority conferred by the Transferor will survive the
death or incapacity of the Transferor and every obligation of the Transferor
will be binding upon the heirs, legal representatives, successors, assigns,
executors and administrators of such Transferor.
WITHDRAWAL RIGHTS
Tenders of shares of 5% Preferred Stock pursuant to the Exchange Offer may
be withdrawn at any time prior to the Expiration Date.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth on the Letter of Transmittal, and with respect to a facsimile
transmission, must be confirmed by telephone and an original delivered by
guaranteed overnight delivery. Any such notice of withdrawal must specify the
person named in the Letter of Transmittal as having tendered shares of 5%
Preferred Stock to be withdrawn, the certificate numbers of the shares of 5%
Preferred Stock to be withdrawn, a statement that such holder is withdrawing his
election to have such shares of 5% Preferred Stock exchanged, and the name of
the registered holder of such shares of 5% Preferred Stock, and must be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees) or be accompanied by
evidence satisfactory to the Company that the person withdrawing
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the tender has succeeded to the beneficial ownership of the shares of 5%
Preferred Stock being withdrawn. The Exchange Agent will return the properly
withdrawn shares of 5% Preferred Stock promptly following receipt of notice of
withdrawal. If shares of 5% Preferred Stock have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn shares of 5% Preferred Stock or otherwise comply
with the book-entry transfer procedure. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by the
Company, and such determination will be final and binding on all parties.
Any shares of 5% Preferred Stock so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any
shares of 5% Preferred Stock which have been tendered for exchange but which are
not exchanged for any reason will be returned to the holder thereof without cost
to such holder (or, in the case of shares of 5% Preferred Stock tendered by
book-entry transfer into the Exchange Agent's account at the book-entry transfer
facility pursuant to the book-entry transfer procedures described above, such
shares will be credited to an account with such book-entry transfer facility
specified by the holder) as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn shares of 5%
Preferred Stock may be retendered by following one of the procedures described
under ' -- Tender Procedure' above, at any time on or prior to the Expiration
Date.
THE WITHDRAWAL OF TENDERED SHARES OF 5% PREFERRED STOCK WILL BE DEEMED TO
BE A REJECTION OF THE EXCHANGE OFFER.
ACCEPTANCE OF 5% PREFERRED STOCK FOR EXCHANGE; DELIVERY OF NEW PREFERRED STOCK
Upon the satisfaction or waiver of all the terms of the Exchange Offer, the
acceptance for exchange of the shares of 5% Preferred Stock validly tendered and
not withdrawn will be made on the Exchange Date and the issuance of the shares
of New Preferred Stock will be made as promptly as practicable thereafter. For
the purposes of the Exchange Offer, the Company shall be deemed to have accepted
for exchange validly tendered shares of 5% Preferred Stock when, as and if the
Company has given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of shares of
5% Preferred Stock for the purposes of receiving the shares of New Preferred
Stock from the Company and causing the shares of 5% Preferred Stock to be
assigned, transferred and exchanged. Upon the terms of the Exchange Offer,
delivery of shares of New Preferred Stock to be issued in exchange for accepted
shares of 5% Preferred Stock will be made by the Exchange Agent promptly after
the Exchange Date. Tendered shares of 5% Preferred Stock not accepted for
exchange by the Company will be returned without expense to the tendering
holders promptly following the Expiration Date as described above under ' --
Withdrawal and Revocation Rights.'
ACCRUED DIVIDENDS
Holders of shares of 5% Preferred Stock accepted for exchange pursuant to
the Exchange Offer will not receive dividends on such 5% Preferred Stock accrued
from April 10, 1997 (the last regular dividend payment period with respect to
the 5% Preferred Stock) to the date of issuance of New Preferred Stock; such
accrued dividends will be included in the calculation of the Exchange Rate
Liquidation Preference to determine the number of shares of New Preferred Stock
to be received by holders tendering shares of 5% Preferred Stock in the Exchange
Offer.
Dividends on shares of 5% Preferred Stock not exchanged in the Exchange
Offer will continue to accrue and be payable, when and as declared by the Board
of Directors.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company will
not be required to accept for exchange, or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) (relating to the
Company's obligation to exchange and issue shares of New Preferred
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Stock for or return tendered shares of 5% Preferred Stock promptly after
termination of the Exchange Offer), exchange and issue shares of New Preferred
Stock for any shares of 5% Preferred Stock tendered and may postpone the
acceptance for exchange of or, subject to the restriction set forth above, the
exchange and issuance of, shares of New Preferred Stock for shares of 5%
Preferred Stock tendered and to be exchanged and may terminate or amend the
Exchange Offer if (i) the Requisite Consents to the Proposed Amendment are not
obtained, (ii) a minimum of 95% of the issued and outstanding shares of the 5%
Preferred Stock are not tendered for exchange and not withdrawn prior to the
Expiration Date or (iii) the General Conditions (see below) are not satisfied.
For purposes of the preceding paragraph, all of the 'General Conditions'
shall be deemed to have been satisfied unless any of the following conditions
shall occur on or after the date of this Prospectus and prior to the Expiration
Date:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, capitalization, stockholders' equity,
financial condition, operations, results of operations or prospects of the
Company, or in the general economic or financial market conditions in the
United States or abroad, which is or may be materially adverse to the
Company or its stockholders or to the value of the shares of 5% Preferred
Stock or there shall have been a significant decrease in the market prices
of or trading in the shares of 5% Preferred Stock, or the Company shall
have become aware of any fact or occurrence which is or may be materially
adverse with respect to the value of the shares of 5% Preferred Stock or
with respect to the contemplated benefits to the Company of the Exchange
Offer or the Proposed Amendment; or
(b) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or the over-the-counter market, (2) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (3) declaration of a national emergency or a commencement of a war,
armed hostilities or other national or international calamity directly or
indirectly involving the United States, (4) any limitation (whether or not
mandatory) by any governmental or regulatory authority on, or any other
event which might affect, the nature or extension of credit by banks or
other financial institutions, (5) any significant adverse change in the
United States securities or financial markets, or (6) in the case of any of
the foregoing existing at the time of the commencement of the Exchange
Offer, a material acceleration, escalation or worsening thereof; or
(c) there shall have been any action taken or threatened, or any
statute, rule, regulation, judgment, order or injunction proposed, sought,
promulgated, enacted, entered, enforced or deemed applicable to the
Exchange Offer or the Proposed Amendment by any local, state, federal or
foreign government or governmental authority or by any court, domestic or
foreign, that might, directly or indirectly, (1) make the acceptance for
exchange of some or all of the shares of 5% Preferred Stock or the issuance
of shares of New Preferred Stock in exchange therefor illegal or otherwise
restrict or prohibit consummation of the Exchange Offer, (2) result in a
delay in, or restrict the ability of the Company, or render the Company
unable, to accept for exchange some or all of the shares of 5% Preferred
Stock or to issue some or all of the shares of New Preferred Stock in
exchange therefor, (3) otherwise adversely affect the Company or the
Exchange Offer or (4) result in a material limitation in the benefits
expected to be derived by the Company from, or as a result of the
transactions contemplated by, the Exchange Offer or the Proposed Amendment;
or
(d) there shall be threatened, instituted or pending any action,
proceeding or claim by or before any court or governmental, administrative
or regulatory agency or authority or any other person or tribunal, domestic
or foreign, challenging the making of the Exchange Offer, the acquisition
by the Company of any shares of 5% Preferred Stock or the adoption of the
Proposed Amendment, or seeking to obtain any material damages as a result
thereof, or otherwise adversely affecting the Company or the value of the
5% Preferred Stock which makes it inadvisable to proceed with the Exchange
Offer, the acceptance for exchange of shares of 5% Preferred Stock or the
issuance of the shares of New Preferred Stock in exchange therefor.
All of the foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
such condition and may be waived by the
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Company, in whole or in part, at any time and from time to time, in the sole
discretion of the Company. The failure by the Company at any time to exercise
any of the foregoing rights will not be deemed a waiver of any such right, and
each such right will be deemed an ongoing right which may be asserted at any
time and from time to time. Any determination by the Company concerning the
foregoing conditions will be final and binding.
If any of the foregoing conditions shall not be satisfied (or, with respect
to the above enumerated events, shall have occurred), the Company may, subject
to applicable law, (i) terminate the Exchange Offer and return all shares of 5%
Preferred Stock tendered pursuant to the Exchange Offer to tendering security
holders as described above under ' -- Withdrawal Rights;' (ii) extend the
Exchange Offer and retain all tendered shares of 5% Preferred Stock until the
Expiration Time for the extended Exchange Offer; or (iii) waive the unsatisfied
conditions with respect to the Exchange Offer and accept all shares of 5%
Preferred Stock tendered pursuant to the Exchange Offer. In addition, the
Company reserves the right to amend or modify any or all of the Exchange Offer
at any time for any reason.
DISSENTERS' RIGHTS
Holders of the shares of 5% Preferred Stock do not have any appraisal or
dissenters' rights under the Delaware General Corporation Law or the Certificate
of Designations in connection with the Exchange Offer.
DEALER MANAGER
The Company has retained Merrill Lynch to act as Dealer Manager in
connection with the Exchange Offer. Additionally, Merrill Lynch is acting as an
underwriter in connection with the Offerings. Merrill Lynch is also acting as
financial advisor to the Company and, as such, is advising the Company with
respect to, among other things, the terms and timing of the Exchange Offer. In
its capacity as Dealer Manager, Merrill Lynch may contact holders of shares of
5% Preferred Stock regarding the Exchange Offer and may request brokers, dealers
and other nominees to forward this Prospectus and related materials to
beneficial owners of shares of 5% Preferred Stock. Questions and requests for
assistance may be directed to the Dealer Manager at its address and telephone
number set forth on the back cover of this Prospectus.
The Company has agreed to pay Merrill Lynch for its services as Dealer
Manager and financial advisor in connection with the Exchange Offer a fee equal
to 2.0% of: (i) the aggregate Liquidation Preference of all New Preferred Stock
issued in the Exchange Offer and (ii) cash or other consideration paid as
consideration pursuant to the Exchange Offer. In addition, the Company will
reimburse the Dealer Manager for its reasonable out-of-pocket expenses,
including without limitation, attorneys' fees. The Company also has agreed to
indemnify the Dealer Manger and its affiliates against certain liabilities
caused by, relating to, arising out of or in connection with the Exchange Offer
or the engagement of Merrill Lynch as financial advisor. Other than as described
above, the Company will not make any payments to brokers, dealers or others for
soliciting acceptance of the Exchange Offer.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. The Company will pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses. Letters of Transmittal must be addressed to the Exchange
Agent at its address set forth on the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF
TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER
OTHER THAN THE ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE
A VALID DELIVERY.
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TRANSFER TAXES
Holders who tender their shares of 5% Preferred Stock for exchange will not
be obligated to pay any transfer taxes in connection with the transfer and
exchange.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of shares of 5% Preferred Stock who do not exchange their shares of
5% Preferred Stock for shares of New Preferred Stock pursuant to the Exchange
Offer or whose 5% Preferred Stock is not accepted for exchange will continue to
hold such shares of 5% Preferred Stock and will be entitled to all the rights
and preferences, and subject to all of the limitations, applicable thereto.
Assuming the Company obtains the Requisite Consents, however, the terms of the
5% Preferred Stock will have been revised pursuant to the Proposed Amendment. To
the extent that shares of 5% Preferred Stock are tendered and accepted in the
Exchange Offer, the liquidity and trading market for untendered shares of 5%
Preferred Stock, and the terms upon which such shares could be sold, could be
adversely affected.
ACCOUNTING TREATMENT
For accounting purposes, the Company expects to exchange the 5% Preferred
Stock for which the Company received $135.0 million in gross proceeds for New
Preferred Stock with an expected value of approximately $193.3 million. The 5%
Preferred Stock was originally issued with a beneficial conversion feature which
will result in the Company recording a deemed dividend of $58 million,
representing the difference between the original value of the 5% Preferred Stock
and the expected value of the consideration given in the Exchange Offer. As of
June 30, 1997, the Company recorded approximately $43.3 million of the deemed
dividend. See the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1997 incorporated herein by reference.
MARKET AND TRADING INFORMATION
There is no established trading market for the shares of 5% Preferred
Stock. The New Preferred Stock will be a new issue of securities with no
established trading market. The Company has been advised by the Dealer Manager
that it intends to make a market in the New Preferred Stock but is not obligated
to do so and may discontinue marketmaking at any time without notice. No
assurance can be given as to the liquidity of the trading market for the shares
of New Preferred Stock. The trading market for the shares of 5% Preferred Stock
generally has not been liquid.
Until the Exchange Offer is completed, rules of the Commission may limit
the ability of the Dealer Manager to bid for and purchase the New Preferred
Stock and the Common Stock. As an exception to these rules, the Dealer Manager
is permitted to engage in certain transactions that stabilize the price of the
New Preferred Stock and the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the New
Preferred Stock and the Common Stock.
In general, purchases of a security for the purpose of stabilization could
cause the price of the security to be higher than it might be in the absence of
such purchases.
The Dealer Manager 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 Dealer Manager 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 the Dealer Manager makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the New Preferred Stock and the Common
Stock. In addition, neither the Company nor the Dealer
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Manager makes any representation that the Dealer Manager will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
THE PROPOSED AMENDMENT
The Certificate of Designations, as currently in effect, provides that the
Company is authorized to redeem the shares of 5% Preferred Stock, in whole but
not in part, upon a registered underwritten public offering in which the Company
sells Common Stock for net cash proceeds to the Company in an amount not less
than $100 million prior to October 15, 1997.
The Company is soliciting the consent of its stockholders, including the
holders of the shares of 5% Preferred Stock, on the Record Date to the Proposed
Amendment to the Certificate of Designations (i) to allow the Company to redeem
the shares of 5% Preferred Stock (to the extent not previously converted), in
whole or in part, upon the sale of any equity or debt securities in one or more
offerings occurring after the date of the initial issuance of shares of 5%
Preferred Stock and on or prior to December 30, 1997 for gross proceeds in an
aggregate cash amount of not less than $100 million and (ii) to amend certain of
the redemption provisions relating to the requirements for the delivery of a
notice of redemption in connection therewith. The Proposed Amendment does not
affect any terms or rights of the Common Stock.
If the Proposed Amendment is approved by the Company's stockholders, the
Company will file a Certificate of Amendment to the Certificate of Designations
with the Secretary of State of the State of Delaware as promptly as practicable
after it obtains the Requisite Consents and will take any other action necessary
to effect the Proposed Amendment.
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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 received one of two licenses from the FCC
to build, launch and operate a national satellite radio broadcast system. The
Company has recently 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 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 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 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 percent 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 will cover the entire
continental United States enabling listeners to always 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 commence 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
CD Radio proposes FCC create satellite radio service and files license application
1991: Stationary service simulation conducted
Nationwide focus groups conducted
1992: Satellite radio spectrum allocated at WARC-92
Radio manufacturer discussions conducted
1993: Satellite contract with Loral executed
Launch slots with Arianespace reserved
Additional nationwide focus groups conducted
Miniature satellite dish antenna developed
1994: Initial public offering of Common Stock completed
Mobile service simulation conducted
1995: Loral satellite design completed
Orbital slot registrations filed
1996: Radio card designed
1997: CD Radio wins auction for FCC License
Raised $135 million of 5% Preferred Stock
Satellite construction commenced
Radio manufacturer memoranda of understanding executed
Arranged $105 million AEF Vendor Financing
Sale of $25 million of Common Stock to Loral Space completed
Award of FCC License
1998: Radio card manufacturer to be selected
Non-music channel content providers to be selected
Assembly of music library to continue
Terrestrial repeating transmitter build-out to begin
1999: Construction of National Broadcast Studio to be completed
Commercial production of radio cards to begin
Satellite launches to be completed
Commercial operations to begin
</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 area. 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 recently began acquiring selected recordings for its
music library.
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
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proceedings. The Company believes that it will be able to negotiate satisfactory
royalty arrangements 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.
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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 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 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.
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.
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,
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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 August 8, 1997, 84
of 89 Arianespace launches (approximately 94%) have been completed successfully
since May 1984. See 'Risk Factors -- Dependence upon Satellites,' 'Risk
Factors -- Dependence upon Satellite and Launch Contractors' and 'Risk
Factors -- Satellite Launch Risks.' However, the Ariane 5, the particular launch
vehicle being planned for the launch of the Company's satellites, has had only
one launch, which was a failure, and is untested in flight. The next launch of
the Ariane 5 currently is planned for October 1997. There is no assurance that
Arianespace's launches of the Company's satellites will be successful. If the
second and third qualification flights of the Ariane 5 launch vehicle result in
a failure, or if for any reason there have not been at least two successful
Ariane 5 launches prior to each of Company's scheduled launches, or if
Arianespace postpones one of Company's launches for more than six months due to
a delay in the development of the Ariane 5 program, then, under the terms of the
Arianespace Launch Contract, the Company has the right to require Arianespace to
negotiate in good faith an amendment to the Arianespace Launch Contract to
provide for launches using the Ariane 4 launch vehicle, with launch dates on the
first available Ariane 4 launch opportunities after the scheduled launch dates,
unless the Company agrees to earlier launch dates.
Assuming use of an Ariane 5 launch vehicle, if a Company satellite is lost
or destroyed during launch, or if, due to an anomaly occurring during launch
caused by the launch vehicle or a co-passenger satellite, a Company satellite
loses more than 50% of its operational capacity, Arianespace has agreed to
perform a replacement launch at no cost. If, under the same circumstances, the
Company satellite loses more than 20% but not more than 50% of its operational
capacity, Arianespace is required to pay Company an amount based on the percent
of lost capacity. If the Company purchases launch insurance on the commercial
market, these percentages will be amended to match those contained in the
insurance policy. If, following launch, a satellite should fail for any reason,
including reasons unrelated to the launch, within 27 months after launch, the
Company is entitled to purchase at the then applicable price a replacement
launch from Arianespace with a one-month launch slot that falls within ten
months of the request for the replacement launch.
The Company will rely upon Arianespace for the timely launch of the
satellites. Failure of Arianespace to launch the satellites in a timely manner
could materially adversely affect the Company's business. The Arianespace Launch
Contract entitles Arianespace to postpone either of Company's launches for a
variety of reasons, including technical problems, lack of co- passenger(s) for
the Company's launch, the need to conduct a replacement launch for another
customer, a launch of a scientific satellite whose mission may be degraded by
delay, or a launch of another customer's satellite whose launch was postponed.
Although the Arianespace Launch Contract provides liquidated damages for delay,
depending on the length of the delay, and entitles the Company to terminate the
agreement for delay exceeding 12 months, there can be no assurance that these
remedies will adequately mitigate any damage to the Company's business caused by
launch delays.
Under the terms of the Arianespace Launch Contract, the Company and
Arianespace each agree to bear any damage to property or bodily injury that it
or its associates may sustain caused by a launch or satellite failure.
Arianespace is required to take out launch and in-orbit insurance policies to
protect itself and the Company against liability for losses that third parties
may sustain caused by a launch vehicle or any satellite on the launch vehicle,
and to indemnify the Company against any such losses that exceed the limits of
the insurance policy.
Arianespace has assisted the Company in securing financing for the launch
service prices through its subsidiary, AEF. The Company and AEF have entered
into the AEF Agreements, which govern the provisions of such financing. See
'Description of Certain Indebtedness -- Vendor Financing.'
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
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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 one percent 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
consumers will be able to receive CD Radio in a vehicle that has a satellite
dish antenna attached to it
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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 enable 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 can design an interoperable receiver, but there can be
no assurance that this effort will be successful or result in a commercially
feasible receiver.
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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 area. 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.
The Company recently began purchasing collections of recordings for its music
library.
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 in the New York
area 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 a Lincoln Mark VIII 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 successful bidder for 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, was the other successful bidder for an FCC
License. AMRC, in which WorldSpace, Inc. (a company that plans to provide
satellite radio service outside of the United States) has a 20 percent interest,
and AMSC, which is owned in part by the Hughes Electronics Corporation
subsidiary of General Motors Corporation, have financial, management and
technical resources that greatly exceed those of the Company. In addition, the
FCC could grant new licenses which would enable further competition to broadcast
satellite radio. Although successful bidders for
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such new licenses 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 on various types of
satellite radio technology. There can be no assurance, however, that any U.S.
patent issued to the Company will not be circumvented or infringed by others, or
that if challenged would be held to be valid. The Company has filed patent
applications covering CD Radio system technology in Argentina, Australia,
Brazil, Canada, China, France, Germany, India, Italy, Japan, South Korea,
Mexico, the Netherlands, Spain, Switzerland and the United Kingdom, 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 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.
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. After payment of the full amount
by the Company, the FCC's International Bureau issued the FCC License to the
Company on October 10, 1997. Although the FCC License is effective immediately,
it is subject to reconsideration at
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the International Bureau, and review by the full Commission. Thereafter, any
party may appeal the decision to the U.S. Court of Appeals. The Company cannot
predict the ultimate outcome of any such proceedings.
Pursuant to the FCC Licensing Rules, the Company is required to meet
certain progress milestones. Licensees are required to begin satellite
construction within one year of the grant of the FCC License; to launch and
begin operating their first satellites within four years; and to begin operating
their entire system within six years. The IB Order states that failure to meet
those milestones will render the FCC License null and void. On May 6, 1997, the
Company notified the FCC that it had begun construction on the first of its
satellites. On March 27, 1997, a third party requested reconsideration of the
FCC Licensing Rules, seeking, among other things, that the time period allotted
for these milestones be shortened. The Company cannot predict the outcome of
this petition.
The term of the FCC License for each satellite is eight years, commencing
from the time each satellite is declared operational after having been inserted
into orbit. Upon the expiration of the term with respect to each satellite, the
Company will be required to apply for a renewal of the relevant FCC License.
Although the Company anticipates that, absent significant misconduct on the part
of the Company, the FCC Licenses will be renewed in due course to permit
operation of the satellites for their useful lives, and that a license would be
granted for any replacement satellites, there can be no assurance of such
renewal or grant.
Satellite orbit locations are registered internationally for each country.
To the Company's knowledge, no other nations in the Western Hemisphere are
seeking to use the S-band for satellite radio, and the Company does not
anticipate difficulty in obtaining international registration, or renewing or
extending such registrations. There can be no assurance, however, that such
registrations will be obtained.
The spectrum allocated for satellite radio is used in Canada and Mexico for
terrestrial microwave links, mobile telemetry, and other purposes. The United
States government must coordinate the United States' use of this spectrum with
the Canadian and Mexican governments before any United States satellite may
become operational. The Company has performed analyses which show that its
proposed use will not cause undue interference to most Canadian stations and can
be coordinated with others by various techniques. The FCC Licensing Rules
require that the licensees successfully complete detailed frequency coordination
with existing operations in Canada and Mexico, and the IB Order conditions the
FCC License on such coordination. There can be no assurance that the
licensees will be able to coordinate the use of this spectrum with Canadian or
Mexican operators or will be able to do so in a timely manner.
In order to operate its satellites, the Company also will have to obtain a
license from the FCC to operate its uplink facility. Normally, such approval is
sought after issuance of the FCC License. Although there can be no assurances
that such licenses will be granted, if the Company obtains the FCC License, the
Company does not expect difficulties in obtaining a feeder link frequency and
ground station approval in the ordinary course.
In the future any assignments or transfers of control of the FCC License
must be approved by the FCC. There can be no assurance that the FCC would
approve any such transfer or assignment.
The CD Radio system is designed to permit CD Radio to be received by
motorists in all outdoor locations where the vehicle has an unobstructed
line-of-sight with one of the Company's satellites. In certain areas with high
concentrations of tall buildings, such as urban cores, or in tunnels, signals
from both satellites will be blocked and reception will be adversely affected.
In such cases, the Company plans to install terrestrial repeating transmitters
to broadcast CD Radio. The FCC has not yet established rules governing the
application procedure for obtaining authorizations to construct and operate
terrestrial repeating transmitters. A rule making 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.
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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
action is subject to being revisited in a future proceeding. As a private
carrier, the Company is free to set its own prices and serve customers according
to its own business judgment, without economic regulation.
The other successful applicant for 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
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 ten employees, of whom three were
involved in technology development, three in business development and four in
administration. In addition, the Company relies upon a number of consultants and
other advisors. During 1997, the Company expects to increase the number of its
employees to approximately 20. By commencement of operations, the Company
expects to have approximately 100 employees. The extent and timing of the
increase in staffing will depend on the availability of qualified personnel and
other developments in the Company's business. None of the Company's employees is
represented by a labor union, and the Company believes that its relationship
with its employees is good.
PROPERTY
The Company's executive offices are located at Sixth Floor, 1001 22nd
Street, N.W., Washington, D.C. 20037, and are leased pursuant to a lease
agreement that will expire on October 31, 1998.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the directors,
executive officers and certain key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
David Margolese...................... 39 Chairman, Chief Executive Officer and Director
Robert D. Briskman................... 64 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................. 46 Director and Secretary
Peter K. Pitsch...................... 45 Director
Jack Z. Rubinstein................... 48 Director
Ralph V. Whitworth................... 41 Director
</TABLE>
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers are elected by 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, there 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 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
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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.
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,
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D.C.-based consulting firm. Mr. Whitworth was President of United Shareholders
Association, a shareholders' association, from its founding in 1986 to 1993.
From 1989 to 1992, he served as President of Development of United Thermal
Corporation, the owner of the district heating systems for the cities of
Baltimore, Philadelphia, Boston and St. Louis.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS
The following table sets forth the compensation for services rendered
during the three-year period ending December 31, 1996 for the executive officers
of the Company whose 1996 salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- -------------------------------------------------- ------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
David Margolese .................................. 1996 $ 95,833 $ -- $ -- 400,000
Chairman of the Board and Chief Executive 1995 100,000 -- -- --
Officer 1994 122,000(1) -- 26,052(2) 300,000
Robert D. Briskman ............................... 1996 106,249 20,000 190,938 60,000
Executive Vice President, Engineering and 1995 100,000 -- 1,340 --
Operations 1994 122,000 -- -- 192,500
</TABLE>
- ------------
(1) In October 1994, Mr. Margolese waived his base salary payable for the three
month period ended December 31, 1994.
(2) The Company reimbursed Mr. Margolese for the following expenses incurred in
establishing residency in the United States: $18,521 for tax advice, $2,311
for moving expenses and $5,220 for real estate commissions.
DIRECTORS
Commencing in 1994, directors of the Company who are not full time
employees of the Company were entitled to receive a director's fee of $20,000
per year for serving on the Company's Board of Directors. In June 1994, all
directors entitled to receive directors' fees agreed to forego any payments for
their services as directors of the Company. Pursuant to the Company's 1994
Directors' Nonqualified Stock Option Plan (the 'Directors' Plan'), each director
who is not a full-time employee of the Company is entitled to an option to
purchase 15,000 shares of Common Stock upon becoming a director (or upon the
effective date of the plan in the case of non-employee directors who become
directors prior to the effective date) and to an automatic annual grant of an
option to purchase 10,000 shares of Common Stock. The exercise price for annual
grants is fair market value of the Company's Common Stock on the date of grant.
Prior to the implementation of the Directors' Plan, the Company from time to
time granted options to certain non-employee directors. See ' -- 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.
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.
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<PAGE>
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 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
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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 commencement and 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 noncompetition 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's 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 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) 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.
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,
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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 more
readily comply 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.
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
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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 Mr. Briskman was still employed by the Company.
The following table sets forth certain information for the fiscal year
ended December 31, 1996, with respect to options granted to the individuals
named in the Summary Compensation table above.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR STOCK TERM
---------------------------------------- -----------------------
PERCENT OF
TOTAL
OPTIONS EXERCISE
NUMBER OF GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- -------------------------------------- ---------- --------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David Margolese....................... 400,000 87% $8.5625 4/24/06 $2,398,624 $5,848,148
Robert Briskman....................... 60,000 13 8.5625 4/24/06 359,794 877,222
</TABLE>
The following table sets forth certain information with respect to the
number of shares covered by both exercisable and unexercisable stock options
held by the individuals named in the Summary Compensation table above as of the
fiscal year ended December 31, 1996. Also reported are values for 'in-the-money'
stock options that represent the positive spread between the respective exercise
prices of outstanding stock options and the fair market value of the Common
Stock as of December 31, 1996 ($4.125 per share).
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR END YEAR END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ----------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
David Margolese........................................ 0 $ 0 300,000/400,000 $0/$0
Robert Briskman........................................ 80,000 202,500 132,500/60,000 $414,063/$0
</TABLE>
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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 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. In addition, the
Company's Amended and Restated By-Laws provide that the Company shall indemnify
all directors and officers and may indemnify employees and certain other persons
to the full extent and in the manner permitted by Section 145 of the Delaware
General Corporation Law, as amended from time to time. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and, therefore, is unenforceable.
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) all
directors and 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 footnotes to the 5% Preferred Stock table
set forth information concerning the number of shares of Common Stock issuable
upon conversion of shares of the Company's 5% Preferred Stock to certain holders
of the 5% Preferred Stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES OF TOTAL OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON STOCK(1) OWNED OWNED(2)
- ---------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Directors, Executive Officers and 5% Stockholders of Common Stock
Darlene Friedland(3) ................................................................... 2,734,500 21.7%
110 Wolseley Road
Point Piper 2027
Sydney, Australia
Loral Space & Communications Ltd.(4) ................................................... 1,905,488 15.2
600 Third Avenue
New York, New York 10017
David Margolese(5) ..................................................................... 1,900,000 15.1
c/o CD Radio Inc.
Sixth Floor
1001 22nd Street, N.W.
Washington, D.C. 20037
Robertson, Stephens & Company LLC, et al.(6) ........................................... 1,467,000 11.7
555 California Street, Suite 2600
San Francisco, CA 94104
</TABLE>
(table continued on next page)
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<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES OF TOTAL OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON STOCK(1) OWNED OWNED(2)
- ---------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
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 S. Capobianco(12)................................................................ 0 *
Keno V. Thomas(13)...................................................................... 0 *
Andrew J. Greenebaum(14)................................................................ 59,000 *
All Executive Officers and Directors as a Group(15) (9 persons)......................... 2,458,500 19.5
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES OF TOTAL OF
PREFERRED PREFERRED
STOCK STOCK
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OF PREFERRED STOCK(16) OWNED OWNED(2)
- ---------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Directors, Executive Officers and 5% Holders of 5% Preferred Stock
Everest Capital International, Ltd.(17) ................................................ 1,137,155 21.8
c/o Morgan Stanley & Co.
One Pierpont Plaza, 10th Floor
Brooklyn, NY 11201
Continental Casualty Company(18) ....................................................... 1,114,630 21.3
c/o Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2477
Mackay-Shields Financial Corporation(19) ............................................... 678,350 13.0
9 West 57th Street
New York, NY 10019
Grace Brothers, Ltd.(20) ............................................................... 450,536 8.6
Bradford Whitmore
1560 Sherman Avenue, Suite 900
Evanston, IL 60201
Everest Capital Fund, L.P.(21) ......................................................... 427,020 8.2
c/o Morgan Stanley & Co.
One Pierpont Plaza, 10th Floor
Brooklyn, NY 11201
Jess M. Ravich(22) ..................................................................... 408,500 7.8
c/o Libra Investments, Inc.
11766 Wilshire Blvd.
Suite 870
Los Angeles, CA 90025
All Executive Officers and Directors
as a Group(23) (9 persons)............................................................ 0 *
</TABLE>
- ------------
* Less than 1%
(footnotes continued on next page)
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(footnotes continued from previous page)
(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 date of the Stock Offering or the Notes
Offering 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) Represents 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.
(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 857,000 shares issuable
pursuant to options that are not exercisable within 60 days.
(16) This table is based upon information supplied by directors, officers and
principal stockholders. Percentage of ownership is based upon 5,222,608
shares of 5% Preferred Stock outstanding on September 30, 1997. The
information concerning the number of shares of Common Stock issuable upon
conversion of shares of 5% Preferred Stock is 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 all dividends on shares of the 5%
Preferred Stock are paid, in lieu of cash, in additional shares of 5%
Preferred Stock. (See 'Description of Capital Stock -- 5% Preferred Stock'
for definitions of capitalized terms.) 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
(footnotes continued on next page)
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<PAGE>
(footnotes continued from previous page)
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. 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% Preferred Stock.'
(17) Equivalent to 2,194,368 shares of Common Stock if converted on September
30, 1997. 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 execution of a certain Commitment Term Sheet
between such Funds and the Company, the Everest Funds and their
affiliates (i) shall not acquire Common Stock, including by means of
conversion of the 5% Preferred Stock or exercise of any other right, if,
upon such acquisition, 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 one 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) Held on its own behalf and on behalf of its Designated A/C High Yield Fund.
Equivalent to 2,150,881 shares of Common Stock if converted on September
30, 1997.
(19) Held by The Mainstay Funds, on behalf of its High Yield Corporate Bond Fund
Series (the 'Fund'), on behalf of which Mackay-Shields Financial
Corporation acts as financial advisor (the 'Advisor'). The Fund and the
Advisor share investment and voting power with respect to such shares.
Equivalent to 1,309,012 shares of Common Stock if converted on September
30, 1997. 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 two days
prior notice to the Company. If it waives this restriction upon proper
notice.
(20) Equivalent to 869,399 shares of Common Stock if converted on September 30,
1997. 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.
(21) Equivalent to 824,020 shares of Common Stock if converted on September 30,
1997. Does not include shares of Common Stock issuable pursuant to warrants
issuable to Everest Capital Master Fund, L.P., an affiliate of Everest
Capital Fund, L.P., 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 also (17) above.
(22) Represents 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 to The Ravich Revocable
Trust of 1989 (the 'Ravich Trust'). Jess M. Ravich is the Chairman, Chief
Executive Officer and 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.
Equivalent to 788,282 shares of Common Stock if converted on September 30,
1997. 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 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.
(23) 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
Schedule 13E-4.
The Voting Trust Agreement provides for the establishment of a trust (the
'Trust') into which shall be deposited (i) all of the shares of Common Stock
owned by Mrs. Friedland on the closing date of the
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first to occur of the Exchange Offer and the Stock Offering and (ii) any shares
of Common Stock acquired by Mrs. Friedland, her spouse Mr. Robert Friedland, any
member of either of their immediate families or any entity directly or
indirectly controlled by Mrs. Friedland, her spouse or any member of either of
their immediate families (the 'Friedland Affiliates') between the date shares
are initially deposited and the termination of the Trust. The voting trust will
terminate on the fifth anniversary of the initial deposit of shares into the
Trust.
The Voting Trust Agreement does not restrict the ability of Mrs. Friedland
or any of the Friedland Affiliates to sell, assign, transfer or pledge any of
the shares deposited into the Trust, nor does it prohibit Mrs. Friedland or the
Friedland Affiliates from purchasing additional shares of Common Stock, provided
those shares become subject to the Trust, as described above.
Under the Voting Trust Agreement, the trustee will have the power to vote
shares held in the Trust in relation to any matter upon which the holders of
such stock would have a right to vote, including without limitation the election
of directors. For so long as David Margolese remains trustee of the Trust, he
may exercise such voting rights in his discretion. Any successor trustee or
trustees of the Trust must vote as follows: (i) on the election of directors,
the trustee(s) must vote the entire number of shares held by the Trust, with the
number of shares voted for each director (or nominee for director) determined by
multiplying the total number of votes held by the Trust by a fraction, the
numerator of which is the number of votes cast for such person by other
stockholders of the Company and the denominator of which is the sum of the total
number of votes represented by all shares casting any votes in the election of
directors; (ii) if the matter under Delaware law or the Certificate of
Incorporation or the Bylaws of the Company requires at least an absolute
majority of all outstanding shares of common stock of the Company in order to be
approved, the trustee(s) must vote all of the shares in the Trust in the same
manner as the majority of all votes that are cast for or against the matter by
all other stockholders of the Company; and (iii) on all other matters, including
without limitation any amendment of the Voting Trust Agreement for which a
stockholder vote is required, the trustee(s) must vote all of the shares in the
Trust for or against the matter in the same manner as all votes that are cast
for or against the matter by all other stockholders of the Company.
The Voting Trust Agreement may not be amended without the prior written
consent of the Company, acting by unanimous vote of the Board of Directors, and
approval of the Company's stockholders, acting by the affirmative vote of
two-thirds of the total voting power of the Company, except in certain limited
circumstances where amendments to the Voting Trust Agreement are required to
comply with applicable law.
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DESCRIPTION OF NEW PREFERRED STOCK
GENERAL
The following description of the New Preferred Stock set forth herein does
not purport to be complete and is subject to, and qualified in its entirety by,
the provisions of the Company's Amended and Restated Certificate of
Incorporation filed as an exhibit to the Registration Statement, and the
Certificate of Designations relating to the New Preferred Stock, the form of
which is filed as an exhibit to the Registration Statement and which will be
filed with the Secretary of State of the State of Delaware prior to the issuance
of the New Preferred Stock.
RANK
The New Preferred Stock, with respect to dividend rights and rights upon
liquidation, winding up or dissolution, ranks (i) senior and prior to the Common
Stock and to any other stock issued by the Company designated as junior to the
New Preferred Stock, (ii) junior to the 5% Preferred Stock and (iii) on a parity
with any class or series of stock of the Company, the terms of which do not
designate such class or series as either junior or senior to the New Preferred
Stock.
DIVIDENDS
The annual dividend rate per share of the New Preferred Stock will be an
amount equal to 10.5% of the sum of (x) the liquidation preference of the New
Preferred Stock and (y) all accrued and unpaid dividends, if any, whether or not
declared, from the date of issuance of the shares of New Preferred Stock to the
applicable dividend payment date. Dividends on the shares of New 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 New Preferred
Stock will be paid on the redemption date of any share of New Preferred Stock
redeemed by the Company, on the purchase date of any share of New Preferred
Stock purchased by the Company pursuant to an Offer to Purchase (as defined
herein) or on the conversion date of any share of New 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 New Preferred Stock
that are converted by the holders thereof prior to the First Scheduled Dividend
Payment Date, unless such shares of New Preferred Stock are converted on or
prior to a redemption date by holders thereof electing to convert such shares
after having received a notice of redemption for such shares. Dividends may be
paid in cash, shares of Common Stock or any combination thereof, at the option
of the Company. Common Stock issued to pay dividends will be valued at the
average closing price of the Common Stock as reported in The Wall Street Journal
for the 20 consecutive trading days immediately preceding the date of such
payment. Dividends with respect to any share of New Preferred Stock will
accumulate from November 15, 1997.
If and so long as any full cumulative dividends payable on the shares of
New 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 New Preferred Stock in payment of dividends.
Dividends on the shares of New Preferred Stock are payable to the holders
of record thereof as they appear on the stock register of the Company on such
record date, not more than 40 days nor fewer than 10 days preceding the payment
date thereof, as will be fixed by the Board of Directors. Dividends on account
of arrears for any past dividend periods may be declared and paid at any time,
without reference to any Dividend Payment Date, to the holders of record on such
date, not exceeding 40 days nor less than 10 days preceding the payment date
thereof, as may be fixed by the Board of Directors. Dividends paid in cash will
be paid to each holder of record in United States dollars by check mailed to
such holder at its address appearing on the books of the Company. Any shares of
Common Stock issued, at the option of the Company, to pay any dividends on
shares of New Preferred Stock will
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thereupon be duly authorized, validly issued, fully paid and non-assessable. No
fractional shares of Common Stock will be issued as dividends.
REDEMPTION
Except as described below, the shares of New 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 New Preferred Stock, in whole or in part, at any time at a redemption price
of 100% of the Liquidation Preference of the shares of New 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
New 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................................................................... 102.63%
2004................................................................... 101.81%
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 New 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
'Debt Offering'), the Company may redeem up to 50% of the outstanding shares of
New Preferred Stock at a redemption price of 100% of the Liquidation Preference
of the shares of New 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 New Preferred Stock at a redemption price of 100% of
the Liquidation Preference of the shares of New 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 New Preferred Stock upon
redemption which is allocable to the Liquidation Preference of the shares of New
Preferred Stock shall be paid in cash and the amount of any accrued and unpaid
dividends to be paid on the shares of New Preferred Stock redeemed shall be paid
in cash, shares of Common Stock or any combination thereof at the option of the
Company.
The Company is required to give notice of any proposed redemption of shares
of New Preferred Stock upon not less than 15 days nor more than 40 days (such
date to be determined by the Company, the 'Redemption Record Date') prior to the
date of redemption, to the holders of record on the Redemption Record Date of
the shares to be redeemed at their addresses appearing on the books of the
Company. Each such notice will specify the shares of New Preferred Stock called
for redemption, the redemption price and the time, place and date of redemption.
Neither failure to mail such notice, nor any defect therein or in the mailing
thereof, to any particular holder shall affect the sufficiency of the notice or
the validity of the proceedings for redemption with respect to the other
holders. On or after the redemption date, each holder of shares of New Preferred
Stock being redeemed will present and surrender such holder's certificate or
certificates evidencing such shares to the Company at the place set forth in the
redemption notice, whereupon the Company will cancel such shares and will pay to
such holders the redemption price for such surrendered shares, plus accrued and
unpaid dividends, if any, to the redemption date. If fewer than all the shares
of New Preferred Stock represented by any holder's certificate are redeemed, the
Company will issue a new certificate representing the unredeemed shares of New
Preferred Stock.
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In the event fewer than all of the outstanding shares of New Preferred
Stock are being redeemed, the shares to be redeemed will be selected pro rata or
by lot or in such other manner as the Board of Directors of the Company may
determine, provided that only whole shares shall be selected for redemption.
Any shares of New Preferred Stock which have been called for redemption may
be converted into shares of Common Stock before being redeemed provided that the
holder thereof gives written notice to the Company, prior to the close of
business on the business day immediately preceding the date of redemption, of
such holder's election to convert such shares of New Preferred Stock into shares
of Common Stock, together with the certificate or certificates evidencing such
shares, duly endorsed or assigned to the Company, and any necessary transfer tax
payment as described below. See ' -- Conversion.'
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 New
Preferred Stock at a purchase price (the 'Change in Control Purchase Price') in
cash equal to 101% of their Liquidation Preference, plus all accrued and unpaid
dividends (paid in cash), if any, whether or not declared, to the date such
shares are purchased (the 'Change in Control Purchase Date'). A 'Change in
Control' is defined as the occurrence of any of the following events: (a) any
'person' or 'group' (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), other than Loral Space, Arianespace or David Margolese is or
becomes the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have 'beneficial
ownership' of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 40% of the total outstanding voting stock
of the Company; (b) the Company consolidates with, or merges with or into
another person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates with
or merges with or into the Company, in any such event, pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than, at all times when
the Notes are outstanding, those transactions that are not deemed a 'Change of
Control' under the terms of the Indenture; (c) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election to such
Board of Directors, or whose nomination for election by the stockholders of the
Company, was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or (d) the Company is liquidated or dissolved or a special resolution is passed
by the shareholders of the Company approving the plan of liquidation or
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.
Within 30 days following any Change in Control, the Company must give
written notice of such Change in Control to each holder of shares of New
Preferred Stock by first-class mail, postage prepaid, at his address appearing
in the stock register of the Company, stating, among other things, the purchase
price and that the purchase date shall be a business day no earlier than 30 days
nor later than 60 days from the date such notice is mailed, or such later date
as is necessary to comply with requirements under the Exchange Act; that any
shares of New Preferred Stock not tendered will continue to accumulate
dividends; that, unless the Company defaults in the payment of the purchase
price, any shares of New Preferred Stock accepted for payment pursuant to the
Offer to Purchase shall cease to accumulate dividends after the Change in
Control Purchase Date; and certain other procedures that a holder of shares of
New Preferred Stock must follow to accept an Offer to Purchase or to withdraw
such acceptance.
If an Offer to Purchase is made, there can be no assurance that the Company
will have available funds sufficient to pay the Change in Control Purchase Price
for any or all of the shares of New Preferred Stock that might be delivered by
holders thereof seeking to accept the Offer to Purchase and,
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accordingly, none of the holders of the shares of New Preferred Stock may
receive the Change in Control Purchase Price for their New Preferred Stock in
the event of a Change in Control.
The existence of a holder's right to require the Company to repurchase such
holder's New Preferred Stock upon a Change in Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change in
Control. Furthermore, the possibility that a third party would be deterred from
acquiring the Company may have an adverse effect on the market price of the
Company's Common Stock.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with an Offer to Purchase.
CONVERSION
Each share of New 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 New
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 New 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 New 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 New Preferred Stock will be
entitled to receive all accrued and unpaid dividends upon the shares of New
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 New Preferred Stock that are converted by the holders
thereof prior to the First Scheduled Dividend Payment Date, unless such shares
of New 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.
To convert shares of New Preferred Stock into Common Stock, the registered
holder of such shares of New Preferred Stock must give written notice to the
Company that it elects to convert such shares and surrender at the office of the
Transfer Agent, or at such other office or offices, if any, as the Board of
Directors may designate, the certificate or certificates therefor, duly endorsed
or assigned to the Company or in blank, together with any payment for stamp or
similar taxes that may be required to be paid by the holder, as described below.
Shares of New Preferred Stock will be deemed to have been converted
immediately prior to the close of business on the day of the surrender of such
shares for conversion, and the person or persons entitled to receive the Common
Stock issuable upon such conversion will be treated for all purposes as the
record holder or holders of such Common Stock at such time. As promptly as
practicable on or after the conversion date, the Company will issue and deliver
a certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion, together with any payment in lieu of issuing any
fractional shares of Common Stock, to the person or persons entitled to receive
the same. In case shares of New Preferred Stock are called for redemption, the
right to convert such shares will terminate at the close of business on the
business day immediately preceding the redemption date, unless default shall be
made in payment of the redemption price.
The Conversion Price for shares of New 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
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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.
The Company will pay any and all stamp or other similar taxes that may be
payable in respect of the issue or delivery of shares of Common Stock upon
conversion of shares of New Preferred Stock or the issue or delivery of shares
of Series D Preferred Stock upon an Automatic Exchange of shares of New
Preferred Stock. The Company will not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of New
Preferred Stock so converted or exchanged were registered, and no such issue or
delivery will be made unless and until the person requesting such issue has paid
to the Company the amount of any such tax, or has established to the
satisfaction of the Company that such tax has been paid. All shares of Common
Stock issued upon conversion of shares of New Preferred Stock shall be validly
issued, fully paid and nonassessable.
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 New
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 New Preferred Stock held by any holder.
The 'Automatic Exchange Rate Liquidation Preference' for the shares of New
Preferred Stock shall be $69.6145 per share (the amount determined by
multiplying (x) the Liquidation Preference for the New Preferred Stock, (without
accrued and unpaid dividends thereon) by (y) 0.696145.) The Company will pay
cash to holders of New Preferred Stock in lieu of issuing fractional shares of
Series D Preferred Stock in the Automatic Exchange. Although holders of New
Preferred Stock will not be entitled to receive accrued dividends thereon on or
after the Automatic Exchange Date, shares of Series D Preferred Stock will be
issued with an initial liquidation preference equal to $102.50. For a
description of the terms, preferences and rights of the Series D Preferred
Stock, see 'Description of 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 New
Preferred Stock at their addresses appearing on the books of the Company that
the shares of New 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 New Preferred Stock
have been automatically exchanged and the place where the holders are to deliver
the certificates evidencing shares of New Preferred Stock in exchange for
certificates evidencing shares of Series D Preferred Stock. Thereafter, the
holders will surrender their certificates evidencing shares of New 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 New
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.
No fractional shares of Series D Preferred Stock will be issued upon the
Automatic Exchange and, in lieu thereof, the Company will pay a cash adjustment
to holders in respect of such fraction in an amount equal to the amount of
Automatic Exchange Rate Liquidation Preference represented by shares of New
Preferred Stock held by a holder which are not exchanged.
The Company will pay any documentary, stamp or similar issue or transfer
tax due on the issue of Series D Preferred Stock upon the Automatic Exchange.
The holders, however, will pay any such tax that may be due in the event that
any shares of the Series D Preferred Stock are issued in a name other than the
name of the record holder, as requested by such holder. All shares of Series D
Preferred Stock issued upon the Automatic Exchange will be validly issued, fully
paid and nonassessable.
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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 New Preferred Stock will have no voting rights. Consent of the
holders of a majority of the outstanding shares of New 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 New Preferred
Stock, (ii) the authorization or creation of, or the increase in authorized
amount of, any shares of any class or series of of equity securities that ranks
senior to or on a parity with the New 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 New 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 New 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 New 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 New Preferred Stock, voting as a class, will be entitled to elect (i)
one director in the event that there are seven or less 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 New Preferred Stock will be
entitled to one vote per share.
No consent of the holders of the New 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 New 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 New Preferred Stock upon liquidation, dissolution
or winding up of the Company, the holders of shares of New 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 New Preferred Stock equal to $100.00, plus accrued and
unpaid dividends on such share of New 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 New Preferred Stock or any capital stock of the Company
ranking on a par with the shares of New Preferred Stock, the holders of any
shares of capital stock of the Company ranking senior to the New Preferred Stock
and such parity stock (including the shares of 5% Preferred Stock in the event
not all shares of 5% Preferred Stock are exchanged or otherwise redeemed) 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 New Preferred Stock or any capital
stock ranking on a par with the shares of New 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.
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RESTRICTIONS ON TRANSFER
Subject to certain exceptions, the holders of New Preferred Stock and the
holders of New Preferred Stock who convert shares of New Preferred Stock into
shares of Common Stock ('Converted Stock') will not be permitted to sell, grant
any option to purchase or otherwise transfer or dispose of (collectively,
'Transfer') any New Preferred Stock or Converted Stock, as the case may be,
until the later to occur of (i) the 181st day following the Stock Offering or
(ii) the 181st day following consummation of the Exchange Offer (such later date
being herein referred to as the 'Lock-Up Expiration Date'); provided, however,
that if a holder is prevented by applicable law from owning assets subject to
such restrictions on Transfer, such restrictions shall be inapplicable to such
holder and the Company will have a right of first refusal with respect to all
shares of New Preferred Stock held by such holder that is exercisable for a
period of 90 days from the date an agreement to sell shares of New Preferred
Stock is reached with a potential buyer at any time on or prior to the Lock-Up
Expiration Date.
SINKING FUND; OTHER MATTERS
The New Preferred Stock will not be subject to any mandatory sinking fund
redemption. Holders of shares of New Preferred Stock will have no pre-emptive
rights. Shares of New Preferred Stock, when issued pursuant to the terms of the
Exchange Offer, will be fully paid and nonassessable.
TRANSFER AGENT
The transfer agent for the New Preferred Stock is Continental Stock
Transfer & Trust Company, New York, New York.
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DESCRIPTION OF SERIES D PREFERRED STOCK
GENERAL
The Series D Preferred Stock will be issued pursuant to a certificate of
designations (the 'Series D Certificate of Designations'). The provisions of the
Series D Preferred Stock are substantially similar to those of the 5% Preferred
Stock, except that certain milestones, deadlines and other reference dates
included in the certificate of designations for the 5% Preferred Stock are, due
to the passage of time, not applicable with respect to the Series D Preferred
Stock and are, thus, not included in the Series D Certificate of Designations.
The following description of the Series D Preferred Stock set forth herein
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of the Company's Amended and Restated Certificate of
Incorporation filed as an exhibit to the Registration Statement, and the Series
D Certificate of Designations, the form of which is filed as an exhibit to the
Registration Statement and which will be filed with the Secretary of State of
the State of Delaware prior to the issuance of the Series D Preferred Stock.
RANK
The Series D Preferred Stock, with respect to dividend rights and rights
upon liquidation, winding up or dissolution, ranks (i) senior and prior to the
Common Stock and to any other class or series of capital stock hereafter issued
by the Company and (ii) junior to the 5% Preferred Stock.
DIVIDENDS
Each share of the Series D Preferred Stock is entitled to receive dividends
at the rate of $5.00 per annum, payable semi-annually on April 15 and October 15
of each year, when and as declared by the Board of Directors, in preference and
priority to any payment of any dividends on the Common Stock or any other class
or series of stock of the Company (except dividends on the 5% Preferred Stock).
Such dividends shall accrue on any given share from the date of original
issuance of the Series D Preferred Stock and shall accrue from day to day
whether or not earned or declared, based on the actual days elapsed and a
360-day year of 12 30-day months. Any dividend payable on the Series D 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 of the Series D
Preferred Stock.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of the Series D Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Company to the holders of any other class or series of shares
(except holders of shares of 5% Preferred Stock), the amount of $102.50 per
share plus any accrued but unpaid dividends.
REDEMPTION
The Series D Preferred Stock may be redeemed in whole but not in part at a
redemption price equal to the sum of the liquidation preference for the Series D
Preferred Stock plus any Series D Cash Payments (as defined herein) by the
Company at any time, provided, however, that the Company may not exercise its
right of redemption unless the average closing price of the Common Stock as
reported in The Wall Street Journal for the twenty consecutive trading days
prior to the notice of redemption shall equal or exceed $18 per share (subject
to adjustment for stock dividends, stock splits and reverse stock splits).
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CONVERSION
The Series D 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 Series D Preferred Stock at any time to the extent that
approval of the FCC of the issuance of shares of Common Stock upon such
conversion is or would be required and has not been obtained. If such FCC
approval (other than with respect to a conversion resulting in a holder or group
of holders holding more than 50% of the voting securities of the Company) has
not been obtained, the Company is required, at the request of any holder of
Series D Preferred Stock, to repurchase the shares of Series D Preferred Stock
held by such holder at a purchase price per share equal to the sum of the
liquidation preference of the Series D Preferred Stock plus any Series D Cash
Payments due to such holder, divided by 0.72125 (the 'Series D Maximum Price').
The number of shares of Common Stock issuable upon conversion of the shares
of the Series D Preferred Stock will equal the liquidation preference of the
shares being converted plus any Series D Cash Payments divided by the
then-effective conversion price applicable to the Common Stock (as defined
below, the 'Series D Preferred Conversion Price').
The Company must make a cash payment in an amount per share equal to 3% of
the liquidation preference of the shares of Series D Preferred Stock per month
to each holder if the Company fails (i) to honor any request for conversion of
the Series D Preferred Stock as permitted by the terms and conditions of the
Series D Preferred Stock or (ii) to maintain the listing of the Common Stock on
the Nasdaq SmallCap Market, the Nasdaq National Market, the New York Stock
Exchange or the American Stock Exchange. 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 shares of Series D Preferred Stock, it must make a cash
payment per share equal to 3% of the liquidation preference of the Series D
Preferred Stock (proportionately reduced by the amount of shares that are so
authorized and reserved) per month to the holders of the shares of Series D
Preferred Stock. The cash payments referred to in this paragraph are,
collectively, 'Series D Cash Payments.'
'Series D Preferred Conversion Price' equals 0.72125 multiplied by the
lowest of (i) the average of the daily means between the low trading price of
the Common Stock and the closing price of the Common Stock for all the trading
days between October 15, 1997 and November 15, 1997, (ii) the average of the
daily means between the low trading price of the Common Stock and the closing
price of the Common Stock during the three consecutive trading days immediately
preceding the date of conversion and (iii) the weighted-average (based upon the
number of shares sold) of the actual selling price (but not less than the low
trading price on the date of such trade as reported on the principal market for
the Common Stock), at which the holder shall have sold shares of Common Stock
received or receivable upon conversion of the Series D Preferred Stock, reduced
by any trading commissions or underwriting spreads paid by such holder, as
certified to the Company by such holder and subject to the meeting of certain
notice requirements by such holder.
In the event that during any period of consecutive trading days provided
for above, the Company shall declare or pay any dividend on the Common Stock
payable in Common Stock or in rights to acquire Common Stock, or shall effect a
stock split or reverse stock split, or a combination, consolidation or
reclassification of the Common Stock, then the Series D Preferred Conversion
Price shall be proportionately decreased or increased, as appropriate, to give
effect to such event.
FORCED CONVERSION
After April 15, 2000, the Company may require the holders of the Series D
Preferred Stock to convert such shares into Common Stock at the then applicable
Series D Preferred Conversion Price and all Series D Cash Payments due on a date
specified in the notice of forced conversion. However, the Company will not have
the right to require such conversion if the Company has commenced bankruptcy
proceedings, has ceased operations or is in default for money borrowed in excess
of $50 million.
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REQUIRED REDEMPTION
The Company must reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series D Preferred Stock, at least such number of shares of
its Common Stock that is the greater of (i) ten 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 Series D Preferred Stock. If the
Company does not have sufficient shares of Common Stock reserved to effect the
conversion of all outstanding shares of Series D Preferred Stock, then at any
time at the request of any holder of shares of the Series D Preferred Stock, the
Company must purchase from such holder the number of shares of Series D
Preferred Stock equal to such holder's pro-rata share of the number of shares of
Series D 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
Series D Maximum Price.
In addition, if, prior to April 21, 1998, the FCC awards more than two
licenses (including any license awarded to the Company) permitting the licensee
to provide satellite digital audio radio services and more than two licensees
(including the Company) commence or announce an intention to commence satellite
digital audio radio services, then after issuance of the Series D Preferred
Stock, upon the request of the holders of more than one-third of the outstanding
shares of the Series D Preferred Stock, the Company must purchase one-half of
the shares of the Series D Preferred Stock held by each requesting shareholder
at the Series D Maximum Price.
If a Reorganization occurs or is proposed, each holder of the Series D
Preferred Stock may require the Company to redeem the Series D Preferred Stock
at the Series D Maximum Price. A 'Reorganization' is defined with respect to the
Series D Preferred Stock 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 to any other
person. If the holder of Series D Preferred Stock chooses not to require the
Company to redeem such holder's shares, the shares will be convertible into the
number of shares of stock or other securities or property (including cash) to
which a holder of the number of shares of Common Stock deliverable upon
conversion of such share of Series D Preferred Stock not so redeemed would have
been entitled upon the Reorganization.
VOTING RIGHTS
The Company shall not undertake the following actions without the consent
of the holders of a majority of the Series D Preferred Stock: (i) modify its
Certificate of Incorporation or Bylaws so as to amend or change any of the
rights, preferences or privileges of the Series D Preferred Stock; or (ii)
purchase or otherwise acquire for value any Common Stock or other equity
security of the Company or any non-wholly-owned subsidiary thereof not held by
the Company or any wholly-owned subsidiary while there exists any arrearage in
the payment of cumulative dividends on the Series D Preferred Stock or any
Series D Cash Payments due or the liquidation preference of the Series D
Preferred Stock exceeds $102.50. The Company shall not, in connection with a
repurchase of any shares of Series D Preferred Stock undertake any of the
following actions without the consent of all holders of the Series D Preferred
Stock: (i) reduce the amount of Series D Preferred Stock whose holders must
consent to an amendment or waiver, (ii) reduce the rate of, or change the time
for payment of, dividends on the Series D Preferred Stock or alter the
liquidation preference thereof or (iii) alter the conversion provisions with
respect to the Series D Preferred Stock.
Other than the consent rights described above, holders of the Series D
Preferred Stock have no voting rights.
ADDITIONAL FINANCINGS
The Series D Certificate of Designations prohibits the Corporation from
undertaking to conduct any debt or equity financing that is not either pari
passu or junior, in seniority, structure and maturity, to the Series D Preferred
Stock.
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ANTI-DILUTION
The Series D Preferred Stock is at all times subject to customary
anti-dilution adjustments for events such as stock splits, stock dividends,
reorganizations and certain mergers affecting the Common Stock.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR 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 for approximately $150 million
gross proceeds and will be unsecured obligations of the Company. 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 initial accreted value of the Notes with the net
proceeds of any public equity offerings 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 senior in
right of payment to all existing and future subordinated indebtedness of the
Company and pari passu in right of payment with all other existing and future
unsubordinated indebtedness of the Company. 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; 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 of 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.
VENDOR FINANCING
On July 22, 1997, the Company entered into the AEF Agreements with AEF to
finance approximately $105 million of the estimated $176 million price of the
launch services to be provided by Arianespace for the Company's two satellites.
Under the AEF Agreements, the Company is able to borrow funds to meet the
progress payments due to Arianespace for the construction of each launch vehicle
and other launch costs (the 'Tranche A Loans'). Interest on the Tranche A Loans
will be capitalized and will accrue at a rate of 3% per annum above the rate at
which dollar deposits are offered in the London interbank market for three
months or, during a certain time period following the Conversion Commitment Date
(defined below), one month (the 'Interest Basis'). Unless the Company satisfies
the conditions for conversion of the Tranche A Loans to long-term loans, the
Company will be
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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 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.
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If Conversion occurs, it is anticipated that the Tranche B Loans will be
amortized as set forth in the following schedule, with the final payment of
principal to be made no later than April 14, 2009 (the 'maturity date'):
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL AMOUNT
OF TRANCHE B LOANS
QUARTERLY PERIOD TO BE REPAID
FOLLOWING LAUNCH DATE PER QUARTER
- ------------------------------------------------------------------------- ------------------
<S> <C>
1 and 2.................................................................. No Repayment
3 and 4.................................................................. 1.0%
5 through 8.............................................................. 2.0%
9 through 12............................................................. 2.5%
13 through maturity date................................................. 5.0%
</TABLE>
However, based on the business plan and other documents to be submitted by
the Company during the review process required for Conversion, AEF may impose a
shorter amortization schedule for the Tranche B Loans.
If AEF determines that the Tranche A Loans are eligible for Conversion, the
Company also will be prohibited from changing its capital structure (including
the terms of its outstanding stock or other equity interests), permitting any
change in the composition of its ownership, or changing its organizational
documents, if such change could reasonably be expected to have a material
adverse effect on the Company, its business, assets or financial condition or
its ability to perform its obligations under any agreements relating to the
financing or the value of the Collateral (as defined below) or the license
granted under the Collateral Documents (as defined below). The Company will also
be prohibited from merging, consolidating or combining with any other entity.
As a condition to Conversion, the Company will be required to create, in
favor of a security agent (and on behalf of AEF, a bank group providing funding
to AEF to on-lend to the Company and any other lender to the project), liens on
specified assets of the Company, including the satellites, the Company's
interests in gateway, ground reception and similar facilities and the FCC
License (the 'Collateral'). In connection with such liens, the Company must
execute certain agreements (the 'Collateral Documents'), including an assignment
and security agreement granting the liens to the security agent, a mortgage on
any tracking, telemetry, control and monitoring equipment owned by the Company
and an intercreditor agreement. All obligations of the Company under the AEF
Agreements will be secured by such liens from and following the date of
execution of the Collateral Documents, subject to the condition that neither AEF
nor any member of the bank group providing funds to AEF may direct the security
agent to exercise rights with respect to the Collateral prior to Conversion.
From and following the date of execution of any Collateral Document, the Company
will be prohibited from creating or incurring any lien on the Collateral other
than liens in favor of AEF (or the other parties to the intercreditor agreement)
and certain specified permitted liens. From such date, the Company will be
prohibited from selling or transferring any Collateral having an aggregate fair
market value in excess of $1.0 million.
Following the Conversion Commitment Date, neither the Company nor its
subsidiaries may sell or transfer any assets (other than permitted dispositions
of the Collateral), except for (i) sales of inventory in the ordinary course of
business, (ii) the trade-in of machinery or equipment in connection with the
acquisition of similar machinery or equipment, (iii) the sale of obsolete or
worn-out property having a value not exceeding $1.5 million in the aggregate in
any fiscal year and (iv) sales or transfers of assets that (x) do not exceed in
the aggregate 2% of the Company's total assets in any fiscal year, (y) together
with all prior permitted sales or transfers do not exceed in the aggregate 5% of
the Company's total assets at the time of such action or (z) do not have a fair
market value in excess of $1.0 million per item.
Commencing on the Conversion Commitment Date, prior to incurring additional
indebtedness in an aggregate principal amount of $10.0 million or more, the
Company will be required to deliver to AEF a certificate stating that no default
will occur as a result of the incurrence of such indebtedness. From and after
Conversion, the Company also will be required to maintain certain financial
ratios relating to its ability to service debt. If the Company is placed in
Category 3 (as anticipated), it will be
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in breach of the AEF Agreements if its ratio of earnings before interest, tax,
depreciation and amortization ('EBITDA') to total interest accrued or payable
for any period of four fiscal quarters ending on the relevant date of
calculation is less than: (i) at any time after the first anniversary and on or
prior to the second anniversary of Conversion, 1.0 to 1, (ii) thereafter,
through and including the third anniversary of Conversion, 1.5 to 1, (iii)
thereafter, through and including the fourth anniversary of Conversion, 2.0 to
1, (iv) thereafter, through and including the fifth anniversary of Conversion,
2.5 to 1, and (v) any time thereafter, 3.0 to 1.
The Company will also be prohibited from permitting its ratio of EBITDA to
the sum of (a) total interest accrued or payable and (b) scheduled principal
payments for any period of four fiscal quarters ending on the relevant date of
calculation to be less than: (i) at any time after the first anniversary and on
or prior to the third anniversary of Conversion, 1.0 to 1, (ii) thereafter,
through and including the fourth anniversary of Conversion, 1.5 to 1, (iii)
thereafter, through and including the fifth anniversary of Conversion, 2.0 to 1,
and (iv) at any time thereafter, 2.5 to 1.
In addition, the Company may not permit its ratio of indebtedness to EBITDA
for the four fiscal quarters ending on the relevant calculation date to exceed:
(i) at any time after the first anniversary and on or prior to the second
anniversary of Conversion, 6.0 to 1, (ii) thereafter, through and including the
third anniversary of Conversion, 5.5 to 1, (iii) thereafter, through and
including the fourth anniversary of Conversion, 5.0 to 1, (iv) thereafter,
through and including the fifth anniversary of Conversion, 4.0 to 1, and (v) at
any time thereafter, 3.0 to 1.
From and following the Conversion Commitment Date, the Company may not make
any advances or loans other than (i) extensions of credit for a period not
exceeding ninety days in the nature of accounts receivable or notes receivable
arising from the sale or lease of goods or services in the 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 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.
Pursuant to a Multiparty Agreement to be executed among the Company, AEF
and Arianespace in connection with the AEF Agreements, if the Company is unable
to obtain sufficient financing to complete the construction and launch of the
satellites, and if the Company terminates the Arianespace Launch Contract, the
Company will be required to pay Arianespace a termination fee ranging from 5% to
40% of the launch services price, based on the proximity of the date of
termination to the scheduled launch date. The termination fee will be payable
prior to the time the Company commences commercial operations and there can be
no assurance that the Company will have sufficient funds to pay this fee.
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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 $.001 per share, and 50,000,000 shares of Preferred
Stock, par value $.001 per share.
COMMON STOCK
As of September 30, 1997, the Company had 12,577,884 shares of Common Stock
outstanding held of record by 105 persons, and had reserved for issuance
3,763,000 shares of Common Stock with respect to outstanding options and
warrants, including 1,800,000 shares pursuant to warrants exercisable at $50.00
per share and expiring in 2005.
Holders of the Company's Common Stock are entitled to cast one vote for
each share held of record on all matters acted upon at any stockholders' meeting
and to dividends if, as and when declared by the Board of Directors out of funds
legally available therefor. There are no cumulative voting rights. In the event
of any liquidation, dissolution or winding up of the Company, each holder of the
Company's Common Stock will be entitled to participate, subject to the rights of
any outstanding Preferred Stock, ratably in all assets of the Company remaining
after payment of liabilities. Holders of the Company's Common Stock have no
preemptive or conversion rights. All outstanding shares of Common Stock are, and
the shares of Common Stock offered hereby will be when issued against the
consideration set forth in this prospectus, fully paid and non-assessable.
The Company's Common Stock currently is traded on the Nasdaq SmallCap
Market under the symbol 'CDRD.' The Company has applied for quotation of the
Common Stock on the Nasdaq National Market.
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 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. Otherwise, the Company currently has no plans to issue Preferred
Stock.
5% PREFERRED STOCK
On March 19, 1997, the Board of Directors authorized the issuance of up to
8,000,000 shares of the 5% Preferred Stock. As of September 30, 1997, there were
5,222,608 shares of the 5% Preferred Stock outstanding held of record by 37
entities. The Company has agreed to grant a warrant to purchase an additional
486,000 shares of 5% Preferred Stock at a price of $25.00 per share to Libra
Investments, Inc. ('Libra'), the original placement agent for the 5% Preferred
Stock. If the Exchange Offer is consummated, the Company will instead grant
Libra a warrant to purchase 121,500 shares of New Preferred Stock at a price of
$100.00 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 of the 5% Preferred
Stock. Each share of the 5% Preferred Stock is also entitled to a liquidation
preference of $25 per share, plus all accrued but unpaid dividends, in
preference to any other class or series of capital stock of the Company.
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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 if 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
conversion resulting in a holder or group of holders holding more than 50% of
the voting securities of the Company) are not obtained within 270 days after the
Initial Registration Deadline (as defined in the Preferred Stock Investment
Agreement), the Company is required, at the request of any holder of 5%
Preferred Stock, to repurchase the shares of 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 .72125 (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 '5% Preferred Conversion Price'). The 5% Preferred 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 the
Applicable Multiplier set forth below. The Applicable Multiplier is as follows:
<TABLE>
<CAPTION>
CONVERSION AFTER THE APPLICABLE
FOLLOWING DATE MULTIPLIER
- ----------------------------------------------------------------------------------- ----------
<S> <C>
9/15/97............................................................................ 0.75125
10/15/97........................................................................... 0.75
11/15/97........................................................................... 0.72125
</TABLE>
At any date after November 15, 1997, the 5% Preferred Conversion Price is
determined in accordance with a formula based on the lowest of (i) market prices
of the Common Stock between October 15, 1997 and November 15, 1997, (ii) market
prices of the Common Stock during the three consecutive trading days immediately
preceding the date of conversion or (iii) actual prices at which the converting
holder sold the Common Stock, in any case, multiplied by .72125.
The 5% Preferred Stock is at all times subject to customary anti-dilution
adjustments for events such as stock splits, stock dividends, reorganizations
and certain mergers affecting the Common Stock. Three years or more after the
date of original issuance of the 5% Preferred Stock, the Company may require the
holders of the 5% Preferred Stock to convert such shares into Common Stock at
the then applicable 5% Preferred Conversion Price and all Cash Payments due on a
date specified in the notice of forced conversion. However, the Company will not
have the right to require such conversion if the Company has commenced
bankruptcy proceedings, has ceased operations or is in default for money
borrowed in excess of $50 million.
Required Redemption. The Company must 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
shares of its Common Stock that is the greater of (i) ten 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. If the Company
does not have sufficient shares of Common Stock reserved to effect the
conversion of all outstanding shares of 5% Preferred Stock, then at any time at
the request of any holder of shares of the 5% Preferred Stock, the Company must
purchase from such holder the number of shares of 5% Preferred Stock equal to
such holder's pro-rata share of the number of shares of 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,
the FCC awards more than two licenses (including the license awarded to the
Company) permitting the licensee to provide satellite digital audio radio
services and more than two licensees (including the Company) 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 must purchase one-half of the shares of
the 5% Preferred Stock held by each requesting shareholder at a purchase price
per share equal to the sum of the liquidation preference for a share of 5%
Preferred Stock plus any Cash Payments divided by the Applicable Multiplier. If
a Reorganization
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occurs or is proposed, 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 to any other
person. If the holder of 5% Preferred Stock chooses not to require the Company
to redeem such holder's shares, the shares will be convertible into the number
of shares of stock or other securities or property (including cash) to which a
holder of the number of shares of Common Stock deliverable upon conversion of
such share of 5% Preferred 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 a redemption price equal to the sum of the liquidation preference for the 5%
Preferred Stock plus any Cash Payments by the Company at any time beginning on
the date that is ten months after the date of original issuance of the 5%
Preferred Stock, plus one day for each day during which any registration
statement with respect to the Common Stock issuable upon conversion of the 5%
Preferred Stock 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 twenty 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 statement 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 on or prior to October 15, 1997. The Company is
soliciting the approval of its stockholders, including the holders of the 5%
Preferred Stock, on the Record Date to an amendment to the Certificate of
Designations of the 5% Preferred Stock that would permit the Company to redeem
the 5% Preferred Stock in whole or in part upon the sale of equity or debt
securities in one or more offerings occurring after the date of the initial
issuance of the 5% Preferred Stock and on or prior to December 30, 1997 for
gross proceeds in an aggregate cash amount of not less than $100 million.
Cash Payments. The Preferred Stock Investment Agreement 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 in
an amount per share equal to 3% of the liquidation preference of the 5%
Preferred Stock per month to each holder if the Company fails (i) to honor any
request for conversion of the 5% Preferred Stock as permitted by the terms and
conditions of the 5% Preferred Stock or (ii) to maintain the listing of the
Common Stock on Nasdaq, the New York Stock Exchange or the American Stock
Exchange. A similar cash payment must be made if, after effecting a registration
statement with respect to the resale of Common Stock issuable upon conversion of
the 5% Preferred Stock, the use of the prospectus is suspended for more than 60
cumulative days in the aggregate in any twelve month period. In addition, if the
Company fails at any time to reserve a sufficient number of shares of Common
Stock for issuance upon conversion of the 5% Preferred Stock, it must make a
cash payment equal to 3% of the liquidation preference (proportionately reduced
by the amount of shares that are so authorized and reserved) per month to the
holders of the 5% Preferred Stock. The Preferred Stock Investment Agreement also
provides that prior to the completion of a Qualifying Offering, the Company must
not undertake to conduct any debt or equity financing that is not either pari
passu or junior to the 5% Preferred Stock in seniority, structure and maturity.
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 the 5% Preferred Stock have no voting rights. 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. In
addition, certain other corporate actions taken in connection with a partial
repurchase of 5% Preferred Stock require the consent of all holders of the 5%
Preferred Stock.
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NEW CONVERTIBLE PREFERRED STOCK
Pursuant to a binding Summary Term Sheet/Commitment (the 'Commitment')
dated June 15, 1997 among Everest Capital International, Ltd., Everest Capital
Fund, L.P., The Ravich Revocable Trust of 1989 (together 'Everest') and the
Company, Everest committed to purchase from the Company, and the Company
committed to sell to Everest in a private placement, up to $58 million of a new
series of convertible preferred stock (the 'New Convertible Preferred Stock') in
conjunction with a financing by the Company to yield gross proceeds of $150
million or more in 'new money,' subject to certain conditions. Everest can
satisfy its obligation to purchase the New Convertible Preferred Stock by either
exchanging some or all of the 5% Preferred Stock it currently holds or by paying
cash. The terms of the New Convertible Preferred Stock differ substantially from
the terms of the New Preferred Stock. If Everest pursues its right to purchase
the New Convertible Preferred Stock pursuant to the Commitment and seeks to
enforce the Company's obligations thereunder, the Company may be required to
issue the New Convertible Preferred Stock. Everest has not made known to the
Company its intentions with respect to the Commitment and its current holding of
5% Preferred Stock.
PREFERRED STOCK PURCHASE RIGHTS
The Board of Directors intends to adopt a stockholders rights plan and, in
connection with the adoption of such plan, to declare 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 a record date to
be announced (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 to be determined (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. Until the
earlier to occur of (a) 10 business days following a public announcement that a
person or group of affiliated or associated persons (an 'Acquiring Person') has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding Common Shares or (b) 15 business days following the
commencement of a tender offer or exchange offer 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'), the Rights will be evidenced, with respect to any Common
Shares outstanding as of the Rights Record Date, by the certificates
representing such Common Shares. The Rights Agreement provides that, until the
Separation Date, the Rights will be transferred with, and only with, Common
Share certificates. From as soon as practicable after the Rights Record Date and
until the Separation Date (or earlier redemption or expiration of the Rights),
new Common Share certificates issued after the Rights Record Date upon transfer
or new issuance of Common Shares will contain a notation incorporating the
Rights Agreement by reference. Until the Separation Date (or earlier redemption
or expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Rights Record Date will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificates. 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. Holders of 15% or more of Common Stock as of the date of
the Rights Agreement will be excluded from the definition of 'Acquiring Person'
under the Rights Agreement unless each such holder increases the aggregate
percentage of its and its affiliates' beneficial ownership interest in the
Company by an additional 1%.
The Rights are not exercisable until the Separation Date and will expire on
the fifth anniversary of the Rights Agreement, unless earlier redeemed by the
Company as described below.
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 and its affiliates) becomes the beneficial owner of
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15% or more of the then outstanding Common Shares (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 and (iii) 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 that results in such Acquiring
Person's ownership interest being increased by more than one percent (e.g., a
reverse stock split), the Rights Agreement provides that proper provision shall
be made so that each holder of a Right will thereafter be entitled to receive,
upon exercise, 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 engages
in a merger or other business combination transaction in which the Company is
not the surviving corporation, (b) the Company engages in a merger or other
business combination transaction with another person in which the Company is the
surviving corporation, but in which 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 (each as defined in the Rights
Agreement), becomes the owner of 50% or more of the Outstanding Common Shares
(as defined in the Rights Agreement). If the Board authorizes such an exchange,
the Rights will immediately cease to be exercisable.
Notwithstanding any of the foregoing, following the occurrence of any of
the events set forth in the fourth and fifth paragraphs of this section, any
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person 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 con vertible
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).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares that are not integral multiples of one
one-hundredth of a Series B Share will be issued and, in lieu thereof, an
adjustment in cash will be made based on the closing price of the Series B
Shares on the last trading date prior to the date of exercise.
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
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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. Immediately upon the action of the Board ordering
redemption of the Rights, the Rights will no longer be exercisable, except upon
the occurrence of certain events that have the effect of deferring the effective
time of the redemption. In general, thereafter the only right of the holders of
Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders or to the Company, shareholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Shares (or other consideration) of the Company or for
common shares of the Acquiring Person as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights or imposing limitations on the right to amend the Agreement, any of the
provisions of the Rights Agreement may be amended by the Board with the
concurrence of a majority of the Independent Directors or by special approval of
the stockholders of the Company prior to the Separation Date. Thereafter, the
period during which the Rights may be redeemed may be extended (by action of the
Board, with the concurrence of a majority of the Independent Directors or by
special approval of the stockholders of the Company), and other provisions of
the Rights Agreement may be amended by action of the Board with the concurrence
of a majority of the Independent Directors or by special approval of the
shareholders of the Company; provided, however, that (a) such amendment will not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person) and (b) no amendment shall be made at such time as the
Rights are no longer redeemable (except for the possibility of the right of
redemption being reinstated as described above).
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Section 203 of the Delaware General Corporation Law ('Section 203')
generally provides that a stockholder acquiring more than 15% of the outstanding
voting stock of a corporation subject to the statute (an 'Interested
Stockholder') but less than 85% of such stock may not engage in certain Business
Combinations (as defined in Section 203) with the corporation for a period of
three years after the time the stockholder became an Interested Stockholder
unless (i) prior to such time, the corporation's board of directors approved
either the Business Combination or the transaction in which the stockholder
became an Interested Stockholder or (ii) the Business Combination is approved by
the corporation's board of directors and authorized at a stockholders' meeting
by a vote of at least two-thirds of the corporation's outstanding voting stock
not owned by the Interested Stockholder. Under Section 203, these restrictions
will not apply to certain Business Combinations proposed by an Interested
Stockholder following the earlier of the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
was not an Interested Stockholder during the previous three years, who became an
Interested Stockholder with the approval of the corporation's board of directors
or who became an Interested Stockholder at a time when the restrictions
contained in Section 203 did not apply for reasons specified in Section 203, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors 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.
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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
Certificate, may elect not to be governed by Section 203 effective 12 months
after such adoption. Neither the Certificate nor the Bylaws exclude the Company
from the restrictions imposed by Section 203.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock 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 Offering, the Company will have
16,077,884 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' overallotment option and no exercise of outstanding options. Of
these shares, 9,795,896 shares will be freely tradeable without restriction
under the Securities Act unless such shares are purchased in the Stock Offering
by Affiliates. Of the remaining 6,281,988 shares of Common Stock, 3,547,488
shares are Restricted Shares. Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act. Up to 1,642,000
of the Restricted Shares held by the directors and certain officers of the
Company will be eligible for sale, subject to the restrictions of Rule 144, upon
expiration of the Lock-up Agreements, 180 days after the effective date of the
Stock Offering. 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, Darlene Friedland has entered into a
lock-up agreement relating to her 2,734,500 shares lasting for a period ending,
on a cumulative basis, as to 25% of the shares of Common Stock she owns, 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 Offering, 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.'
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The Company has granted options to purchase 1,733,000 shares of Common
Stock to certain 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
Offering, the Company intends to file a registration statement under the
Securities Act to register shares of Common Stock issuable upon the exercise of
stock options granted under the Company's stock option plans. Except as limited
by the agreements described above and by Rule 144 volume limitations applicable
to affiliates, shares issued upon the exercise of stock options after the
effective date of such registration statement generally will be available for
sale in the open market.
The Company is unable to predict the effect that sales made under Rule 144,
pursuant to future registration statements, or otherwise, may have on any then
prevailing market price for shares of the Common Stock. Nevertheless, sales of a
substantial amount of Common Stock in the public market, or the perception that
such sales could occur, could adversely affect market prices.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain United States federal income tax
consequences applicable under current law to holders of 5% Preferred Stock who
exchange such stock for New Preferred Stock pursuant to the Exchange Offer is
for general information only and is not intended as a substitute for careful tax
planning. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the 'Code'), regulations promulgated by the U.S. Department of the
Treasury (the 'Treasury Regulations'), and Internal Revenue Service (the
'Service') rulings and judicial decisions now in effect, all of which are
subject to change at any time by legislative, judicial or administrative action.
Any such changes could be retroactively applied in a manner that could adversely
affect a holder of the New Preferred Stock received pursuant to the Exchange
Offer. The discussion does not cover all aspects of Federal taxation that may be
relevant to, or the actual tax effect that any of the matters described herein
will have on, particular persons, and it does not deal with state, local or
foreign income or other tax laws. Certain holders (including financial
institutions, tax-exempt organizations, broker-dealers, insurance companies, and
foreign individuals and entities) may be subject to special rules not discussed
below. The discussion assumes that recipients of New Preferred Stock will hold
the New Preferred Stock as a capital asset within the meaning of Section 1221 of
the Code. Persons considering exchanging 5% Preferred Stock for New Preferred
Stock should consult their own tax advisors with respect to their particular
situations as well as any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
EXCHANGE OF 5% PREFERRED STOCK FOR NEW PREFERRED STOCK
THE 1997 TAX ACT
The tax consequences of the Exchange Offer may be significantly affected by
the Taxpayer Relief Act of 1997 ('1997 Tax Act'), which was enacted on August 5,
1997 and has not yet been subject to any administrative or judicial
interpretation. Under the 1997 Tax Act, gain or loss generally will be
recognized upon the receipt of Nonqualified Preferred Stock (as defined below)
for property other than Nonqualified Preferred Stock in a transaction in which
no other stock is issued. Upon an exchange of Nonqualified Preferred Stock for
Nonqualified Preferred Stock, no loss may be recognized, but gain will be
recognized to the extent that certain other property is received in the
exchange. The New Preferred Stock is Nonqualified Preferred Stock under the 1997
Tax Act. Accordingly, the Federal income tax treatment of the exchange depends
on whether or not the 5% Preferred Stock is classified as Nonqualified Preferred
Stock, which, as discussed below, is not clear. (See 'Treatment of 5% Preferred
Stock Under the 1997 Tax Act'). If the 5% Preferred Stock is not Nonqualified
Preferred Stock, then an exchange of 5% Preferred Stock for New Preferred Stock
will require the recognition of gain or loss equal to the difference between the
fair market value of the New Preferred Stock and cash received, and the tax
basis in the 5% Preferred Stock surrendered. Any such gain or loss likely would
be treated as short-term capital gain or loss, and the tax basis of the New
Preferred Stock received would be equal to its fair market value. If the 5%
Preferred Stock is Nonqualified Preferred Stock, no gain or loss will
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be recognized upon the Exchange Offer (except for any gain or loss recognized
with respect to cash received in lieu of fractional share interests (see
'Treatment of Cash Received in Lieu of Fractional Share Interests' below)). In
such case, the tax basis of the New Preferred Stock will be equal to the tax
basis of the 5% Preferred Stock for which it is exchanged (though calculated by
treating those receiving New Preferred Stock as also receiving fractional share
interests of New Preferred Stock rather than cash, as described in 'Treatment of
Cash Received in Lieu of Fractional Share Interests' below).
TREATMENT OF 5% PREFERRED STOCK UNDER THE 1997 TAX ACT
Under the 1997 Tax Act, Nonqualified Preferred Stock is defined as stock
which is limited and preferred as to dividends and does not participate in
corporate growth to any significant extent if, in addition, any of the following
requirements are met: (i) the holder of such stock has the right to require the
issuer or a related person to redeem or purchase the stock, (ii) the issuer or a
related person is required to redeem or purchase such stock, (iii) the issuer or
a related person has the right to redeem or purchase the stock and, as of the
issue date, it is more likely than not that such right will be exercised, or
(iv) the dividend rate on such stock varies in whole or in part (directly or
indirectly) with reference to interest rates, commodity prices, or other similar
indices. The Conference Report accompanying the 1997 Tax Act provides that in no
event will a conversion privilege into stock of the issuer automatically be
considered to constitute participation in corporate growth to any significant
extent.
Because the 5% Preferred Stock is convertible at all times into Common
Stock of a value in excess of the Liquidation Preference of the 5% Preferred
Stock plus any other Cash Payments due to the holder of such 5% Preferred Stock
(with the amount of such excess increasing over time), it is possible that the
5% Preferred Stock may be viewed as participating in corporate growth to a
significant extent. If so, then the 5% Preferred Stock would not be treated as
Nonqualified Preferred Stock under the 1997 Tax Act. If on the other hand, the
conversion features of the 5% Preferred Stock are not taken into account for
this purpose and therefore the 5% Preferred Stock is not treated as
participating in corporate growth to a significant extent, the 5% Preferred
Stock will be treated as Nonqualified Preferred Stock if either (i) as of the
issue date, it was more likely than not that the Company would redeem the 5%
Preferred Stock, or (ii) the holders have a right to require the Company to
repurchase the 5% Preferred Stock and such right is not subject to a contingency
which made the likelihood of such a repurchase remote as of the issue date. It
is not clear whether the 5% Preferred Stock will meet the 'more likely than not'
test in clause (i), nor is it clear whether the contingencies to which the
holder's right to require redemption of the 5% Preferred Stock is subject will
be considered to make remote the likelihood of such a redemption. Accordingly,
it is not clear whether or not the 5% Preferred Stock will be classified as
Nonqualified Preferred Stock.
TREATMENT OF CASH RECEIVED IN LIEU OF FRACTIONAL SHARE INTERESTS
The receipt of cash in lieu of fractional share interests of New Preferred
Stock should generally be treated as a separate event for Federal income tax
purposes, in which the holder making the exchange is treated as first receiving
in the exchange the fractional share interest of New Preferred Stock to which
the holder is entitled and redeeming the fractional shares of New Preferred
Stock for cash. While the matter is not free from doubt, the Company believes
that under principles of Section 302 such a redemption will be treated as a
distribution in payment in exchange for the stock. (See 'Sale or
Redemption -- Redemption of New Preferred Stock.')
POSSIBLE TREATMENT OF NEW PREFERRED STOCK AS SECTION 306 STOCK
If the Exchange Offer is not a taxable event, the New Preferred Stock
received pursuant to the Exchange Offer could, under certain circumstances, be
treated as 'Section 306 Stock,' thereby subjecting holders to ordinary income or
dividend treatment on certain dispositions of the stock, if the Company has
earnings or profits. The Company does not have accumulated earnings and profits
and does not expect to have earnings and profits for the year 1997. If the
Company does not have earnings and profits for the year 1997, then the New
Preferred Stock will not be treated as Section 306 Stock.
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POSSIBLE CONSTRUCTIVE SECTION 305 STOCK DISTRIBUTION
It is possible that, to the extent of any dividend arrearages of the 5%
Preferred Stock, there may be a constructive Section 305 stock distribution with
respect to an exchange of such stock for New Preferred Stock. However, because
any unpaid dividends are added to the liquidation preference of the 5% Preferred
Stock causing a change in the conversion ratio of such stock, the Company
believes there should be considered no dividend arrearages with respect to the
5% Preferred Stock.
DIVIDENDS ON NEW PREFERRED STOCK
Distributions with respect to the New Preferred Stock paid by the Company
in either cash or Common Stock will be treated as dividends and taxable as
ordinary income to the extent that the distributions are made out of either the
Company's current or accumulated earnings and profits. (In the case of a
distribution of Common Stock, the amount distributed will be the fair market
value of such Common Stock.) To the extent that such a distribution is not made
out of the Company's current or accumulated earnings and profits, the
distribution will first constitute a non-taxable return of capital, reducing the
holder's adjusted tax basis in the shares of New Preferred Stock held, and then,
to the extent the distribution exceeds such tax basis, will result in a gain
from the sale or exchange of such stock. The tax basis of any Common Stock so
distributed will be equal to the fair market value of such Common Stock at the
time of the distribution.
The New Preferred Stock will accrue dividends from its date of issuance,
but dividends will not become payable until five years after the stock's
issuance. It is possible that under Section 305 of the Code and the Treasury
Regulations thereunder that during the period that dividends are not payable, a
holder of New Preferred Stock will be treated as receiving constructive
distributions of additional stock. In such event, the holder would take such
distributions into account under principles similar to those applicable to
original issue discount on debt instruments.
DIVIDENDS RECEIVED DEDUCTION
In calculating their taxable income, corporate stockholders will generally
be eligible to claim a dividends-received deduction (currently 70% of the amount
of the dividend for most corporate stockholders) with respect to distributions
that are treated as dividends on the New Preferred Stock (i.e., distributions
out of earnings and profits, which the Company does not believe that it
currently has and does not expect to have until after it commences commercial
operations). However, complex rules apply which may cause disallowance or
limitation of the dividends-received deduction under circumstances described in
the Code. For instance, Section 246A of the Code reduces the dividends-received
deduction allowed to a corporate holder that has incurred indebtedness 'directly
attributable' to its investment in portfolio stock. In addition, Section 246(c)
of the Code, as recently amended by the 1997 Tax Act, requires that in order to
be eligible for the dividends-received deduction, a corporation must generally
hold the shares of stock for at least 46 days during the 90-day period beginning
on the date which is 45 days before the date on which such share becomes
ex-dividend with respect to such dividend. If a dividend on preferred stock is
attributable to a period or periods aggregating in excess of 366 days, then the
stock must be held for at least 91 days during the 180-day period beginning on
the date which is 90 days before the date on which such share becomes
ex-dividend with respect to such dividend. For this purpose, the corporation's
holding period is reduced by periods during which its position in the stock is
hedged in the manner described in Section 246(c)(4) of the Code. In addition, in
computing the alternative minimum tax, corporate stockholders may be required to
make certain adjustments in calculating their alternative minimum taxable
income. Corporate stockholders should consult their own tax advisors as to the
possible application of these provisions.
EXTRAORDINARY DIVIDEND
The tax basis of stock that has been held by a corporate stockholder for
not more than two years is reduced (but not below zero) by the non-taxed portion
of any 'extraordinary dividend' received with respect to such stock. Moreover,
if the non-taxed portion of such dividends exceeds such basis, such excess will
be treated as gain from the sale or exchange of such stock for the taxable year
in which the
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extraordinary dividend is received. In determining whether a holder satisfies
the holding period requirement, the length of the holding period is determined
as of the date that the issuer declares, announces or agrees to the payment or
the amount of a dividend, whichever is the earliest. Generally, an extraordinary
dividend is a dividend that (i) equals or exceeds 5% of the holder's basis in
stock preferred as to dividends, or 10% of the holder's basis in any other stock
(treating all dividends having ex-dividend dates within an 85-day period as a
single dividend) or (ii) exceeds 20% of the holder's basis in the stock
(treating all dividends having ex-dividend dates within a 365-day period as a
single dividend). If the holder is able to establish, to the satisfaction of the
Service, the fair market value of the stock as of the day before the ex-dividend
date, the holder may elect to substitute such fair market value for the holder's
basis in applying these tests.
Dividends will accrue quarterly with respect to the New Preferred Stock at
an annual rate of 10.5%, but will not become payable until November 15, 2002. If
the Company has substantial earnings and profits at the time of the November 15,
2002 distribution and such amounts have not previously been treated as
constructive distributions, it is likely that the payment made on that date will
be treated as an extraordinary dividend.
ADJUSTMENT OF CONVERSION PRICE
Section 305 of the Code and applicable Treasury Regulations also provide
that under certain circumstances, adjustments in the conversion price of
convertible stock and other similar transactions (including the failure to
adjust the conversion rate) may be treated as constructive distributions of
stock taxable as a dividend if (i) as a result, the proportionate interest of
the holder of such convertible preferred stock in the assets or earnings and
profits of the issuer is increased and (ii) the adjustment does not fall within
the parameters set forth under Section 305. The operation of certain aspects of
the conversion price adjustment provisions of the New Preferred Stock does not
fall within these parameters, and accordingly, if these provisions become
operative the holders of New Preferred Stock would be deemed to have received a
constructive distribution that may be taxable as a dividend, notwithstanding the
fact that such holders do not actually receive cash or property.
REDEMPTION PREMIUM
Under Section 305 of the Code and the Treasury Regulations thereunder, if
the redemption price of shares of mandatorily redeemable preferred stock exceeds
the issue price (which is generally the price paid in cash or property for the
shares at original issuance) by more than a de minimis amount, the excess may be
taxable as a constructive distribution of additional stock to the holder taken
into account under principles similar to those applicable to original issue
discount on debt instruments. Such a circumstance could arise if, for example,
the fair market value of the New Preferred Stock is less than its liquidation
preference by more than a de minimis amount as of the Closing Date of the
Exchange Offer. If such a constructive distribution were to occur, a holder
could be required to recognize ordinary income to the extent that the
distributions are made out of either the Company's current or accumulated
earnings and profits. To the extent that such a distribution is not made out of
the Company's current or accumulated earnings and profits, the distribution
would first constitute a non-taxable return of capital, reducing the holder's
adjusted tax basis in the shares of New Preferred Stock held, and then, to the
extent the distribution exceeds such tax basis, will result in a gain from the
sale or exchange of such stock.
CONVERSION
The New Preferred Stock is convertible by the holder into Common Stock.
Conversion of the New Preferred Stock into Common Stock should not result in the
recognition of gain or loss, and in such event the tax basis of the Common Stock
received would be equal to the tax basis of the New Preferred Stock surrendered
(though the receipt of cash in lieu of fractional shares would impact the
exchange as described in 'Exchange of 5% Preferred Stock for New Preferred
Stock -- Treatment of Cash Received in Lieu of Fractional Share Interests'
above). Also, the holding period of the Common Stock received upon conversion
would include the holding period of the New Preferred Stock converted. (If the
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exchange of 5% Preferred Stock for New Preferred Stock is treated as a tax-free
exchange (aside from a tax on any cash received), then the holding period of
such New Preferred Stock will also include the time during which the 5%
Preferred Stock was held).
In addition, upon the occurrence of certain events, the New Preferred Stock
would be automatically converted into Series D Preferred Stock. No gain or loss
should be recognized on such a conversion, and the tax basis of the Series D
Preferred Stock received should be equal to the tax basis of the New Preferred
Stock surrendered (though the receipt of cash in lieu of fractional shares would
impact the exchange as described in 'Exchange of 5% Preferred Stock for New
Preferred Stock -- Treatment of Cash Received in Lieu of Fractional Share
Interests' above).
SALE OR REDEMPTION
SALE OR EXCHANGE OF NEW PREFERRED STOCK OR THE COMMON STOCK INTO WHICH IT IS
CONVERTED
In the event that the New Preferred Stock is not treated as Section 306
Stock (see 'Exchange of 5% Preferred Stock for New Preferred Stock -- Possible
Treatment of New Preferred Stock as Section 306 Stock'), upon the sale or
exchange of the New Preferred Stock or the Common Stock into which it is
converted, the holder will recognize gain or loss equal to the difference
between the amount realized and his or her tax basis in the New Preferred Stock
or the Common Stock into which it is converted. The resulting gain or loss will
be a capital gain or loss and will be a long-term capital gain or loss if the
New Preferred Stock or the Common Stock into which it is converted was held for
more than one year. (If the exchange of 5% Preferred Stock for New Preferred
Stock is treated as a tax-free exchange (aside from a tax on any cash received),
then the holding period of the New Preferred Stock will also include the time
during which the 5% Preferred Stock was held.) For individuals, gain from such a
transaction will be taxed at rates that vary depending upon whether the stock
exchanged was held for one year or less, more than one year but not more than 18
months, or more than 18 months.
REDEMPTION OF NEW PREFERRED STOCK
If the Company redeems shares of New Preferred Stock solely for cash, and
such stock is not Section 306 Stock with respect to the holder, such redemption
will be taxable as a sale or exchange if the redemption (i) results in a
'complete termination' of the holder's stock interest in the Company under
Section 302(b)(3) of the Code, (ii) is 'substantially disproportionate' with
respect to the holder under Section 302(b) of the Code, (iii) is 'not
essentially equivalent to a dividend' with respect to the holder under Section
302(b)(1) of the Code, or (iv) is from a non-corporate holder in partial
liquidation of the Company under Section 302(b)(4) of the Code. In determining
whether any of these tests has been met, shares considered to be owned by the
holder by reason of the constructive ownership rules set forth in Section 318 of
the Code (pursuant to which a holder will be deemed to own shares owned by
certain related individuals and entities or shares subject to an option), as
well as the shares actually owned, would generally be taken into account. If a
redemption of shares of New Preferred Stock solely for cash satisfies any of the
above Section 302 tests with respect to a holder, such holder will recognize
gain or loss based on the difference between the amount of cash received and the
holder's tax basis in the redeemed shares in the same manner as if the holder
had sold the shares. If such a redemption does not satisfy any of the Section
302 tests, the gross proceeds will be treated as a distribution taxable as a
dividend to the extent of the Company's current and accumulated earnings and
profits and any excess will be treated first as a return of capital and then as
gain upon a sale or exchange of the New Preferred Stock. A holder whose proceeds
of a redemption are taxed as a dividend would transfer the tax basis in the New
Preferred Stock redeemed (reduced for any amounts treated as a non-taxed portion
of extraordinary dividends or a return of capital) to any stock interest
retained in the Company.
BACK-UP WITHHOLDING
Under Section 3406 of the Code and applicable Treasury Regulations, a
holder of New Preferred Stock or Common Stock acquired through exercise of the
conversion privilege may be subject to back-up withholding tax at the rate of
31% with respect to dividends paid or on the proceeds of a sale, exchange or
redemption of the New Preferred Stock or Common Stock. The Company will be
required
106
<PAGE>
<PAGE>
to deduct and withhold the tax if (i) the holder fails to furnish a taxpayer
identification number ('TIN') to the Company, (ii) the IRS notifies the Company
that the TIN furnished by the holder is incorrect, (iii) there has been a
notified holder under-reporting with respect to interest, dividends or original
issue discount described in Section 3406(c) of the Code, or (iv) there has been
a failure of the holder to certify under the penalty of perjury that the holder
is not subject to withholding under Section 3406(a)(1)(C) of the Code. The
Company will be required to withhold a tax equal to 31% from any dividend or
redemption payment made with respect to the New Preferred Stock or Common Stock
if any one of the events discussed above occurs. Holders should consult their
tax advisors regarding their qualification for exemption from back-up
withholding and the procedure for obtaining any applicable exemption.
The foregoing summary is included herein for general information only.
Accordingly, prospective participants in the Exchange Offer should consult with
their own tax advisors as to the specific tax consequences to them, including
the application and effect of state, local and foreign income and other tax
laws.
107
<PAGE>
<PAGE>
LEGAL OPINIONS
The validity of the shares of New Preferred Stock to be issued in the
Exchange Offer will be 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 will be passed upon for the Dealer
Manager by Shearman & Sterling, New York, New York.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996, and for each of the three years in the period ended December 31,
1996, and for the period from May 17, 1990 (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.
108
<PAGE>
<PAGE>
Facsimile copies of the Letter of Transmittal will be accepted. Letters of
Transmittal, certificates representing shares of 5% Preferred Stock and any
other required documents should be sent by each stockholder or his or her
broker, dealer, commercial bank, trust company or other nominee to the Exchange
Agent at one of the addresses as set forth below:
The Exchange Agent is:
IBJ SCHRODER BANK & TRUST COMPANY
1 State Street
New York, New York 10004
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Courier:
P.O. Box 84 1 State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn.: Reorganization Dept.
Attn.: Reorganization Dept. Securities Processing Window SC-1
</TABLE>
By Facsimile Transmission
(For Eligible Institutions Only):
(212) 858-2611
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
(212) 858-2103
The Information Agent for the Exchange Offer is:
[Logo]
156 Fifth Avenue, 9th Floor
New York, New York 10010
(212) 929-5500
Any questions or requests for assistance or additional copies of this
Prospectus or the Letter of Transmittal may be directed to the Information Agent
at their telephone number and location set forth on this page. You may also
contact your broker, dealer, commercial bank or trust company or other nominee
for assistance concerning the Exchange Offer.
The Dealer Manager for the Exchange Offer is:
MERRILL LYNCH & CO.
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 of 1933, as amended (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 agreement between the Company and the Dealer Manager with respect to
the Exchange Offer registered hereunder will provide for indemnification of the
registrant and its officers and directors by the Dealer Manager or agents, as
the case may be, against certain liabilities including liabilities under the
Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The Exhibit Index beginning on page E-1 is hereby incorporated by
reference.
ITEM 22. UNDERTAKINGS
The undersigned hereby undertakes:
(a) That, for 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 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.
(b) 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 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 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
II-1
<PAGE>
<PAGE>
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
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 October 16, 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 (Principal October 16, 1997
......................................... Executive Officer)
(DAVID MARGOLESE)
* Executive Vice President and Chief Financial October 16, 1997
......................................... Officer (Principal Financial and Accounting
(ANDREW J. GREENEBAUM) Officer)
* Director October 16, 1997
.........................................
(ROBERT D. BRISKMAN)
* Director October 16, 1997
.........................................
(LAWRENCE F. GILBERTI)
* Director October 16, 1997
.........................................
(PETER K. PITSCH)
* Director October 16, 1997
.........................................
(JACK Z. RUBINSTEIN)
* Director October 16, 1997
.........................................
(RALPH V. WHITWORTH)
</TABLE>
*By: /s/ DAVID MARGOLESE
..........................................
DAVID MARGOLESE
ATTORNEY-IN-FACT
II-3
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 -- Form of Dealer Manager Agreement...............................................................
4.1 -- Form of Certificate of Designations, Preferences and Relative, Participating, Optional and
Other Special Rights of 10 1/2% Series C Convertible Preferred Stock............................
4.2 -- Form of Certificate of Designations of Series D Convertible Preferred Stock....................
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)........................................
4.4 -- Form of Certificate for Shares of 10 1/2% Series C Convertible Preferred Stock.................
4.5 -- Form of Certificate for Shares of Series D Convertible Preferred Stock.........................
5.1 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison............................................
12.1 -- Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.......
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).................................................
99.1 -- Form of Letter of Transmittal..................................................................
</TABLE>
- ------------
* Previously filed.
STATEMENT OF DIFFERENCES
------------------------
The degree symbol shall be expressed as ............... [d]
<PAGE>
<PAGE>
FORM OF
FINANCIAL ADVISOR
AND
DEALER MANAGER AGREEMENT
- --------------------------------------------------------------------------------
Offer by
CD RADIO INC.
to
Exchange
10 1/2% Series C Convertible Preferred Stock
for
5% Delayed Convertible Preferred Stock
- --------------------------------------------------------------------------------
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
as FINANCIAL ADVISOR and DEALER MANAGER
- --------------------------------------------------------------------------------
October __, 1997
<PAGE>
<PAGE>
October __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
CD Radio Inc., a Delaware corporation (the "Company"), hereby appoints
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") to act as dealer manager and financial advisor (in either of
such capacities, Merrill Lynch may hereinafter be referred to as the "Dealer
Manager") in connection with its offer to exchange up to (i) ___ shares of its
new 10 1/2% Series C Convertible Preferred Stock, without par value per share
(the "New Preferred Stock") for up to all of the outstanding 5,222,608 shares of
its 5% Delayed Convertible Preferred Stock, par value $.001 per share (the "5%
Preferred Stock"), at a rate of one share of New Preferred Stock for each $100
in Exchange Rate Liquidation Preference for the shares of 5% Preferred Stock to
be converted. Such offer (as amended, modified or supplemented from time to
time, the "Exchange Offer" and any exchange of New Preferred Stock and Common
Stock for 5% Preferred Stock pursuant to the Exchange Offer is herein referred
to as an "Exchange") is being made upon the terms and subject to the conditions
set forth in the Prospectus (as defined below) and in the accompanying letter of
transmittal (as amended, modified or supplemented from time to time, the "Letter
of Transmittal").
In conjunction with the Exchange Offer, the Company is also soliciting (the
"Solicitation") consents from the holders of record of its Common Stock, par
value $.001 per share (the "Common Stock") and its 5% Preferred Stock on October
1, 1997 (the "Record Date") to a proposed amendment (the "Proposed Amendment")
to the Certificate of Designations of the 5% Preferred Stock (i) to allow the
Company to redeem the 5% Preferred Stock (to the
<PAGE>
<PAGE>
2
extent not previously converted) in whole or in part upon the sale of any equity
or debt securities in one or more offerings for gross proceeds in an aggregate
cash amount of not less than $100 million and (ii) to amend certain of the
redemption provisions relating to the requirements for the delivery of a notice
of redemption in connection therewith. The Company is conducting the
Solicitation pursuant to a separate Consent Solicitation Statement dated October
__, 1997. The holders of 5% Preferred Stock are hereinafter referred to as the
"Holders."
The Company hereby confirms its agreement with Merrill Lynch as follows:
1. Registration Statement, Prospectus and Offering Materials. (a) The
Company has filed with the Securities and Exchange Commission (the
"Commission"), under the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder (collectively, the "1933
Act"), a registration statement on Form S-4 covering the registration of (i)
shares of New Preferred Stock to be issued pursuant to the Exchange Offer, (ii)
shares of Common Stock to be issued upon conversion of the New Preferred Stock
by the holders thereof or upon the payment of dividends on the New Preferred
Stock at the option of the Company and (iii) shares of Series D Convertible
Preferred Stock (the "Series D Preferred Stock") upon an automatic exchange of
the New Preferred Stock as provided in the Certificate of Designations for the
New Preferred Stock, including the related preliminary prospectus, and will
prepare and file, on or prior to the effective date of such registration
statement, amendments to such registration statement, including a final
prospectus. Each prospectus used before the time such registration statement
becomes effective is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and any documents incorporated by
reference therein, as amended at the time it becomes effective or as thereafter
amended or supplemented from time to time, is herein called the "Registration
Statement." The final prospectus included in the Registration Statement
(including any documents incorporated therein by reference) is hereinafter
called the "Prospectus," except that if the final prospectus furnished to the
Dealer Manager for use in connection with the Exchange Offer differs from the
prospectus set forth in the Registration Statement (whether or not such
prospectus is required to be filed pursuant to Rule 424 (b) under the 1933 Act),
the term "Prospectus" shall refer to the final prospectus furnished to the
Dealer Manager for such use. The terms "supplement" and "amendment" or "amend"
as used herein with respect to the Prospectus shall include all documents deemed
to be incorporated by reference in the Prospectus that are filed subsequent to
the date of the Prospectus and prior to the termination of the Exchange Offer by
the Company with the Commission pursuant to the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder (collectively, the "1934 Act").
(b) The Company has also prepared and filed with the Commission under the
1934 Act a Statement on Schedule 13E-4 with respect to the Exchange Offer
(including the exhibits thereto and any documents incorporated by reference
therein, the "Schedule 13E-4"; all
<PAGE>
<PAGE>
3
references in this Agreement to the Schedule 13E-4 as the same may be amended
hereafter shall include all exhibits filed together with any amendments
thereto).
(c) The Registration Statement and the Prospectus, and the related letters
from the Company to securities dealers, commercial banks, trust companies and
other nominees, letters to beneficial owners of the 5% Preferred Stock, the
Letter of Transmittal, notice of guaranteed delivery and any newspaper
announcements, press releases and all other related materials authorized by the
Company for use in connection with the Exchange Offer, including the Schedule
13E-4, as such materials may be amended, modified or supplemented from time to
time, are hereinafter collectively referred to as the "Offering Materials." For
purposes of this Agreement, all references to the Registration Statement, any
preliminary prospectus, the Prospectus 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").
2. Retention as Financial Advisor; Agreement to Act as Dealer Manager. (a)
The Company intends to commence the Exchange Offer as soon as practicable after
the Registration Statement becomes effective under the 1933 Act by publicly
announcing its commencement and by mailing, or causing to be mailed on its
behalf, copies of the Prospectus, the related Letter of Transmittal and such of
the other Offering Materials as is required to each holder of record of the 5%
Preferred Stock (the date of the commencement of such distribution being herein
called the "Commencement Date"); provided, however, that no public announcement
or distribution will be made unless the conditions set forth in Section 7 hereof
shall have been satisfied and complied with prior to or concurrently with such
commencement. On or as soon as practicable after the Commencement Date, the
Company will issue press releases and publish announcements announcing the
commencement of the Exchange Offer, such press releases and announcements to be
in such form, and such announcements to be published in such publications, as
Merrill Lynch and the Company shall reasonably determine.
(b) The Company hereby retains and authorizes Merrill Lynch to act as its
exclusive Dealer Manager in connection with the Exchange Offer. On the basis of
the representations, warranties and agreements of the Company herein contained
and subject to and in accordance with the terms and conditions hereof and of the
Offering Materials, Merrill Lynch agrees to act as the exclusive Dealer Manager
in connection with the Exchange Offer and to use its best efforts to solicit
Exchanges from Holders.
(c) The Company shall furnish Merrill Lynch, or cause the transfer agent
and registrar for the 5% Preferred Stock (the "Transfer Agent") to furnish
Merrill Lynch, as soon as practicable after the date hereof (to the extent not
previously furnished), with cards or lists or copies thereof showing the names
of persons who were the holders of record or, to the extent available to the
Company, the beneficial owners of the 5% Preferred Stock as of a recent date,
together with their addresses, and the number of shares of 5% Preferred Stock
held by them.
<PAGE>
<PAGE>
4
Additionally, the Company shall use its best efforts to update, or to cause the
Transfer Agent to update, such information from time to time during the term of
this Agreement as requested by Merrill Lynch. Except as otherwise provided
herein, Merrill Lynch agrees to use such information only in connection with the
Exchange Offer. Merrill Lynch shall act hereunder as an independent contractor
and nothing herein contained shall make Merrill Lynch (in its capacity as Dealer
Manager) an agent of the Company in connection with the Exchange Offer. Nothing
contained in this Agreement shall constitute Merrill Lynch (in its capacity as a
Dealer Manager) a partner of or joint venturer with the Company.
(d) The Company authorizes Merrill Lynch to use the Offering Materials in
connection with the Exchange Offer and for such period of time as any Offering
Materials are required by law to be delivered in connection therewith. Merrill
Lynch shall not have any obligation to cause any Offering Materials to be
transmitted generally to Holders. Merrill Lynch agrees not to give any written
information and not to make any representations to Holders in connection with
any Exchange other than as contained in the Offering Materials.
(e) The Company authorizes Merrill Lynch to communicate with any
information agent (the "Information Agent") or exchange agent (the "Exchange
Agent") appointed by the Company to act in such capacity in connection with the
Exchange Offer with respect to matters relating to the Exchange Offer.
(f) The Company agrees that any reference to Merrill Lynch in any Offering
Materials or in any newspaper announcement or press release or other public
document or communication is subject to the prior approval of Merrill Lynch.
3. Compensation. (a) The Company hereby agrees to pay Merrill Lynch for
services rendered and to be rendered by it in connection with the Exchange Offer
a fee (the "Management Fee") equal to 2.0% of (a) the per share liquidation
preference of any New Preferred Stock issued in the Exchange Offer, (b) the
principal amount of any debt securities issued in the Exchange Offer and (c) the
fair market value of any Common Stock or other consideration (including cash)
issued in the Exchange Offer. Such fee is payable in cash in U.S. dollars upon
the consummation of the Exchange Offer. The Management Fee shall be paid only if
the Exchange Offer is consummated, and shall be paid by wire transfer of
immediately available funds upon the Closing Date (as hereinafter defined). In
addition, the Company agrees to reimburse Merrill Lynch directly for all of its
out-of-pocket expenses incurred in connection with the Exchange Offer,
including, without limitation, the reasonable fees and disbursements of its
legal counsel.
4. Certain Covenants of the Company. The Company covenants with Merrill
Lynch as follows:
<PAGE>
<PAGE>
5
(a) To use its best efforts to cause the Registration Statement,
including any post-effective amendment thereto, to become effective and
will notify Merrill Lynch immediately and, if requested by Merrill Lynch,
will confirm the notice in writing, (i) when the Registration Statement,
including any post-effective amendment thereto, shall have become effective
or any supplement to the Prospectus or any amended Prospectus or any
amendment to the Schedule 13E-4 or any amended or additional Offering
Materials shall have been filed, (ii) of the receipt of any comments from
the Commission (whether or not relating to the Exchange Offer), (iii) of
any request by the Commission to amend the Registration Statement or amend
or supplement the Prospectus, the Schedule 13E-4 or the other Offering
Materials or for additional information, (iv) of the receipt of any other
communication (whether written or oral) from the Commission relating to the
Registration Statement, the Schedule 13E-4 or any Offering Materials,
including, without limitation, (A) the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
(B) the issuance by the Commission of any order preventing or suspending
the use of any of the Offering Materials or (C) the suspension of the
qualification of the shares of New Preferred Stock, Common Stock or Series
D Preferred Stock for offering or sale in connection with the Exchange
Offer in any jurisdiction, (D) the institution or threatening of any
proceedings for any of such purposes or (E) the occurrence of any event
which could cause the Company to withdraw, rescind, terminate or modify the
Exchange Offer or would permit the Company to exercise any right not to
accept the 5% Preferred Stock tendered pursuant to the Exchange Offer. The
Company will make every reasonable effort to prevent the issuance of any
such stop order, the issuance of any order preventing or suspending such
use and the suspension of any such qualification and, if any such order is
issued or qualification suspended, to obtain the lifting of such order or
suspension at the earliest possible moment.
(b) Prior to the termination of the Exchange Offer, to give Merrill
Lynch notice of its intention to file or prepare any amendment to the
Registration Statement or any amendment, supplement or revision to either
the prospectus included in the Registration Statement at the time it became
effective or to the Prospectus or any amendment to the Schedule 13E-4 or
the other Offering Materials, whether pursuant to the 1933 Act, the 1934
Act or otherwise, will furnish Merrill Lynch with copies of, and will
consult with Merrill Lynch and counsel for Merrill Lynch concerning, any
such documents within 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 Merrill Lynch or counsel for Merrill Lynch shall object.
(c) To furnish promptly to Merrill Lynch and its counsel, without
charge, signed copies of the Registration Statement and the Schedule 13E-4,
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
<PAGE>
<PAGE>
6
therein) and signed copies of all consents and certificates of experts, and
any other filing with the Commission in connection with the Exchange Offer,
whether filed before or after the Registration Statement becomes effective.
The copies of the Registration Statement, the Schedule 13E-4 and each
amendment thereto furnished to Merrill Lynch 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) To furnish promptly to Merrill Lynch and its counsel, without
charge, from time to time until the effective date of the Registration
Statement, as many copies of each preliminary prospectus as Merrill Lynch
may reasonably request, and the Company hereby consents to the use of such
copies for purposes permitted by the 1933 Act and the 1934 Act. The Company
will furnish promptly to Merrill Lynch, without charge, as soon as the
Registration Statement shall have become effective and thereafter from time
to time as requested during the period when a prospectus is required by the
1933 Act to be delivered in connection with the Exchange Offer, such number
of copies of the Prospectus and the other Offering Materials (as
supplemented or amended) as Merrill Lynch may reasonably request and will
cause all amendments and supplements filed with the Commission to be
distributed to Holders as may be required by the 1933 Act and the 1934 Act.
The Prospectus and any amendments or supplements thereto furnished to
Merrill Lynch 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) To comply in all material respects with the 1933 Act and the 1934
Act in connection with the Offering Materials, the Exchange Offer and the
transactions contemplated hereby and thereby, as applicable. If at any time
when the Prospectus is required by the 1933 Act or 1934 Act to be delivered
in connection with any Exchange Offer, any event shall occur or condition
shall exist as a result of which it is necessary, in the opinion of counsel
for Merrill Lynch or counsel for the Company, to amend the Registration
Statement or amend or supplement the Prospectus, the Schedule 13E-4 or any
other Offering Materials in order that the Prospectus or such other
Offering Materials 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 under
which they were made, or if it shall be necessary, in the opinion of such
counsel, to amend the Registration Statement or amend or supplement the
Prospectus, the Schedule 13E-4 or any other Offering Materials to comply
with the requirements of the 1933 Act or 1934 Act, the Company will
promptly prepare, file with the Commission, subject to Section 4(b) of this
Agreement, and furnish, at its own expense, to Merrill Lynch, such
amendment or supplement as may be necessary to correct such untrue
statement or omission or to make the Registration Statement, the
Prospectus, the Schedule 13E-4 or such other Offering Materials comply with
such
<PAGE>
<PAGE>
7
requirements and the Company will furnish to Merrill Lynch such number of
copies of such amendment or supplement as Merrill Lynch may reasonably
request.
(f) To timely file any report or other document required to be filed by
it with the Commission pursuant to Section 13, 14 or 15 of the 1934 Act
during the period of time referred to in Section 4(e) hereof; provided,
however, that the Company shall not file any such report or other document
unless Merrill Lynch shall have previously been advised and furnished
copies thereof; the Company shall deliver to Merrill Lynch, without charge,
such number of copies of such report or other document as Merrill Lynch may
reasonably request.
(g) To use its best efforts, in cooperation with Merrill Lynch, to
qualify the Exchange Offer and the shares of New Preferred Stock, Common
Stock and Series D Preferred Stock for offering and sale under the state
securities or blue sky laws of such jurisdictions as Merrill Lynch may
designate, and shall use its best efforts to comply promptly with such laws
so as to permit the continued qualification of such securities and the
continuation of the Exchange Offer in such jurisdictions for such time as
may be necessary to conduct the Exchange Offer; provided, however, that in
connection therewith the Company shall not be obligated to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in
which it is not so qualified or to file a general consent to service of
process in any jurisdiction or to subject itself to taxation in respect of
doing business in any jurisdiction in which it is not otherwise so subject.
The Company will file such statements and reports as may be required by the
laws of each jurisdiction in which the shares of New Preferred Stock and
Common Stock have been qualified as above provided.
(h) To make generally available to its securityholders and to Merrill
Lynch an earnings statement covering a twelve-month period beginning after
the effective date of the Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the 1933 Act.
(i) To use its best efforts to effect and maintain the quotation of the
Common Stock on the Nasdaq National Market on the Commencement Date or as
soon as practicable thereafter and to file all documents and notices
required by the Nasdaq National Market of companies that have securities
that are traded in the over-the-counter market and quotations for which are
reported by the Nasdaq National Market.
(j) To pay all costs and expenses incurred in connection with the
performance of its obligations in connection with this Agreement and the
Exchange Offer including, without limitation, (i) the preparation, printing
and filing of the Registration Statement (including financial statements
and exhibits), as originally filed and as amended, the preliminary
prospectuses, the Prospectus, the Schedule 13E-4 and the other Offering
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8
Materials and any amendments or supplements to any of the foregoing, and
the cost of furnishing copies thereof to Merrill Lynch and to Holders as
required by this Agreement or applicable law, (ii) the preparation and
distribution of this Agreement, certificates for the shares of New
Preferred Stock and any Blue Sky surveys and the printing of certificates
for the shares of New Preferred Stock, (iii) the distribution of the
Offering Materials to the holders of the 5% Preferred Stock, (iv) the fees
and disbursements of counsel for the Company and the Company's accountants
and other advisors, (v) the qualification of the shares of New Preferred
Stock, Common Stock and Series D Preferred Stock and the Exchange Offer
under the applicable securities laws in accordance with Section 4(f)
(including filing fees and reasonable fees and disbursements of counsel for
Merrill Lynch in connection with such qualification) and any filing for
review of the Exchange Offer with the National Association of Securities
Dealers, Inc. ("NASD") (including filing fees and reasonable fees and
disbursements of counsel for Merrill Lynch in connection with such filing
with the NASD), (vi) the fees and expenses of the Transfer Agent, the
Information Agent and the Exchange Agent, (vii) the out-of-pocket expenses
of Merrill Lynch incurred in connection with the Exchange Offer as provided
in Section 3 and (viii) all other costs and expenses incident to the
Exchange Offer incurred by the Company and its subsidiary. The Company
agrees to pay all of the aforementioned costs and expenses whether or not
the Exchange Offer is consummated.
(k) To advise or cause the Exchange Agent to advise Merrill Lynch at
5:00 P.M., New York City time, or as promptly as practicable thereafter,
daily (or more frequently if requested), by telephone or facsimile
transmission, with respect to 5% Preferred Stock tendered as of 4:00 P.M on
such day as follows:
(i) the number of shares of 5% Preferred Stock validly tendered
represented by certificates physically held by the Exchange Agent (or
for which the Exchange Agent has received confirmation of receipt of
book-entry transfer of such 5% Preferred Stock into the Exchange Agent's
account at the book-entry transfer facility (as defined in the
Prospectus) pursuant to the procedures set forth in the Exchange Offer)
on such day;
(ii) the number of shares of 5% Preferred Stock properly withdrawn
on such day; and
(iii) the cumulative number of shares of 5% Preferred Stock in
categories (i) and (ii) above.
On the day following such oral communication, the Company shall furnish or
cause the Exchange Agent to furnish to Merrill Lynch a written report
confirming the above information which has been communicated orally. The
Company shall furnish or cause
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9
the Exchange Agent to furnish to Merrill Lynch such other reasonable
information on the tendering Holders as may be requested from time to time.
(l) To give Merrill Lynch notice of any change of the expiration date of
the Exchange Offer (the "Expiration Date").
(m) To promptly give Merrill Lynch notice of the setting of any record
date or any change thereof with respect to the 5% Preferred Stock.
5. Representations and Warranties of the Company. (a) The Company
represents and warrants to, and agrees with, Merrill Lynch that:
(i) Each preliminary prospectus and the Prospectus 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, will comply when
so filed in all material respects as to form with the requirements of the
1933 Act and the 1934 Act and each preliminary prospectus and the
Prospectus delivered to the Dealer Manager for use in connection with the
Exchange Offer 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, and on the effective date of each part of the
Registration Statement and on the date on which the Exchange Offer is
consummated and the shares of New Preferred Stock and Common Stock are
issued (the "Closing Date"), (i) the Registration Statement and the
Prospectus and any amendments or supplements thereto will comply in all
material respects with the requirements of the 1933 Act and the 1934 Act;
(ii) neither the Registration Statement nor any amendment thereto (on its
effective date and the Closing Date) will 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; and
(iii) neither the Prospectus nor any amendments or supplements thereto will
include an untrue statement of a material fact or 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; provided,
however, that this representation and warranty does not apply to statements
or omissions made in reliance upon and in conformity with information
furnished in writing to the Company by Merrill Lynch expressly for use in
the Registration Statement or Prospectus.
(ii) The Schedule 13E-4, as originally filed and subsequently amended,
the other Offering Materials and any amendment or supplement thereto
conform, or will conform, in all material respects with all applicable
requirements of the 1933 Act and the 1934 Act; and none of the Schedule
13E-4, the other Offering Materials or any amendment or supplement thereto
includes, or will include, an untrue statement of a material fact or 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;
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10
provided, however, that this representation and warranty shall not apply to
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by Merrill Lynch expressly
for use therein.
(iii) The documents incorporated or deemed to be incorporated by
reference in the Registration Statement and the Prospectus, 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 Prospectus, at the
time the Registration Statement became effective, at the time the
Prospectus was issued and at the Closing Date, 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.
(iv) 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.
(v) The financial statements and the related notes of the Company
included in the Registration Statement and the Prospectus present fairly in
accordance with generally accepted accounting principles 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
generally accepted accounting principles 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 Prospectus present fairly in accordance with generally accepted
accounting principles 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.
(vi) Since the respective dates as of which information is given in the
Registration Statement, the Prospectus and the Schedule 13E-4, except as
otherwise stated therein or contemplated thereby, there has not been (i)
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 (a "Material Adverse Effect"), (ii) 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 (iii) any
dividend or distribution of any kind declared, paid or made by the Company
on any class of its capital stock.
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11
(vii) 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 Prospectus, to enter into
and perform its obligations under this Agreement and to make and consummate
the Exchange Offer and the Solicitation; 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.
(viii) 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 Prospectus
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.
(ix) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if any, pursuant
to the Exchange Offer, pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to the exercise of
convertible securities or options referred to in the Prospectus). 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.
(x) This Agreement has been duly authorized, executed and delivered by
the Company.
(xi) The shares of New Preferred Stock issuable in connection with the
Exchange Offer will be duly authorized by the Company and, when issued in
exchange for shares of 5% Preferred Stock pursuant to the Exchange Offer,
will be validly issued,
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12
fully paid and non-assessable; the shares of Common Stock issuable upon
conversion of the shares of New Preferred Stock by the holders thereof or
upon the issuance of shares to pay any accrued dividends on the New
Preferred Stock will be duly authorized by the Company and, when issued,
will be validly issued, fully paid and non-assessable; the shares of Series
D Preferred Stock issuable in exchange for shares of New Preferred Stock
upon the occurrence of an automatic exchange as provided in the Certificate
of Designations for the New Preferred Stock will be duly authorized by the
Company and, when issued, will be validly issued, fully paid and
non-assessable; the New Preferred Stock, the Common Stock, the Series D
Preferred Stock and the 5% Preferred Stock (both prior to and after giving
effect to the Proposed Amendment) conform in all material respects to all
statements relating thereto contained in the Prospectus and the
descriptions thereof in the Prospectus conform in all material respects to
the rights set forth in the instruments defining the same (both prior to
and after giving effect to the Proposed Amendment); no holder of the shares
of New Preferred Stock, Common Stock or Series D Preferred Stock will be
subject to personal liability by reason of being such a holder; and the
issuance of the shares of New Preferred Stock is not, and the issuance of
Common Stock or Series D Preferred Stock will not be, subject to the
preemptive or other similar rights of any securityholder of the Company.
(xii) 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, the issuance and delivery of the shares
of New Preferred Stock in exchange for shares of 5% Preferred Stock in the
Exchange Offer, the issuance and delivery of shares of Common Stock upon
the conversion of shares of New Preferred Stock by the holders thereof, the
issuance and delivery of shares of Series D Preferred Stock in exchange for
shares of New Preferred Stock upon the occurrence of an automatic exchange
pursuant to the Certificate of Designations for the New Preferred Stock,
the making and consummation of the Exchange Offer and the Solicitation
(including effectiveness of the Proposed Amendment), the consummation by
the Company of the transactions contemplated in this Agreement, the
Registration Statement, the Schedule 13E-4 and the other Offering
Materials, the consummation of the Exchange Offer and the Solicitation and
compliance by the Company with the terms of this Agreement, the
Registration Statement, the Schedule 13E-4 and the other Offering Materials
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
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<PAGE>
13
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 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.
(xiii) 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.
(xiv) 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 Prospectus (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
consummation of the Exchange Offer or the transactions contemplated by this
Agreement, the Registration Statement, the Schedule 13E-4 or the
Solicitation, or the performance by the Company of its obligations
hereunder or in the Exchange Offer; 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.
(xv) There are no contracts or documents which are required to be
described in the Registration Statement, the Prospectus or the Schedule
13E-4 or to be filed as exhibits which have not been so described and filed
as required.
(xvi) 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
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14
(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 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 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.
(xvii) 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 making or consummation
of the Exchange Offer as set forth in the Registration Statement, the
Prospectus and the Schedule 13E-4 and the consummation by the Company the
transactions contemplated in this Agreement, the Solicitation and in the
Registration Statement, the Prospectus and the Schedule 13E-4, except such
as have been already obtained or as may be required under the 1933 Act, the
1934 Act or securities or blue sky laws of the various states.
(xviii) Except as disclosed in the Prospectus, the Company and its
subsidiary possess such permits, licenses (including, without limitation,
the FCC License, as defined in the Prospectus), 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 Schedule 13E-4; 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.
(xix) 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 Prospectus
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
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15
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 Prospectus, 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.
(xx) The Company is not, and upon the consummation of the Exchange Offer
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").
(xxi) Except as described in the Registration Statement and the Schedule
13E-4, 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.
(xxii) 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
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16
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 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.
(xxiii) 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.
(xxiv) Except as described in the Prospectus, 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.
(xxv) 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, the
Prospectus or the Schedule 13E-4 which is not so described or is not
described as required.
(xxvi) The Company has not distributed and, prior to the Closing Date,
will not distribute any Offering Materials in connection with the exchange
of the shares of New Preferred Stock for shares of 5% Preferred Stock,
other than the Registration Statement, any preliminary prospectus, the
Prospectus or any other Offering Materials, if any, permitted by the 1933
Act and the 1934 Act and approved by Merrill Lynch.
(xxvii) 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 other parties thereto,
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17
is a valid, legal and binding obligation of 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 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).
(xxviii) On or prior to the consummation of the Exchange Offer and
subject to obtaining the necessary stockholder approval thereto in a timely
fashion, the Certificate of Designations of the 5% Preferred Stock will
have been duly and validly amended by the Proposed Amendment. The
Certificate of Designations, as amended by the Proposed Amendment, will
conform in all material respects to all descriptions thereof in the
Prospectus.
(b) Any certificate signed by any officer of the Company delivered to
Merrill Lynch or to its counsel shall be deemed a representation and warranty by
the Company to Merrill Lynch as to the matters covered thereby.
6. Indemnification. (a) The Company agrees to indemnify and hold
harmless Merrill Lynch and each person, if any, who controls Merrill Lynch
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), 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, the Prospectus (or any amendment or supplement thereto), the
Schedule 13E-4 or any other Offering Materials (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, (A) which otherwise arises out of or is otherwise
based upon a withdrawal, rescission or modification of or a failure to make
or consummate the Exchange Offer, (B) which otherwise arises out of or is
related to this Agreement or the Exchange Offer or the services provided by
Merrill Lynch in connection with this Agreement or the Exchange Offer or
(C) which otherwise arises out of or is related to any breach by the
Company of a representation or warranty contained in this Agreement;
(iii) 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
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18
omission, any such alleged untrue statement or omission or any such matters
listed in clauses (i) and (ii) above; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company; and
(iv) 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, any such alleged untrue statement or omission or any
such matters listed in clauses (i) and (ii) above, to the extent that any
such expense is not paid under clause (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
Merrill Lynch expressly for use in the Registration Statement (or any amendment
thereto), any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), the Schedule 13E-4 or any other Offering Materials; and
provided further that the indemnity contained in clause (ii) above shall not
apply to any loss, liability, claim, damage or expense that is found by a court
of competent jurisdiction to have resulted from Merrill Lynch's gross
negligence, bad faith or willful misconduct. The Company also agrees that
Merrill Lynch shall not have any liability (whether direct or indirect, in tort,
contract or otherwise) to the Company or its subsidiary or its or their
securityholders or creditors related to or arising out of this Agreement or the
Exchange Offer or the services provided by Merrill Lynch in connection with this
Agreement or the Exchange Offer, except (i) to the extent such liability is
found by a final judgment of a court of competent jurisdiction to have resulted
from Merrill Lynch's gross negligence, bad faith or willful misconduct or (ii)
as expressly provided Section 6(b).
(b) Merrill Lynch agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement or the
Schedule 13E-4, 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)(i), (iii) and (iv) 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), any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), the Schedule 13E-4 or any other Offering Materials in
reliance upon and in conformity with written information furnished to the
Company by Merrill Lynch expressly for use in the Registration Statement (or any
amendment thereto), such preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), the Schedule 13E-4 or any other Offering
Materials.
(c) 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
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19
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 for the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 6(b) above, counsel
for 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 for the indemnifying party shall not (except
with the consent of the indemnified party) also be counsel for 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) 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)(iii) 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.
7. Contribution. If the indemnification provided for in Section 6 is for
any reason unavailable to or insufficient to hold harmless an indemnified person
in respect of any loss, liability, claim, damage or expense referred to therein,
then the indemnifying person shall contribute to the aggregate amount of such
loss, liability, claim, damage and expense, as incurred by such indemnified
party (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and Merrill Lynch on the other from the
Exchange Offer or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) but also the relative fault
of the Company on the one hand and Merrill Lynch on the other in connection with
any statements or omissions or any other matters which
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20
resulted in such loss, damage, expense, liability or claim, as well as any other
relevant equitable considerations.
The relative benefits received by the Company on the one hand and
Merrill Lynch on the other shall be deemed to be in the same respective
proportions as the maximum aggregate liquidation preference of the shares of New
Preferred Stock issuable pursuant to the Exchange Offer plus the fair market
value of any other consideration payable to tendering holders in the Exchange
Offer (less registration fees of the Exchange Offer) bears to the maximum amount
of fees payable to Merrill Lynch pursuant to Section 3 hereof.
The relative fault of the Company on the one hand and Merrill Lynch on
the other (i) in the case of any untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact,
shall be determined by reference to, among other things, whether such statement
or omission relates to information supplied by the Company or its affiliates or
Merrill Lynch, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission and
(ii) in the case of any other action or omission, shall be determined by
reference to, among other things, whether such action or omission was taken or
omitted to be taken by the Company or its subsidiary or their affiliates or by
Merrill Lynch, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action or omission.
The Company and Merrill Lynch agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in this Section 7. The aggregate amount
of loss, liability, claim, damage and expense 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 7,
Merrill Lynch shall not be required to contribute any amount in excess of the
fee paid to Merrill Lynch as provided in Section 3 hereof. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act of 1933, as amended) 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 Merrill
Lynch 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 Merrill Lynch, and each
director of the Company, each officer of the Company who signed the Registration
Statement or the Schedule 13E-4, 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.
8. Conditions to Merrill Lynch's Obligations. The obligations of Merrill
Lynch hereunder are subject as of the Commencement Date and as of the Closing
Date to the
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21
accuracy of the representations and warranties of the Company contained herein
or in certificates of any officer 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) The Registration Statement shall have become effective and at or
prior to the Commencement Date and the Closing Date, 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 there shall not have been any material legal action
or other administrative proceeding instituted or threatened against the
Company or against Merrill Lynch relating to Merrill Lynch acting in its
capacity as Dealer Manager with respect to the Exchange Offer, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel for Merrill
Lynch.
(b) At the Commencement Date and the Closing Date, Merrill Lynch shall
have received the favorable opinion, dated as of the Closing Date, of Paul,
Weiss, Rifkind, Wharton & Garrison, counsel for the Company, in form and
substance satisfactory to counsel for Merrill Lynch to the effect set forth
in Exhibit A hereto and to such further effect as counsel for Merrill Lynch
may reasonably request. 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, 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 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 subsidiary and certificates of public officials.
(c) At the Commencement Date and the Closing Date, Merrill Lynch shall
have received the favorable opinion, dated as of the Closing Date, of
Wiley, Rein & Felding, regulatory counsel for the Company, in form and
substance satisfactory to counsel for Merrill Lynch to the effect set forth
in Exhibit B-1 hereto and to such further effect as counsel for Merrill
Lynch may reasonably request.
(d) At the Commencement Date and the Closing Date, Merrill Lynch shall
have received the favorable opinion, dated as of the Closing Date, of
Bright & Lorig patent counsel for the Company, in form and substance
satisfactory to counsel for Merrill Lynch to the effect set forth in
Exhibit B-2 hereto and to such further effect as counsel for Merrill Lynch
may reasonably request.
(e) At the Commencement Date and the Closing Date, Merrill Lynch shall
have received the favorable opinion, dated as of the Closing Date, of
Marzouk & Parry, other intellectual property counsel for the Company, in
form and substance satisfactory to counsel for Merrill Lynch to the effect
set forth in Exhibit B-3 hereto and to such further effect as counsel to
Merrill Lynch may reasonably request.
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22
(f) At the Closing Date, Merrill Lynch shall have received the favorable
opinion, dated as of the Closing Date, of Shearman & Sterling, counsel for
Merrill Lynch, with respect to the matters set forth in clauses (i), (v),
(vi), (viii) and (x) and the penultimate paragraph of Exhibit A hereto.
(g) At the Closing Date, there shall not have been, since the date
hereof or since the respective dates as of which information is given in
the 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, and Merrill Lynch shall have
received a certificate of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the Company,
dated as of the Closing Date, to the effect that (i) there has been no such
material adverse change, (ii) the representations and warranties in Section
5(a) hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Date, (iii) the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Date, 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.
(h) At the Commencement Date, Merrill Lynch shall have received from
Coopers & Lybrand L.L.P., a letter dated such date, in form and substance
satisfactory to Merrill Lynch 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 Prospectus.
(i) At the Closing Date, Merrill Lynch shall have received from Coopers
& Lybrand L.L.P., a letter, dated as of the Closing Date, to the effect
that they reaffirm the statements made in the letter furnished pursuant to
subsection (h) of this Section.
(j) At or prior to the Commencement Date, the Company shall have entered
into appropriate agreements with the Information Agent, the Exchange Agent
and the Transfer Agent and such other agents for purposes of the Exchange
Offer, in form and substance satisfactory to Merrill Lynch and its counsel.
(k) (i) The Registration Statement, the Schedule 13E-4 and the
Prospectus, as they may then be amended or supplemented, shall contain all
statements that are required to be stated therein under the 1933 Act and in
all material respects shall conform to the requirements of the 1933 Act and
none of the Registration Statement, the Schedule 13E-4 or the Prospectus,
as they may then be amended or supplemented, shall 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, (ii) the Company shall have complied with all agreements and
satisfied all conditions hereunder
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23
on its part to be performed and satisfied at or prior to the Commencement
Date and the Closing Date and (iii) the other representations and
warranties of the Company set forth in this Agreement shall be accurate as
though expressly made at and as of the Commencement Date and the Closing
Date.
(l) On or after the date hereof there shall not have occurred any of the
following: (i) since the time of execution of this Agreement or since the
respective dates as of which information is given in the Registration
Statement, 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,
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
Dealer Manager, impracticable to or inadvisable to proceed with the
Exchange Offer or the delivery of the shares of New Preferred Stock on the
Closing Date on the terms and in the manner contemplated in the Prospectus,
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.
(m) All proceedings taken in connection with the Exchange Offer,
including, without limitation, the authorization, issuance and delivery of
the shares of New Preferred Stock, shall be in form and substance
satisfactory to Merrill Lynch and its counsel, and such counsel shall have
been furnished with all such documents, certificates and opinions as they
may reasonably request for the purpose of enabling them to pass upon the
matters referred to in subsection (f) of this Section 8 and in order to
evidence the accuracy and completeness of any of the representations or
warranties of the Company, the performance of any covenants of the Company
theretofore to be performed, or the compliance with any of the conditions
herein contained.
9. Termination. (a) This Agreement shall terminate upon the earliest to
occur of (i) thirty days after the final expiration date of the Exchange Offer,
(ii) the date on which Merrill Lynch gives notice to the Company that any of the
conditions specified in Section 8 have not been fulfilled as of any date such
condition is required to be fulfilled pursuant to Section 8, (iii) the date on
which Merrill Lynch gives notice to the Company that it reasonably objects to
any amendment or supplement to the Registration Statement, the Schedule 13E-4 or
the Offering Materials that the Company has filed or proposes to file with the
Commission (provided that, in the case of any such proposed filing, the Company
has
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24
indicated that it intends to file such amendment or supplement notwithstanding
such objection or disapproval) or that it reasonably objects to the Company's
decision not to file with the Commission an amendment or supplement to the
Registration Statement, the Schedule 13E-4 or the Offering Materials proposed by
Merrill Lynch in order to comply with the requirements of the 1933 Act or the
1934 Act, or (iv) the date on which the Company terminates or withdraws the
Exchange Offer for any reason (the earliest to occur of clause (i), (ii), (iii)
or (iv) being referred to as the "Termination Date").
(b) Notwithstanding termination of this Agreement pursuant to subsection
(a) of this Section 9, Sections 3, 5, 6, 7, 14 and 18 shall survive any
termination of this Agreement.
10. 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 Dealer Manager shall be
directed to Merrill Lynch & Co., World Financial Center, North Tower, New York,
New York 10281-1305, Attention: General Counsel, with a copy to David J.
Beveridge, Esq., Shearman & Sterling, 599 Lexington Avenue, New York, New York
10022, and notices to the Company shall be directed to it at 1001 22nd Street,
N.W., Sixth Floor, Washington, D.C. 20037, Attention: Chairman and Chief
Executive Officer with a copy to Leonard V. Quigley, Esq., Paul, Weiss, Rifkind,
Wharton & Garrison, 1285 Avenue of the Americas, New York, New York 10019.
11. Tombstone. The Company acknowledges that Merrill Lynch may place an
announcement in such newspapers and periodicals as it may choose, stating that
Merrill Lynch is acting as Dealer Manager and financial advisor to the Company
in connection with the Exchange Offer. The costs relating to any such tombstone
shall be borne by Merrill Lynch.
12. Survival of Certain Provisions. The representations, warranties,
indemnities and agreements of the Company will remain operative and in full
force and effect regardless of any investigation made by or on behalf of Merrill
Lynch or any affiliate or controlling person thereof and Sections 3, 5, 6, 7,
9(b), 14 and 18 of this Agreement will survive the consummation of the Exchange
Offer.
13. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York.
14. Independent Contractor. The Company acknowledges and agrees that
Merrill Lynch has been retained to act solely as Dealer Manager to the Company.
In such capacity, Merrill Lynch shall act as an independent contractor, and any
duties of Merrill Lynch arising out of its engagement pursuant to this Agreement
shall be owed solely to the Company.
15. Severability. If any term or provision of this Agreement or the
application thereof shall, in any jurisdiction and to any extent, be invalid or
unenforceable, such term or provision shall be ineffective as to such
jurisdiction solely to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable any remaining terms or provisions hereof or
affecting the validity or enforceability of such term or provision in any other
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25
jurisdiction. To the extent permitted by applicable law, the parties hereto
waive any provision of law that renders any term or provision of this Agreement
invalid or unenforceable in any respect.
16. Counterparts. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute one and
the same Agreement.
17. Successors. This Agreement is made solely for the benefit of Merrill
Lynch and the Company and, to the extent expressed, the indemnified parties and
their executors, administrators, successors and assigns, and no other persons
shall acquire or have any right under or by virtue of this Agreement.
18. Waiver of Jury Trial. The Company (in its own behalf and, to the
extent permitted by applicable law, on behalf of its shareholders) and Merrill
Lynch waive all right to trial by jury in any action, proceeding or counterclaim
(whether based upon contract, tort or otherwise) related to or arising out of
the engagement of Merrill Lynch pursuant to, or the performance by Merrill Lynch
of the services contemplated by, this Agreement.
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26
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement among the Company and Merrill Lynch
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 & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: Merrill Lynch, Pierce, Fenner
& Smith Incorporated
By:
-----------------------------------
Name:
Title:
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Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 8(b)
(i) The Company has been duly incorporated 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
Prospectus and to enter into and perform its obligations under the Dealer
Manager Agreement and to make and consummate the Exchange Offer and the
Solicitation.
(iii) The Company 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.
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to the
Exchange Offer or pursuant to reservations, agreements or employee benefit plans
referred to in the Prospectus or pursuant to the exercise of convertible
securities or options referred to in the Prospectus); 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 or
other similar rights of any securityholder of the Company.
(v) The shares of New Preferred Stock and Common Stock issuable in
connection with the Exchange Offer have been duly authorized by the Company and,
when issued in exchange for shares of 5% Preferred Stock pursuant to the
Exchange Offer, have been validly issued, fully paid and non-assessable; the New
Preferred Stock, the Common Stock and the 5% Preferred Stock (both prior to and
after giving effect to the Proposed Amendment) conform to all statements
relating thereto contained in the Prospectus and the descriptions thereof in the
Prospectus conform to the rights set forth in the instruments defining the same
(both prior to and after giving effect to the Proposed Amendment); and no holder
of the shares of New Preferred Stock or Common Stock will be subject to personal
liability by reason of being such a holder.
(vi) The issuance of the shares of New Preferred Stock and Common Stock is
not subject to the preemptive or other similar rights of any securityholder of
the Company.
(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
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28
Prospectus 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, to the best of 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 or similar rights of any securityholder of Satellite CD Radio,
Inc.
(viii) The Dealer Manager Agreement has been duly authorized, executed and
delivered by the Company.
(ix) The Registration Statement has been declared effective under the 1933
Act; any required filing of the Prospectus 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 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, the Prospectus, excluding the documents
incorporated by reference therein, and each amendment or supplement to the
Registration Statement and Prospectus, 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) complied as to form in all
material respects with the requirements of the 1933 Act.
(xi) The Schedule 13E-4, excluding the documents incorporated by reference
therein, and each amendment thereto, excluding the documents incorporated by
reference therein (other than the financial statements and supporting schedules
included therein or omitted therefrom, as to which we need express no opinion),
complied as to form in all material respects with the requirements of the 1934
Act.
(xii) The documents incorporated by reference in the Prospectus (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.
(xiii) The forms of certificate used to evidence the shares of New
Preferred Stock and 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.
(xiv) To the best of our knowledge, 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
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29
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 Exchange Offer, the Solicitation or
the transactions contemplated by the Dealer Manager Agreement, the Registration
Statement, the Schedule 13E-4 or the other Offering Materials, or the
performance by the Company of its obligations thereunder or in connection with
the Exchange Offer and the Solicitation; to the best of our knowledge, the
aggregate of 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 or
the Schedule 13E-4, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material Adverse
Effect.
(xv) The information in the Prospectus under "Description of Capital
Stock," "Description of New Preferred Stock," "Tax Matters," and
"Business--Legal Proceedings" and in the Registration Statement under Item 20,
to the extent that it constitutes matters of law, summaries of legal matters,
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.
(xvi) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectus that are not described as
required.
(xvii) All descriptions in the Registration Statement and the Schedule
13E-4 of contracts and other documents to which the Company or its subsidiary
are a party are accurate in all material respects; to the best of 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 the Schedule 13E-4 or to be filed as exhibits
thereto other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the descriptions thereof or
references thereto are correct in all material respects.
(xviii) To the best of our knowledge, neither the Company nor its
subsidiary is in violation of its charter or by-laws and 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, the
Prospectus, the Schedule 13E-4 or filed or incorporated by reference as an
exhibit to the Registration Statement or the Schedule 13E-4.
(xix) No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign, (other than under the 1933 Act, which have been
obtained, or as may be required under the securities or blue sky laws of the
various states, as to which we need express no opinion) is necessary or required
in connection with the due authorization, execution and delivery of the Dealer
Manager Agreement or for the issuance or exchange of the shares of New Preferred
Stock and Common Stock in the Exchange Offer.
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30
(xx) The execution, delivery and performance of the Dealer Manager
Agreement and the consummation of the transactions contemplated therein, in the
Registration Statement, the Schedule 13E-4 and the other Offering Materials
(including the issuance and exchange of the shares of New Preferred Stock and
Common Stock pursuant to the Exchange Offer and the receipt of consents pursuant
to the Solicitation) and compliance by the Company with its obligations under
the Dealer Manager Agreement, the Registration Statement, the Schedule 13E-4 and
the other Offering Materials and the consummation of the Exchange Offer and the
Solicitation 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 5(xi) of the Dealer Manager Agreement)
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, any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or any other agreement or instrument, known to us, to
which the Company or its subsidiary is a party or by which it or either 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, domestic or foreign, having jurisdiction
over the Company or its subsidiary or any of their respective properties, assets
or operations.
(xxi) The Company is not, and upon the consummation of the Exchange Offer
will not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the 1940 Act.
(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.
Nothing has come to our attention that would lead us to believe that (i)
the Registration Statement or any amendment 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 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 Prospectus 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 Prospectus was issued, at the time any such
amended or supplemented prospectus was issued or at the Closing Date,
<PAGE>
<PAGE>
31
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 or
(ii) the Schedule 13E-4 or any amendment 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),
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.
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 & Felding, special counsel to the
Company (which opinion shall be dated and furnished to Merrill Lynch at the
Closing Date, 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).
<PAGE>
<PAGE>
Exhibit B-1
FORM OF OPINION OF REGULATORY COUNSEL TO THE COMPANY
TO BE DELIVERED PURSUANT TO SECTION 8(c)
(A) (1) The execution, delivery and performance of the Dealer Manager
Agreement and the consummation of the transactions contemplated therein, in the
Registration Statement, the Schedule 13E-4 and the other Offering Materials
(including the issuance and exchange of the shares of New Preferred Stock and
Common Stock pursuant to the Exchange Offer and the receipt of consents pursuant
to the Solicitation) and compliance by the Company with its obligations under
the Dealer Manager Agreement, the Registration Statement, the Schedule 13E-4 and
the other Offering Materials and the consummation of the Exchange Offer and the
Solicitation 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 subsidiary,
(iii) any state telecommunications law, rules or regulations ("State Law")
applicable to the Company or its subsidiary, 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 Dealer Manager Agreement or the
consummation of the Exchange Offer, the Stock Offering or the Notes Offering,
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, prospects or operations of the Company and its subsidiary,
taken as a whole.
(B) Except as described in the Prospectus, (1) each of the Company and its
subsidiary has made all reports and filings, and paid all fees, required by the
FCC, 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 Prospectus; and
(2) neither the Company nor its subsidiary 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 subsidiary now operated by them or intended to
be operated by them in the manner described in the Prospectus, taken as a whole.
<PAGE>
<PAGE>
B-1-2
(C) Neither the Company nor its subsidiary is in violation of, or in
default under the Communications Act or the telecommunications rules or
regulations of the FCC, 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
subsidiary, taken as a whole.
(D) Except as described in the Prospectus, 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 its subsidiary and
(ii) no litigation, proceeding, inquiry or investigation has been commenced or
threatened against the Company or its subsidiary 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 subsidiary, taken as a
whole.
(E) The statements in the Prospectus under the captions "Risk
Factors--Possible Failure to Obtain FCC Approvals, Including the FCC License,"
"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.
<PAGE>
<PAGE>
Exhibit B-2
FORM OF OPINION OF PATENT COUNSEL TO THE COMPANY
TO BE DELIVERED PURSUANT TO SECTION 8(d)
(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 pending adversarial legal or
governmental proceedings (including without limitation interference proceedings)
relating to patents of the Company.
(D) The statements in the Prospectus under the captions "Risk
Factors--Uncertain Patent Protection" and "Business--Technology, Patents and
Trademarks," and as marked on the pages attached hereto, insofar as such
statements constitute a summary of the legal matters, documents or proceedings
referred to therein, fairly summarize the matters referred to therein.
<PAGE>
<PAGE>
Exhibit B-3
FORM OF OPINION OF OTHER INTELLECTUAL PROPERTY COUNSEL TO THE
COMPANY TO BE DELIVERED PURSUANT TO SECTION 8(e)
(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.
<PAGE>
<PAGE>
FORM OF
CD RADIO INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF
10 1/2% SERIES C CONVERTIBLE PREFERRED STOCK
------------------
PURSUANT TO SECTION 151(g) OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------
CD Radio Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation (the "Board of Directors"), in a duly convened meeting thereof on
October 13, 1997, adopted the following resolution, which resolution remains in
full force and effect as of the date hereof:
WHEREAS, the Board of Directors is authorized, within the
limitations and restrictions stated in the Certificate of Incorporation of the
Corporation, to fix by resolution or resolutions the designation of each series
of Preferred Stock of the Corporation (the "Preferred Stock") and the powers,
preferences and relative, participating, optional or other special rights and
the qualifications, limitations or restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution or distribution of assets,
conversion or exchange, and such other subjects or matters as may be fixed by
resolutions of the Board of Directors under the General Corporation Law of
Delaware; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to its authority as aforesaid, to authorize and fix the
terms of a series of Preferred Stock and the number of shares constituting such
series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized
such series of Preferred Stock on the terms and with the provisions herein set
forth:
1. Number of Shares; Designation. A total of 2,000,000 shares of
Preferred Stock of the Corporation are hereby designated as 10 1/2% Series C
Convertible Preferred Stock (the "Series C Preferred Stock"). The number of
authorized shares of Series C Preferred Stock may be decreased, at any time and
from time to time, by resolution of the Board of Directors of the Corporation;
provided, however, that no decrease shall reduce the authorized number of shares
of the series to a number less than the number of shares of Series C Preferred
Stock outstanding.
<PAGE>
<PAGE>
2
2. Rank. The Series C Preferred Stock shall, with respect to
payment of dividends, redemption payments and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation, (x) rank senior and
prior to the Common Stock, par value $.001 per share, of the Corporation (the
"Common Stock") and any other class or series of capital stock of the
Corporation that by its terms ranks junior to the Series C Preferred Stock as to
payment of dividends, redemption payments and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation, (y) rank on a
parity with all Parity Dividend Stock (as defined in Section 3(a)) and all
Parity Liquidation Stock (as defined in Section 5(b)), and (z) rank junior to
the Corporation's 5% Delayed Convertible Preferred Stock and all Senior Dividend
Stock (as defined in Section 3(c)), all Senior Liquidation Stock (as defined in
Section 5(b)) and to any class or series of capital stock of the Corporation
(other than the Common Stock), whether currently issued or issued in the future,
that does not by its terms expressly provide that it ranks on a parity with or
junior to the Series C Preferred Stock as to dividends and rights upon
liquidation, dissolution or winding-up of the Corporation (which shall include,
for purposes of the foregoing, any entity with which the Corporation may be
merged or consolidated or to which all or substantially all the assets of the
Corporation may be transferred or which transfers all or substantially all of
its assets to the Corporation).
3. Dividends. (a)(1) Except as provided in Section 3(a)(2) hereof, the
holders of the issued and outstanding shares of the Series C Preferred Stock
shall be entitled to receive, as and when declared by the Board of Directors,
out of funds legally available therefor in the case of dividends paid in cash,
cumulative dividends at the annual rate per share of 10.5% of the sum of (x) the
Liquidation Preference (defined in Section 5 hereof) 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 shares of Series C Preferred Stock shall accrue quarterly at the
rate per share of 2.625% of the sum of (x) the Liquidation Preference 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 and shall be payable quarterly in arrears initially on
November 15, 2002 (the "First Scheduled Dividend Payment Date") and thereafter
on February 15, May 15, August 15 and November 15 of each year (each, a
"Dividend Payment Date"), except that if any Dividend Payment Date is not a
business day then the Dividend Payment Date shall be on the first immediately
succeeding business day (as used herein, the term "business day" shall mean any
day except a Saturday, Sunday or day on which banking institutions are legally
authorized to close in The City of New York). No dividends shall be paid to the
holders of Series C Preferred Stock prior to the First Scheduled Dividend
Payment Date, except as provided in Section 3(a)(2) hereof or unless prior to
such date, shares of Series C Preferred Stock are redeemed by the Corporation
pursuant to Section 4 hereof or purchased by the Corporation upon a Change of
Control (as defined herein) pursuant to Section 6 hereof, in which case the
holders of such shares of Series C Preferred Stock redeemed or purchased by the
Corporation shall be entitled to receive accrued dividends on the date of
redemption or purchase thereof, as the case may be.
(2) The holders of Series C Preferred Stock shall not be entitled
to receive any dividends on any shares of Series C Preferred Stock that are
converted into shares of
<PAGE>
<PAGE>
3
Common Stock 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 of Series C Preferred Stock electing to convert such shares
after having received a notice of redemption pursuant to Section 4 hereof.
(3) Dividend on the Series C Preferred Stock may be paid, in the
sole discretion of the Board of Directors, either in (i) cash, (ii) shares of
Common Stock or (iii) any combination of cash or shares of Common Stock, and the
issuance of such shares of Common Stock pursuant to (ii) or (iii) shall
constitute full payment of any such dividend. Common Stock issued to pay
dividends shall be valued at the Current Market Rate on the date of payment. As
used herein, the "Current Market Rate" shall mean the average closing price of
the Common Stock as reported in The Wall Street Journal for the 20 consecutive
trading days prior to the date in question. All dividend payments paid with
respect to shares of Series C Preferred Stock shall be paid pro rata to the
holders entitled thereto. All shares of Common Stock issued as a dividend with
respect to shares of Series C Preferred Stock will thereupon be duly authorized,
validly issued, fully paid and non-assessable. In no event shall an election by
the Board of Directors to pay dividends, in full or in part, in cash or in
shares of Common Stock in lieu of payment, in full or in part, in cash preclude
the Board of Directors from electing either such alternative in respect of all
or any portion of any subsequent dividend. The Company shall not issue
fractional shares of Common Stock upon payment of any dividends in shares of
Common Stock and any amount of fractional shares of Common Stock otherwise
issuable upon the payment of any dividend in shares of Common Stock shall be
either paid in cash or accrued. If any shares of Common Stock to be issued for
the payment of dividends on the Series C Preferred Stock hereunder require
registration with or approval of any governmental authority under any federal or
state law before the shares may be issued, the Corporation shall in good faith
and as expeditiously as possible endeavor to cause the shares to be so
registered or approved.
(4) Dividends to be paid on a Dividend Payment Date shall be paid
to the holders of record of shares of the Series C Preferred Stock as they
appear on the stock register of the Corporation at the close of business on such
record dates (each, a "Dividend Payment Record Date"), which shall be not more
than 40 days nor fewer than 10 days preceding each Dividend Payment Date
thereof, as shall be fixed by the Board of Directors of the Corporation.
Dividends on account of arrears for any past dividend periods may be declared
and paid at any time, without reference to any regular Dividend Payment Date, to
the holders of record on such date, not exceeding 40 days nor fewer than 10 days
preceding the date on which dividends in arrears will be paid, as may be fixed
by the Board of Directors of the Corporation. Holders of shares of the Series C
Preferred Stock shall be entitled to receive dividends in preference to and in
priority over dividends upon the Common Stock and any other series or class of
the Corporation's capital stock that ranks junior as to dividends to the Series
C Preferred Stock ("Junior Dividend Stock") and shall be on a parity as to
dividends with any series or class of the Corporation's capital stock that
<PAGE>
<PAGE>
4
does not rank senior or junior as to dividends with the Series C Preferred Stock
("Parity Dividend Stock"). The holders of shares of the Series C Preferred Stock
shall not be entitled to any dividends in excess of full cumulative dividends,
as herein provided. No interest shall be payable with respect to any dividend
payment or payments on the Series C Preferred Stock that may be in arrears for
any past dividend period.
(b) No dividends, other than dividends payable solely in Common
Stock, Junior Dividend Stock, or warrants or other rights to acquire such Common
Stock or Junior Dividend Stock, shall be paid or declared and set apart for
payment on, and no purchase, redemption or other acquisition shall be made by
the Corporation of, any Common Stock or Junior Dividend Stock unless and until
all accrued and unpaid dividends on the Series C Preferred Stock shall have been
paid or declared and set apart for payment without interest.
(c) If at any time the Corporation issues any class or series of
capital stock ranking senior and prior to the Series C Preferred Stock with
respect to the payment of dividends ("Senior Dividend Stock") and fails to pay
or declare and set apart for payment accrued and unpaid dividends on such Senior
Dividend Stock, in whole or in part, then (except to the extent allowed by the
terms of the Senior Dividend Stock) no dividend shall be paid or declared and
set apart for payment on the Series C Preferred Stock unless and until all
accrued and unpaid dividends with respect to the Senior Dividend Stock shall
have been paid or declared and set apart for payment, without interest. Except
as provided in Section 3(d) below, no dividends shall be paid or declared and
set apart for payment on any Parity Dividend Stock for any period unless the
Corporation has paid or declared and set apart for payment, or contemporaneously
pays or declares and sets apart for payment, on the Series C Preferred Stock all
accrued and unpaid dividends for all dividend payment periods terminating on or
prior to the date of payment of such dividends. Except as provided in Section
3(d) below, no dividends shall be paid or declared and set apart for payment on
the Series C Preferred Stock for any period unless the Corporation has paid or
declared and set apart for payment, or contemporaneously pays or declares and
sets apart for such payment, on any Parity Dividend Stock all accrued and unpaid
dividends for all dividend payment periods terminating on or prior to the date
of payment of such dividends.
(d) If at any time the Corporation has failed to pay accrued
dividends on any shares of Series C Preferred Stock on any Dividend Payment Date
or any Parity Dividend Stock on a stated payment date, as the case may be, the
Corporation shall not:
(i) purchase any shares of the Series C Preferred Stock or
Parity Dividend Stock (except for a consideration payable in
Common Stock or Junior Dividend Stock) or redeem fewer than all
of the shares of the Series C Preferred Stock and Parity Dividend
Stock then outstanding except for (x) the repurchase or
redemption of shares of the Series C Preferred Stock made pro
rata among the holders of the shares of the Series C Preferred
Stock then
<PAGE>
<PAGE>
5
outstanding and (y) the repurchase or redemption made pro rata
with respect to all shares of the Series C Preferred Stock and
Parity Dividend Stock then outstanding so that the amounts
repurchased or redeemed shall in all cases bear to each other the
same ratio that, at the time of the repurchase or redemption, the
required redemption payments on the shares of the Series C
Preferred Stock and the other Parity Dividend Stock then
outstanding, respectively, bear to each other, or
(ii) permit any corporation or other entity directly or
indirectly controlled by the Corporation to purchase any Common
Stock, Junior Dividend Stock, shares of the Series C Preferred
Stock or Parity Dividend Stock, except to the same extent that
the Corporation could purchase such shares.
Unless and until all dividends accrued but unpaid in respect of
prior dividend payment periods on shares of the Series C Preferred Stock and any
Parity Dividend Stock at the time outstanding have been paid in full or a sum
sufficient for such payment is declared and set apart, as provided in the
preceding paragraph, all dividends accrued by the Corporation upon shares of the
Series C Preferred Stock or Parity Dividend Stock shall be declared pro rata
with respect to all shares of the Series C Preferred Stock and Parity Dividend
Stock then outstanding, so that the amounts of any dividends declared on shares
of the Series C Preferred Stock and on the Parity Dividend Stock shall in all
cases bear to each other the same ratio that, at the time of the declaration,
all accrued but unpaid dividends in respect of prior dividend payment periods on
shares of the Series C Preferred Stock and the other Parity Dividend Stock,
respectively, bear to each other.
4. Redemption. (a)(1) Optional Redemption. Except as provided in
subsections (a)(2) and (a)(3) of this Section 4, shares of the Series C
Preferred Stock shall not be redeemable prior to November 15, 2002. Thereafter,
subject to the restrictions in Section 3 above, the Corporation may redeem
shares of Series C Preferred Stock, in whole or in part, at the option of the
Corporation, to the extent it has funds legally available therefor in the case
of dividends paid in cash, at the following redemption prices (expressed as
percentages of the Liquidation Preference thereof) per share 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........................................ 102.63%
2004........................................ 101.81%
2005 and thereafter......................... 100.00%
</TABLE>
<PAGE>
<PAGE>
6
plus, in each case, an amount equal to the dividends accrued and unpaid thereon,
if any, whether or not declared, to the redemption date.
(2) Special Redemption. (A) From November 15, 1999 to November
15, 2002, the Corporation may redeem shares of Series C Preferred Stock, in
whole or in part, in the sole discretion of the Board of Directors, to the
extent it has funds legally available therefor in the case of dividends paid in
cash, at the redemption price of 100% of the Liquidation Preference thereof,
plus an amount equal to the dividends accrued and unpaid thereon, if any,
whether or not declared, to the redemption date, if the Current Market Price of
the Common Stock on the date of the notice of redemption (described below)
equals or exceeds $31.50 per share. The $31.50 per share benchmark shall be
subject to adjustment upon the occurrence of certain events in the same manner
as the Conversion Price (defined herein) shall be subject to adjustment as set
forth in Section 6(f) hereof.
(B) Within 30 days of the closing date of the initial public
offering by the Corporation of debt securities in excess of $50,000,000 pursuant
to a registration statement filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act") or pursuant
to Rule 144A under the Securities Act, the Corporation may redeem up to 50% of
the outstanding shares of Series C Preferred Stock, to the extent it has funds
legally available therefor in the case of dividends paid in cash, at the
redemption price of 100% of the Liquidation Preference thereof, plus an amount
equal to the dividends accrued and unpaid thereon, if any, whether or not
declared, to the redemption date.
(3) Mandatory Redemption. On November 15, 2012 (the "Mandatory
Redemption Date"), the Corporation shall redeem all outstanding shares of Series
C Preferred Stock, to the extent it has funds legally available therefor in the
case of dividends paid in cash, at the redemption price of 100% of the
Liquidation Preference thereof, plus an amount equal to the dividends accrued
and unpaid thereon, if any, whether or not declared, to the redemption date.
(4) Payment of Redemption Price. (a) The amount of the redemption
price on any shares of Series C Preferred Stock redeemed, on any redemption set
forth herein, shall be paid in cash (to the extent funds are legally available
therefor) and any accrued and unpaid dividends to be paid on the shares of
Series C Preferred Stock redeemed on such redemption date may be paid in cash
(to the extent funds are legally available therefor) or shares of Common Stock,
or any combination thereof, in the sole discretion of the Board of Directors as
provided in Section 3(a)(3) hereof.
(b) Not less than 15 days nor more than 40 days (such date as
fixed by the Board of Directors of the Corporation referred to herein as the
"Redemption Record Date") prior to the date fixed for any redemption of shares
of the Series C Preferred Stock pursuant
<PAGE>
<PAGE>
7
to this Section 4, a notice specifying the time and place of the redemption and
the number of shares to be redeemed shall be given by first class mail, postage
prepaid, to the holders of record on the Redemption Record Date of the shares of
the Series C Preferred Stock to be redeemed at their respective addresses as the
same shall appear on the books of the Corporation, calling upon each holder of
record to surrender to the Corporation on the redemption date at the place
designated in the notice such holder's certificate or certificates representing
the number of shares specified in the notice of redemption. Neither failure to
mail such notice, nor any defect therein or in the mailing thereof, to any
particular holder shall affect the sufficiency of the notice or the validity of
the proceedings for redemption with respect to the other holders. Any notice
mailed in the manner herein provided shall be conclusively presumed to have been
duly given whether or not the holder receives the notice. On or after the
redemption date, each holder of shares of Series C Preferred Stock to be
redeemed shall present and surrender such holder's certificate or certificates
for such shares to the Corporation at the place designated in the redemption
notice and thereupon the redemption price of the shares, and any accrued and
unpaid dividends thereon to the redemption date, shall be paid to or on the
order of the person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be canceled. In case
fewer than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares.
(c) If a notice of redemption has been given pursuant to this
Section 4 and if, on or before the redemption date, the funds (or shares of
Common Stock if any dividends are to be paid in shares of Common Stock),
necessary for such redemption (including all dividends on the shares of Series C
Preferred Stock to be redeemed that will accrue to the redemption date) shall
have been set aside by the Corporation, separate and apart from its other funds
(or reserved and authorized for issuance if any dividends are to be paid in
shares of Common Stock), in trust for the pro rata benefit of the holders of the
shares of Series C Preferred Stock so called for redemption, then,
notwithstanding that any certificates for such shares of Series C Preferred
Stock have not been surrendered for cancellation, on the redemption date
dividends shall cease to accrue on the shares of the Series C Preferred Stock to
be redeemed, and at the close of business on the date on which such funds have
been segregated and set aside by the Corporation as provided in this Section
4(c), the holders of such shares shall cease to be stockholders with respect to
those shares, shall have no interest in or claims against the Corporation by
virtue thereof and shall have no voting or other rights with respect thereto,
except the conversion rights provided in subsection (d) of this Section 4 and
Section 6 below and the right to receive the moneys payable (or shares of Common
Stock issued if any dividends are to be paid in shares of Common Stock) upon
such redemption, without interest thereon, upon surrender (and endorsement, if
required by the Corporation) of their certificates, and the shares of Series C
Preferred Stock evidenced thereby shall no longer be outstanding. Subject to
applicable escheat laws, any moneys so set aside (or shares of Common Stock
authorized and reserved if any dividends are to be paid in shares of Common
Stock) by the Corporation and unclaimed at the end of two years from
<PAGE>
<PAGE>
8
the redemption date shall revert to the general funds of the Corporation (or be
released from the reservation thereof in the case of shares of Common Stock),
after which reversion the holders of such shares so called for redemption shall
look only to the general funds of the Corporation for the payment of the
redemption price, without interest. Any interest accrued on funds so deposited
shall belong to the Corporation and be paid thereto from time to time.
(d) If a notice of redemption has been given pursuant to this
Section 4 and any holder of shares of Series C Preferred Stock shall, prior to
the close of business on the business day immediately preceding the redemption
date, give written notice to the Corporation pursuant to Section 6 below of the
conversion of any or all of the shares to be redeemed held by the holder
(accompanied by a certificate or certificates for such shares, duly endorsed or
assigned to the Corporation, and any necessary transfer tax payment, as required
by Section 6 below), then such redemption shall not become effective as to such
shares to be converted and such conversion shall become effective as provided in
Section 6 below, whereupon any funds deposited by the Corporation for the
redemption of such shares shall (subject to any right of the holder of such
shares to receive the dividend payable thereon as provided in Section 6 below)
immediately upon such conversion be returned to the Corporation or, if then held
in trust by the Corporation, shall automatically and without further corporate
action or notice be discharged from the trust.
(e) In every case of redemption of fewer than all of the
outstanding shares of the Series C Preferred Stock pursuant to this Section 4,
the shares to be redeemed shall be selected pro rata or by lot or in such other
manner as the Board of Directors of the Corporation may determine, as may be
prescribed by resolution of the Board of Directors of the Corporation, provided
that only whole shares shall be selected for redemption.
5. Liquidation. (a) In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, the holders of the
Series C Preferred Stock shall be entitled to receive $100.00 per share (the
"Liquidation Preference"), plus an amount equal to the accrued and unpaid
dividends thereon, whether or not declared, to the payment date.
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, the holders of shares of Series C
Preferred Stock (i) shall not be entitled to receive the Liquidation Preference
of the shares held by them until payment in full or provision has been made for
the payment of all claims of creditors of the Corporation and the liquidation
preference of any class or series of capital stock ranking senior to the Series
C Preferred Stock with respect to redemption rights and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation ("Senior Liquidation
Stock" and together with the Senior Dividend Stock, the "Senior Stock") shall
have been paid in full and (ii) shall be entitled to receive the Liquidation
Preference of such shares held by them in preference to and in priority over any
distributions upon the Common Stock and any other
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9
series or class of the Corporation's capital stock that ranks junior to the
Series C Preferred Stock as to redemption rights and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation ("Junior Liquidation
Stock" and together with the Junior Dividend Stock, the "Junior Stock"). Upon
payment in full of the Liquidation Preference to which the holders of shares of
the Series C Preferred Stock are entitled, the holders of shares of the Series C
Preferred Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation. Subject to clause (i) above, if the
assets of the Corporation are not sufficient to pay in full the Liquidation
Preference payable to the holders of shares of the Series C Preferred Stock and
the liquidation preference payable to the holders of any series or class of the
Corporation's capital stock, outstanding on the date hereof or hereafter issued,
that ranks on a parity with the Series C Preferred Stock as to redemption rights
and rights upon liquidation, dissolution or winding up of the affairs of the
Corporation ("Parity Liquidation Stock" and together with the Parity Dividend
Stock, the "Parity Stock"), the holders of all such shares shall share ratably
in accordance with the respective preferential amounts payable on such shares in
any distribution.
(c) For the purposes of this Section 5, neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the Corporation nor the consolidation or merger of the Corporation with or into
any other entity shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, unless such voluntary sale,
conveyance, exchange, transfer, consolidation or merger shall be in connection
with a plan of liquidation, dissolution or winding up of the Corporation.
6. Conversion. (a) Holders of shares of Series C Preferred Stock shall
have the right, exercisable at any time, to convert shares of Series C Preferred
Stock into shares of Common Stock at a conversion price (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, of $21.00, and (y)
thereafter, of the equal to the lower of (i) $21.00 per share of Common Stock or
(ii) the public offering price of the Common Stock in the first underwritten
public offering of the Corporation's Common Stock following the initial issuance
of the Series C Preferred Stock, subject to adjustment as described below in
Section 6(f) (the "Conversion Price"). The number of shares of Common Stock into
which a share of Series C Preferred Stock shall be convertible (calculated as to
each conversion to the nearest 1/100th of a share) shall be determined by
dividing $100.00 by the Conversion Price then in effect. If more than one share
of Series C Preferred Stock shall be surrendered for conversion at one time by
the same record holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series C Preferred Stock so surrendered. In the case of shares of
Series C Preferred Stock called for redemption, conversion rights shall expire
at the close of business on the business day immediately preceding the
redemption date. The holders of shares of Series C Preferred Stock that convert
such shares into shares of Common Stock on
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10
or after the First Scheduled Dividend Payment Date shall be entitled to receive
any accrued and unpaid dividends thereon, if any, whether or not declared,
payable in cash or shares of Common Stock, or any combination thereof, in the
sole discretion of the Board of Directors. The holders of Series C Preferred
Stock shall not be entitled to receive any dividends on any shares of Series C
Preferred Stock that are converted into shares of Common Stock 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 of Series C
Preferred Stock electing to convert such shares after having received a notice
of redemption pursuant to Section 4 hereof.
(b) Any holder of shares of Series C Preferred Stock electing to
convert the shares or any portion thereof in accordance with Section 6(a) above
shall give written notice to the Corporation (which notice may be given by
facsimile transmission) that such holder elects to convert the same and shall
state therein the number of shares of Series C Preferred Stock to be converted
and the name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. Promptly thereafter, the
holder shall surrender the certificate or certificates of shares of Series C
Preferred Stock to be converted, duly endorsed, at the office of the Corporation
or any transfer agent for such shares, or at such other place designated by the
Corporation, provided that the Corporation shall at all times maintain an office
or agency in The City of New York for such purposes. The Corporation shall,
immediately upon receipt of such notice, issue and deliver to or upon the order
of such holder, against delivery of the certificates representing the shares of
Series C Preferred Stock that have been converted, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled
(in the number(s) and denomination(s) designated by such holder), and the
Corporation shall deliver to such holder a certificate or certificates for the
number of shares of Series C Preferred Stock that such holder has not elected to
convert. The conversion right with respect to any shares of Series C Preferred
Stock shall be deemed to have been exercised at the date upon which the
certificates therefor (and the payment required by Section 6(d), if applicable),
shall have been so delivered, and the person or persons entitled to receive the
Common Stock issuable upon conversion shall be treated for all purposes as the
record holder or holders of such Common Stock upon that date.
(c) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series C Preferred Stock. Instead of any fractional
share of Common Stock otherwise issuable upon conversion of any shares of Series
C Preferred Stock, the Corporation shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the Sale Price of the
Common Stock at the close of business on the day of conversion. As used herein,
"Sale Price" means the closing sales price of the Common Stock as reported in
The Wall Street Journal. In the absence of a Sale Price, the Board of Directors
shall in good faith determine the current market price on such basis as it
considers appropriate and such current market price shall be used to calculate
the cash adjustment.
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11
(d) If a holder converts shares of Series C Preferred Stock, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of Common Stock upon the conversion or due upon the issuance of
a new certificate or certificates for any shares of Series C Preferred Stock not
converted. The holder, however, shall pay any such tax that is due because any
such shares of the Common Stock or of the Series C Preferred Stock are issued in
a name other than the name of the holder.
(e) The Corporation shall reserve out of its authorized but
unissued Common Stock held in treasury enough shares of Common Stock to permit
the conversion of all of the then-outstanding shares of Series C Preferred
Stock. For the purposes of this Section 6(e), the full number of shares of
Common Stock then issuable upon the conversion of all then-outstanding shares of
Series C Preferred Stock shall be computed as if at the time of computation all
outstanding shares of Series C Preferred Stock were held by a single holder. The
Corporation shall from time to time, in accordance with the laws of the State of
Delaware and its certificate of incorporation, increase the authorized amount of
its Common Stock if at any time the authorized amount of its Common Stock
remaining unissued shall not be sufficient to permit the conversion of all
shares of Series C Preferred Stock at the time outstanding. If any shares of
Common Stock required to be reserved for issuance upon conversion of shares of
Series C Preferred Stock hereunder require registration with or approval of any
governmental authority under any federal or state law before the shares may be
issued upon conversion, the Corporation shall in good faith and as expeditiously
as possible endeavor to cause the shares to be so registered or approved. All
shares of Common Stock issued upon conversion of the shares of Series C
Preferred Stock shall be validly issued, fully paid and nonassessable.
(f) The Conversion Price shall be subject to adjustment as
follows:
(i) In case the Corporation shall (A) pay a dividend on
any class of its capital stock in shares of its Common Stock, (B)
subdivide its outstanding shares of Common Stock into a greater
number of shares or (C) combine its outstanding shares of Common
Stock into a smaller number of shares, the Conversion Price in
effect immediately prior thereto shall be adjusted (as provided
below) so that the holders of any shares of Series C Preferred
Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock which such holder
would have owned or have been entitled to receive immediately
following such action had such shares of Series C Preferred Stock
been converted immediately prior to such time. The Conversion
Price as adjusted shall be determined by multiplying the
Conversion Price at which the shares of Series C Preferred Stock
were theretofore convertible by a fraction of which the
denominator shall be the number of shares of Common Stock
outstanding immediately following such action and of which the
numerator shall be the number of
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12
shares of Common Stock outstanding immediately prior thereto.
Such adjustment shall be made whenever any event listed above
shall occur and shall become effective retroactively immediately
after the record date in the case of a dividend and immediately
after the effective date in the case of a subdivision or
combination.
(ii) In case the Corporation shall issue rights or
warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per
share less than the Current Market Price per share of Common
Stock at the record date therefor, or in case the Corporation
shall issue to all holders of its Common Stock other securities
convertible into or exchangeable for Common Stock for a
consideration per share of Common Stock deliverable upon
conversion or exchange thereof less than the Current Market
Price, then the Conversion Price in effect immediately prior
thereto shall be adjusted as provided below so that the
Conversion Price therefor shall be equal to the price determined
by multiplying (A) the Conversion Price at which shares of Series
C Preferred Stock were theretofore convertible by (B) a fraction
of which the denominator shall be the sum of (1) the number of
shares of Common Stock outstanding on the date of issuance of the
convertible or exchangeable securities, rights or warrants and
(2) the number of additional shares of Common Stock offered for
subscription or purchase, or issuable upon such conversion or
exchange, and of which the numerator shall be the sum of (1) the
number of shares of Common Stock outstanding on the date of
issuance of such convertible or exchangeable securities, rights
or warrants and (2) the number of additional shares of Common
Stock which the aggregate offering price of the number of shares
of Common Stock so offered would purchase at the Current Market
Price per share of Common Stock. Such adjustment shall be made
whenever such convertible or exchangeable securities, rights or
warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to
receive such securities. However, upon the expiration of any
right or warrant to purchase Common Stock, the issuance of which
resulted in an adjustment in the Conversion Price pursuant to
this Section 6(f)(ii), if any such right or warrant shall expire
and shall not have been exercised, the Conversion Price shall be
recomputed immediately upon such expiration and effective
immediately upon such expiration shall be increased to the price
it would have been (but reflecting any other adjustments to the
Conversion Price made pursuant to the provisions of this Section
6(f) after the issuance of such rights or warrants) had the
adjustment of the Conversion Price made upon the issuance of such
rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of Common
Stock actually purchased upon the exercise of such rights or
warrants. No further adjustment
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13
shall be made upon exercise of any right, warrant, convertible
security or exchangeable security if any adjustment shall have
been made upon issuance of such security.
(iii) In case the Corporation shall pay a dividend to all
holders of its Common Stock (including any dividend paid in
connection with a consolidation or merger in which the
Corporation is the continuing corporation) of any shares of
capital stock of the Corporation or its subsidiaries (other than
Common Stock) or evidences of its indebtedness or assets
(excluding cash dividends payable solely in cash that may from
time to time be fixed by the Board of Directors, or dividends or
distributions in connection with the liquidation, dissolution or
winding up of the Corporation) or rights or warrants to subscribe
for or purchase any of its securities or those of its
subsidiaries or securities convertible or exchangeable for Common
Stock (excluding those securities referred to in Section 6(f)(ii)
above), then in each such case the Conversion Price in effect
immediately prior thereto shall be adjusted as provided below so
that the Conversion Price thereafter shall be equal to the price
determined by multiplying (A) the Conversion Price in effect on
the record date mentioned below by (B) a fraction, the numerator
of which shall be the Current Market Price per share of Common
Stock on the record date mentioned below less the then fair
market value (as determined by the Board of Directors, whose good
faith determination shall be conclusive) as of such record date
of the assets, evidences of indebtedness or securities so paid
with respect to one share of Common Stock, and the denominator of
which shall be the Current Market Price per share of Common Stock
on such record date; provided, however, that in the event the
then fair market value (as so determined) so paid with respect to
one share of Common Stock is equal to or greater than the Current
Market Price per share of Common Stock on the record date
mentioned above, in lieu of the foregoing adjustment, adequate
provision shall be made so that each holder of shares of the
Series C Preferred Stock shall have the right to receive the
amount and kind of assets, evidences of indebtedness, or
securities such holder would have received had such holder
converted each such share of Series C Preferred Stock immediately
prior to the record date for such dividend. Such adjustment shall
be made whenever any such payment is made, and shall become
effective retroactively immediately after the record date for the
determination of stockholders entitled to receive the payment.
(iv) No adjustment in the Conversion Price shall be
required unless the adjustment would require an increase or
decrease of at least 1% in the Conversion Price then in effect;
provided, however, that any adjustments that by reason of this
Section 6(f)(iv) are not required to be made shall be carried
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14
forward and taken into account in any subsequent adjustment. All
calculations under this Section 6(f) shall be made to the nearest
cent.
(v) In the event that, at any time as a result of an
adjustment made pursuant to Section 6(f)(i) or 6(f)(iii) above,
the holder of any share of Series C Preferred Stock thereafter
surrendered for conversion shall become entitled to receive any
shares of the Corporation other than shares of the Common Stock,
thereafter the number of such other shares so receivable upon
conversion of any share of Series C Preferred Stock shall be
subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Section 6(f)(i) through
6(f)(iv) above, and the other provisions of this Section 6 with
respect to the Common Stock shall apply on like terms to any such
other shares.
(vi) Whenever the Conversion Price is adjusted, as herein
provided, the Corporation shall promptly file with the transfer
agent for the Series C Preferred Stock a certificate of an
officer of the Corporation setting forth the Conversion Price
after the adjustment and setting forth a brief statement of the
facts requiring such adjustment and a computation thereof. The
certificate shall be conclusive evidence of the correctness of
the adjustment. The Corporation shall promptly cause a notice of
the adjusted Conversion Price to be mailed to each registered
holder of shares of Series C Preferred Stock.
(vii) In case of any reclassification of the Common Stock,
any consolidation of the Corporation with, or merger of the
Corporation into, any other entity, any merger of another entity
into the Corporation (other than a merger that does not result in
any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Corporation), any sale
or transfer of all or substantially all of the assets of the
Corporation or any compulsory share exchange pursuant to which
share exchange the Common Stock is converted into other
securities, cash or other property, then lawful provision shall
be made as part of the terms of such transaction whereby the
holder of each share of Series C Preferred Stock then outstanding
shall have the right thereafter, during the period such share
shall be convertible, to convert such share only into the kind
and amount of securities, cash and other property receivable upon
the reclassification, consolidation, merger, sale, transfer or
share exchange by a holder of the number of shares of Common
Stock of the Corporation into which a share of Series C Preferred
Stock would have been convertible immediately prior to the
reclassification, consolidation, merger, sale, transfer or share
exchange. The Corporation, the person formed by the consolidation
or resulting from the merger or which
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15
acquires such assets or which acquires the Corporation's shares,
as the case may be, shall make provisions in its certificate or
articles of incorporation or other constituent document to
establish such rights. The certificate or articles of
incorporation or other constituent document shall provide for
adjustments, which, for events subsequent to the effective date
of the certificate or articles of incorporation or other
constituent document, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6.
The provisions of this Section 6(f)(vii) shall similarly apply to
successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(g) The Corporation from time to time may reduce the Conversion
Price by any amount for any period of time if the period is at least 20 days and
if the reduction is irrevocable during the period. Whenever the Conversion Price
is so reduced, the Corporation shall mail to holders of record of the Series C
Preferred Stock a notice of the reduction at least 15 days before the date the
reduced Conversion Price takes effect, stating the reduced Conversion Price and
the period it will be in effect. A voluntary reduction of the Conversion Price
does not change or adjust the Conversion Price otherwise in effect for purposes
of paragraph 6(f) above.
(h) Automatic Exchange. (1) If the Corporation has not
consummated a Qualifying Public Offering (defined below) by May 15, 1998 (the
"Automatic Exchange Date"), then all shares of Series C Convertible Stock shall
be automatically exchanged (the "Automatic Exchange") for shares of the
Corporation's Series D Convertible Preferred Stock (the "Series D Preferred
Stock") on the Automatic Exchange Date at a rate of one share of Series D
Preferred Stock, with an initial liquidation preference of $102.50 for each $100
in Automatic Exchange Rate Liquidation Preference represented by shares of
Series C Preferred Stock held by a holder. The Automatic Exchange Rate
Liquidation Preference for the Series C Preferred Stock shall be $69.6145
per share (the amount determined by multiplying (x) the liquidation preference
of the Series C Preferred Stock being exchanged, (without accrued and unpaid
dividends thereon) by (y) 0.696145). As used herein, a "Qualifying Public
Offering" means the sale of any equity or debt securities by the Corporation
in one or more offerings occurring after the date of the initial issuance of the
5% Delayed Convertible Preferred Stock yielding gross proceeds in an aggregate
cash amount of not less than $100 million.
(2) In the event of an Automatic Exchange, the Corporation shall
give written notice to the holders of Series C Preferred Stock of record on the
Automatic Exchange Date (which notice shall be given by first class mail,
postage prepaid) that the shares of Series C Preferred Stock have been
automatically exchanged into shares of Series D Preferred Stock pursuant to this
Section 6(h), stating therein the number of shares of Series D Preferred Stock
into which the holder's shares of Series C Preferred Stock have been
automatically exchanged. Promptly thereafter, the holder shall surrender the
certificate or
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16
certificates of shares of Series C Preferred Stock exchanged (together with
payment of any taxes, if any, to be paid by the holders described below) at the
office of the Corporation or any transfer agent for such shares, or at such
other place designated by the Corporation, provided that the Corporation shall
at all times maintain an office or agency in The City of New York for such
purposes. The Corporation shall, immediately upon receipt of such shares of
Series C Preferred Stock (together with payment of any taxes, if any, to be paid
by the holders described below), issue and deliver to or upon the order of such
holder, against delivery of the certificates representing the shares of Series C
Preferred Stock that have been exchanged, a certificate for the number of shares
of Series D Preferred Stock to which such holder shall be entitled. The holders
of the Series C Preferred of record on the Automatic Exchange Date shall be
treated for all purposes as the record holder or holders of the Series D
Preferred Stock into which the Series C Preferred Stock have been exchanged.
(3) No fractional shares of Series D Preferred Stock shall be
issued upon automatic exchange of shares of Series C Preferred Stock. Instead of
issuing any fractional shares of Series D Preferred Stock otherwise issuable
upon automatic exchange of the shares of Series C Preferred Stock, the
Corporation shall pay a cash adjustment to holders in respect of such fraction
in an amount equal to the amount of Automatic Exchange Rate Liquidation
Preference represented by shares of Series C Preferred Stock held by a holder
which are not exchanged.
(4) The Corporation shall pay any documentary, stamp or similar
issue or transfer tax due on the issue of Series D Preferred Stock upon the
automatic exchange. The holder, however, shall pay any such tax that is due
because any such shares of the Series D Preferred Stock that are issued in a
name other than the name of the holder, as requested by such holder.
(5) The Corporation shall reserve out of its authorized but
unissued Series D Preferred Stock held in treasury enough shares of Series D
Preferred Stock to permit the Automatic Exchange of all of the then-outstanding
shares of Series C Preferred Stock. For the purposes of this Section 6(h), the
full number of shares of Series D Preferred Stock then issuable upon the
Automatic Exchange of all then-outstanding shares of Series C Preferred Stock
shall be computed as if at the time of computation all outstanding shares of
Series C Preferred Stock were held by a single holder. The Corporation shall
from time to time, in accordance with the laws of the State of Delaware and its
certificate of incorporation, increase the authorized amount of its Series D
Preferred Stock if at any time the authorized amount of its Series D Preferred
Stock remaining unissued shall not be sufficient to permit the Automatic
Exchange of all shares of Series C Preferred Stock at the time outstanding. If
any shares of Series D Preferred Stock required to be reserved for issuance upon
the Automatic Exchange of shares of Series C Preferred Stock hereunder require
registration with or approval of any governmental authority under any federal or
state law before the shares of Series D Preferred Stock may be issued upon
exchange, the Corporation shall in good faith and as expeditiously as possible
endeavor to cause such shares to be so registered
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17
or approved. All shares of Series D Preferred Stock issued upon the Automatic
Exchange of the shares of Series C Preferred Stock shall be validly issued,
fully paid and nonassessable.
7. Status of Shares. All shares of the Series C Preferred Stock that are
at any time redeemed pursuant to Section 4 above or converted or exchanged
pursuant to Section 6 above and all shares of the Series C Preferred Stock that
are otherwise reacquired by the Corporation and subsequently canceled by the
Board of Directors of the Corporation shall have the status of authorized but
unissued shares of Preferred Stock, without designation as to series, subject to
reissuance by the Board of Directors of the Corporation as shares of any one or
more other series.
8. Voting Rights. Except as set forth below or otherwise required by
law, holders of shares of the Series C Preferred Stock shall have no voting
rights. In connection with any right to vote, each holder of shares of Series C
Preferred Stock shall have one vote for each share held.
(a) Dividend and Other Defaults.
(i) If (A) the Corporation fails to redeem all of the outstanding
shares of Series C Preferred Stock on the Mandatory Redemption Date
pursuant to Section 4(a)(3) hereof, (B) the Corporation fails to make a
Change of Control Offer (defined herein) pursuant to Section 9 hereof in
the event of a Change of Control (defined herein), or (C) at any time or
times after the First Scheduled Dividend Payment Date, dividends payable
on the shares of Series C Preferred Stock at the time outstanding shall
be in arrears in an aggregate amount equal to at least six quarterly
dividend payments, then the holders of shares of Series C Preferred
Stock, voting separately as a class, shall have the right to elect (i)
one director in the event that there are seven or less 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, by a vote of the holders of a majority of shares of Series C
Preferred Stock in person or by proxy at the Corporation's next annual
meeting of stockholders and at each subsequent annual meeting of
stockholders; provided, however, that if such voting rights shall become
vested more than 90 days or less than 20 days before the date prescribed
for the annual meeting of stockholders, the holders of Series C
Preferred Stock shall be entitled to exercise their voting rights at a
special meeting of the holders of shares of Series C Preferred Stock as
set forth in Section 8(a)(ii) hereof. Upon the vesting of such voting
rights, the maximum authorized number of members of the Board of
Directors of the Corporation shall automatically be increased by the
number of directors for which the holders of Series C Preferred Stock
shall be entitled to elect, as provided above, and the vacancies so
created shall be filled by a vote of the holders of the shares of Series
C Preferred Stock, as provided above. The right of holders of Series C
Preferred Stock to elect members of the Board of
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18
Directors of the Corporation as aforesaid shall continue until such time
as (A) all of the shares of Series C Preferred Stock are redeemed,
converted or are otherwise no longer outstanding, (B) the Corporation
has made a Change of Control Offer in accordance with Section 9 hereof
or (C) all dividends accumulated on the Series C Preferred Stock shall
have been paid in full or declared and set aside for payment in full, as
the case may be, at which time such right immediately shall terminate
subject to revesting in the event of each and every subsequent default
of the character above mentioned.
(ii) At any time when such voting right shall have vested in the
holders of shares of Series C Preferred Stock entitled to vote thereon,
and if such right shall not already have been initially exercised, an
officer of the Corporation shall, upon the written request of holders of
record of 10% of the voting power represented by the shares of such
Series C Preferred Stock then outstanding, addressed to the Secretary of
the Corporation, call a special meeting of holders of shares of such
Series C Preferred Stock. Such meeting shall be held at the earliest
practicable date upon the notice required for annual meetings of
stockholders at the place for holding annual meetings of stockholders of
the Corporation or, if none, at a place designated by the Secretary of
the Corporation. If such meeting shall not be called by the proper
officers of the Corporation within 30 days after the personal service of
such written request upon the Secretary of the Corporation, or within 30
days after mailing the same within the United States, by registered
mail, addressed to the Secretary of the Corporation at its principal
office (such mailing to be evidenced by the registry receipt issued by
the postal authorities), then the holders of record of 10% of the voting
power represented by the shares of Series C Preferred Stock then
outstanding may designate in writing any person to call such meeting at
the expense of the Corporation, and such meeting may be called by such
person so designated upon the notice required for annual meetings of
stockholders and shall be held at the same place as is elsewhere
provided in this Section. Any holder of shares of Series C Preferred
Stock then outstanding that would be entitled to vote at such meeting
shall have access to the stock books of the Corporation for the purpose
of causing a meeting of stockholders to be called pursuant to the
provisions of this Section. Notwithstanding the provisions of this
Section, however, no such special meeting shall be called or held during
a period within 45 days immediately preceding the date fixed for the
next annual meeting of stockholders.
(iii) So long as any shares of Series C Preferred Stock are
outstanding, the By-laws shall contain no provisions that would restrict
the exercise, by the holders of Series C Preferred Stock, of the right
to elect directors under the circumstances provided in Section 8(a)(i)
above.
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19
(iv) Directors elected pursuant to Section 8(a)(i) shall serve
until the earlier of (A) the next annual meeting of the stockholders of
the Corporation and the election by the holders of Series C Preferred
Stock and qualification of their respective successors, (B) the date on
which all of the shares of Series C Preferred Stock are redeemed or
converted and are no long outstanding or (C) the date upon which the
defaults set forth in Section 8(a)(i) have been remedied, at which time
the number of directors constituting the Board of Directors shall,
without further action, be reduced by the number of directors whose term
shall so terminate, subject to any subsequent increase in the number of
directors pursuant to Section 8(a)(1). If, prior to the end of the term
of any director elected as aforesaid, a vacancy in the office of that
director shall occur during the continuation of a default described in
Section 8(a)(1) by reason of death, resignation or disability, the
vacancy shall be filled for the unexpired term by the appointment by the
remaining director elected as aforesaid of a new director for the
unexpired term of the former director.
(b) Miscellaneous. So long as any shares of the Series C
Preferred Stock are outstanding, in addition to any vote or consent of
stockholders required by law or by the Corporation's Certificate of
Incorporation, the consent of the holders of at least a majority of the shares
of Series C Preferred Stock at the time issued and outstanding, acting as a
single class, given in person or by proxy by vote at any meeting called for such
purpose, shall be necessary for effecting or validating:
(i) any amendment, alteration or repeal of any of the provisions
of the Corporation's Certificate of Incorporation or By-laws which
affects adversely the voting powers, rights or preferences of the
holders of the shares of Series C Preferred Stock; provided, however,
that any amendment of the provisions of the Corporation's Certificate of
Incorporation so as to authorize or create, or to increase the
authorized amount of, any of the Corporation's Junior Stock, shall not
be deemed to affect adversely the voting powers, rights or preferences
of the holders of shares of Series C Preferred Stock;
(ii) the authorization or creation of, or the increase in the
authorized amount of, any shares of any class or series of stock or any
security convertible into shares of any class or series of Senior Stock
or Parity Stock; or
(iii) the merger or consolidation of the Corporation 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, shares of Series C
Preferred Stock in the payment of dividends or the distribution of its
assets on liquidation, dissolution or winding up;
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20
provided, however, that no such consent of the holders of Series C Preferred
Stock shall be required if, at or prior to the time when such amendment,
alteration, merger, consolidation or repeal is to take effect or when the
issuance of any such senior shares or convertible securities is to be made, as
the case may be, provision is made for the redemption of all shares of Series C
Preferred Stock at the time outstanding in accordance with Section 4 hereof. The
above notwithstanding, no consent of holders of Series C Preferred Stock shall
be required for the creation of any indebtedness of any kind of the Corporation.
9. Change of Control. (a) In the event of a Change of Control (the date
of such occurrence being the "Change of Control Date"), the Corporation shall
notify the holders of the Series C Preferred Stock in writing of such occurrence
and shall make an offer to purchase (the "Change of Control Offer") all of the
then outstanding shares of Series C Preferred Stock at a purchase price of 101%
of the Liquidation Preference thereof, payable in cash, plus any accrued and
unpaid dividends thereon, if any, whether or not declared, payable in cash,
shares of Common Stock or any combination thereof in the sole discretion of the
Board of Directors as provided in Section 3(a)(3) hereof.
(b) Within 30 days following the Change of Control Date, the
Corporation shall send, by first class mail, postage prepaid, a notice to each
holder of Series C Preferred Stock at such holder's address as it appears on the
stock books of the Corporation, which notice shall govern the terms of the
Change of Control Offer. The notice to the holders shall contain all
instructions and materials necessary to enable such holders to tender their
shares of Series C Preferred Stock pursuant to the Change of Control Offer. Such
notice shall state:
(i) that a Change of Control has occurred, that the Change
of Control Offer is being made pursuant to this Section 9 and that all
shares of Series C Preferred Stock validly tendered and not withdrawn
will be accepted for payment;
(ii) the purchase price (plus the amount of accrued
dividends, if any) and the purchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed,
other than as may be required by law) (the "Change of Control Payment
Date");
(iii) that any shares of Series C Preferred Stock not
tendered will continue to accrue dividends;
(iv) that, unless the Corporation defaults in making
payment therefor, any share of Series C Preferred Stock tendered and
accepted for payment pursuant to the Change of Control Offer shall cease
to accrue dividends after the Change of Control Payment Date;
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21
(v) that holders electing to have any shares of Series C
Preferred Stock purchased pursuant to a Change of Control Offer will be
required to surrender the certificate or certificates representing such
shares, properly endorsed for transfer together with such customary
documents as the Corporation and the transfer agent may reasonably
require, in the manner and at the place specified in the notice prior to
the close of business on the business day prior to the Change of Control
Payment Date;
(vi) that holders shall be entitled to withdraw their
election if the Corporation receives, not later than five business days
prior to the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder,
the number of shares of Series C Preferred Stock the holder delivered
for purchase and a statement that such holder is withdrawing his
election to have such shares of Series C Preferred Stock purchased;
(vii) that holders whose shares of Series C Preferred
Stock are purchased only in part will be issued a new certificate
representing the unpurchased shares of Series C Preferred Stock; and
(viii) the circumstances and relevant facts regarding
such Change of Control.
(c) The Corporation shall comply with any securities laws and
regulations, to the extent such laws and regulations are applicable to the
repurchase of the Series C Preferred Stock in connection with a Change of
Control Offer.
(d) On the Change of Control Payment Date the Corporation shall
(x) accept for payment the shares of Series C Preferred Stock validly tendered
pursuant to the Change of Control Offer, (y) pay to the holders of shares so
accepted the purchase price therefor (plus the amount of accrued and unpaid
dividends, if any) and (z) cancel and retire each surrendered certificate.
Unless the Corporation defaults in the payment for the shares of Series C
Preferred Stock tendered pursuant to the Change of Control Offer, dividends
shall cease to accrue with respect to the shares of Series C Preferred Stock
tendered and all rights of holders of such tendered shares shall terminate,
except for the right to receive payment therefor, on the Change of Control
Payment Date.
(e) If the purchase of the Series C Preferred Stock would violate
or constitute a default under indebtedness of the Corporation, then,
notwithstanding anything to the contrary contained above, prior to complying
with the foregoing provisions, but in any event within 30 days following the
Change of Control Date, the Corporation shall either (A) repay in full all such
indebtedness or (B) obtain the requisite consents, if any under such
indebtedness required to permit the repurchase of Series C Preferred Stock
required by this
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22
Section 9. Until the requirements of the immediately preceding sentence are
satisfied, the Corporation shall not make, and shall not be obligated to make,
any Change of Control Offer.
"Change of Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other
than a Permitted Holder (as defined herein) 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 (as defined herein) of the
Corporation; (b) the Corporation consolidates with or merges with or into
another Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with
or merges with or into the Corporation, in any such event, pursuant to a
transaction in which the outstanding Voting Stock of the Corporation is
converted into or exchanged for cash securities or other property, other than,
at all times when the Corporation's Senior Discount Notes due 2007 (the "Notes")
are outstanding, those transactions that are not deemed a "Change of Control"
under the terms of the indenture under which such Notes are issued (the
"Indenture"); (c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Corporation
(together with any new directors whose election to such Board of Directors, or
whose nomination for election by the stockholders of the Corporation, 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 Corporation then in office; or (d) the
Corporation is liquidated or dissolved or a special resolution is passed by the
shareholders of the Corporation 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.
"Permitted Holder" means Loral Space & Communications Ltd.,
David Margolese and Arianespace S.A.
"Person" means an individual, partnership, corporation, limited
liability company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Voting Stock" means any class or classes of capital stock, or
securities convertible into or exchangeable into any class of capital stock, of
the Corporation pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors of the Corporation, irrespective of whether
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23
or not, at the time, stock of any other class or classes shall have, or might
have, voting power by reason of the happening of any contingency.
10. Sinking Fund Redemption. The shares of the Series C Preferred Stock
are not subject to sinking fund requirements.
11. Restrictions on Transfer. The holders of the Series C Preferred
Stock shall not transfer any shares of Series C Preferred Stock until the later
to occur of (i) the 181st day following the closing date of the first
underwritten public offering of the Common Stock occurring after the initial
issuance of shares of Series C Preferred Stock or (ii) the 181st day following
the consummation of offering by the Corporation to the holder's of the
Corporation's 5% Delayed Convertible Preferred Stock to exchange shares of the
Series C Preferred Stock for shares of the 5% Delayed Convertible Preferred
Stock (the "Lock-up Expiration Date"); provided, however, that if a holder is
prevented by applicable law from owning assets subject to such restrictions
on transfer, such restrictions shall be inapplicable to such holder and the
Company will have a right of first refusal with respect to all shares of
Series C Preferred Stock held by such holder that is exercisable for a period
of 90 days from the date an agreement to sell shares of Series C Preferred Stock
is reached with a potential buyer at any time on or prior to the Lock-Up
Expiration Date. In addition, the holders of any Common Stock issued upon the
conversion of any shares of Series C Preferred Stock shall not transfer any
such shares of Common Stock until the Lock-Up Expiration Date.
IN WITNESS WHEREOF, CD Radio Inc. has caused this Certificate to be duly
executed on its behalf by its undersigned duly authorized officer this 15th
day of October, 1997.
CD RADIO INC.
By: /s/ Lawrence Gilberti
_____________________________
Name: Lawrence Gilberti
Title: Secretary
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Exhibit 4.2
FORM OF CERTIFICATE OF DESIGNATIONS
OF
SERIES D CONVERTIBLE PREFERRED STOCK
RESOLVED that there shall be a series of shares of the Preferred
Stock of CD Radio Inc. (the "CORPORATION"), designated "Series D Convertible
Preferred Stock"; that the number of shares of such series shall be 7,000,000
and that the rights and preferences of such series (the "SERIES D PREFERRED")
and the limitations or restrictions thereon, shall be as follows:
1. Dividends.
(a) The holders of the Series D Preferred shall be entitled to
receive out of any assets legally available therefor cumulative dividends at the
rate of $5.00 per share per annum, payable semi-annually on April 15 and October
15 of each year, when and as declared by the Board of Directors, in preference
and priority to any payment of any dividend on the Common Stock or any other
class or series of stock of the Corporation (other than the 5% Delayed
Convertible Preferred Stock of the Corporation). Such dividends shall accrue on
any given share from the date of original issuance of the Series D Preferred and
shall accrue from day to day whether or not earned or declared, based on the
actual days elapsed and a 360-day year of 12 30-day months. If at any time
dividends on the outstanding Series D Preferred at the rate set forth above
shall not have been paid or declared and set apart for payment with respect to
all preceding periods, the amount of the deficiency shall be fully paid or
declared and set apart for payment, but without interest, before any
distribution, whether by way of dividend or otherwise, shall be declared or paid
upon or set apart for the shares of any other class or series of stock of the
Corporation (except the 5% Delayed Convertible Preferred Stock of the
Corporation).
(b) Any dividend payable on the outstanding Series D Preferred
may be paid, at the option of the Corporation, either (i) in cash or (ii) by
adding the amount of such dividend to the Liquidation Preference (as defined
below); provided, however, that if the Corporation shall fail to pay any
dividend when due, the amount of such dividend shall be added to the Liquidation
Preference for such shares of Series D Preferred.
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2
2. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Series D Preferred shall be entitled to receive, prior and in
preference to any distribution of any assets of the Corporation to the holders
of any other class or series of shares (other than the 5% Delayed Convertible
Preferred Stock of the Corporation), the amount of $102.50 per share plus any
accrued but unpaid dividends (the "LIQUIDATION PREFERENCE").
3. Redemption; Forced Conversion.
(a) The Series D Preferred may be redeemed in whole but not in
part by the Corporation at any time (such date being referred to herein as the
"REDEMPTION DATE"), at a redemption price (the "REDEMPTION PRICE") equal to (A)
the Liquidation Preference plus (B) any accrued but unpaid Cash Payments (as
defined herein) due with respect to the Series D Preferred; provided that the
Corporation may not exercise such right of redemption unless the average closing
price of the Common Stock as reported in the Wall Street Journal for the 20
consecutive trading days prior to the Redemption Notice (as defined below) shall
equal or exceed $18 per share (subject to adjustment for stock dividends, stock
splits and reverse stock splits).
(b) At least 30 days but not more than 60 days prior to the
Redemption Date, irrevocable written notice (the "REDEMPTION NOTICE") shall be
mailed, first class postage prepaid, by the Corporation to each holder of record
of the Series D Preferred, at the address last shown on the records of the
Corporation for such holder, notifying such holder of the redemption that is to
be effected, specifying the Redemption Date, the Redemption Price, and the place
at which payment may be obtained and calling upon each such holder to surrender
to the Corporation, in the manner and at the place designated, a certificate or
certificates representing all the shares of Series D Preferred held by such
holder. Subject to the provisions of the following subsection (c), on or after
the Redemption Date, each holder of Series D Preferred shall surrender to the
Corporation the certificate or certificates representing all the shares of
Series D Preferred owned by such holder as of the Redemption Date, in the manner
and at the place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be canceled.
(c) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
shares that have been redeemed (except the right to receive the Redemption Price
without interest upon surrender of the certificate or certificates representing
such shares) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
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3
(d) After April 15, 2000, the Corporation may, upon at least 30
days' but not more than 60 days' prior notice to the holders of Series D
Preferred given in the same manner specified for Redemption Notices generally,
require the holders of all and not less than all of outstanding shares of Series
D Preferred to convert such shares into (x) Common Stock at the then applicable
Conversion Price (as defined in Section 4(d)) and (y) all Cash Payments due on
the Optional Conversion Date (as defined below), effective on a date (the
"OPTIONAL CONVERSION DATE") specified in such notice; provided that no such
conversion shall occur if the Corporation has commenced voluntary bankruptcy,
become subject to involuntary bankruptcy, had a receiver, liquidator, trustee or
other officer having similar power over the Corporation appointed over all or a
substantial part of its property, has ceased operations or shall be in default
for money borrowed (or the deferred purchase price of property and assets) in
excess of $50,000,000 and, in each case, such situation shall not have been
remedied. Within 3 business days after the Optional Conversion Date, written
notice shall be mailed, first class postage prepaid, by the Corporation to each
holder of record of the Series D Preferred, at the address last shown on the
records of the Corporation for such holder, notifying such holder of the
optional conversion that has been effected, specifying the then applicable
Liquidation Preference, Cash Payments and Conversion Price (and the method of
calculation thereof) and the place at which such holder shall surrender the
certificate or certificates representing the Series D Preferred Shares so
converted, and calling upon each such holder to surrender to the Corporation, in
the manner and at the place designated, a certificate or certificates
representing all the shares of Series D Preferred held by such holder. Each
holder of Series D Preferred shall surrender to the Corporation the certificate
or certificates representing all the shares of Series D Preferred owned by such
holder as of the Optional Conversion Date, in the manner and at the place
designated in such notice, and thereupon the Corporation shall issue and deliver
to or upon the order of such holder a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled and shall pay
to each such holder, in immediately available funds, an amount equal to all Cash
Payments due on the Optional Conversion Date with respect to such holder's
shares of Series D Preferred.
(e) If at any time a Reorganization (as defined in Section 4(k))
shall occur or be proposed, each holder of Series D Preferred shall have the
right to require the Corporation, effective upon consummation of such
Reorganization, to purchase its Series D Preferred for a cash amount equal to
(A) the sum of the Liquidation Preference plus any Cash Payments due (B) divided
by 72.125%. In order for any holder of Series D Preferred to exercise such
right, such holder must give notice of such fact to the Corporation not later
than the later to occur of (i) 30 days after receipt of notice of the
Reorganization and (ii) the consummation of the Reorganization. The Corporation
shall provide notice to holders of Series D Preferred given in the same manner
as specified for Redemption Notices generally, at least 30 days prior to the
anticipated date of the consummation of a Reorganization, which notice shall
reasonably set forth the rights of holders of Series D Preferred under this
Section 3(e) and Section 4(k).
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4
4. Conversion. The holders of the Series D Preferred shall have
optional conversion rights as follows:
(a) Accrual of Conversion Rights. The Series D Preferred shares
are convertible at any time; provided that the Corporation shall not be
obligated to honor any request for conversion of shares of the Series D
Preferred at any time to the extent that approval of the Federal Communications
Commission ("FCC APPROVAL") of the issuance of shares of Common Stock upon such
conversion is or would be required and has not been obtained; provided further
that if FCC Approval (other than approval in connection with a conversion of
shares of the Series D Preferred resulting in a holder of shares of the Series D
Preferred, or a group of persons who have an agreement or understanding to act
in concert of which such holder is a member, holding 50% or more of the voting
securities of the Corporation) has not been obtained, then, at any time
thereafter at the request of any holder of shares of the Series D Preferred, the
Corporation shall promptly purchase from such holder, at a purchase price per
share equal to (A) the sum of the Liquidation Preference plus any Cash Payments
divided by (B) 72.125%, the shares of Series D Preferred held by such holder.
(b) Right to Convert. At and after the time it has become
convertible, each share of Series D Preferred shall be convertible, at the
option of the holder thereof, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing (i) the Liquidation
Preference plus any Cash Payments due on the date the notice of conversion is
given, by (ii) the Conversion Price determined as hereinafter provided in effect
on said date.
(c) Mechanisms of Conversion. To convert shares of Series D
Preferred into shares of Common Stock, the holder shall give written notice to
the Corporation (which notice may be given by facsimile transmission) that such
holder elects to convert the same and shall state therein the number of shares
to be converted and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. Promptly
thereafter the holder shall surrender the certificate or certificates
representing the shares to be converted, duly endorsed, at the office of the
Corporation or of any transfer agent for such shares, or at such other place
designated by the Corporation; provided that the Corporation shall at all times
maintain an office or agency in New York City for such purposes. The Corporation
shall, immediately upon receipt of such notice, issue and deliver to or upon the
order of such holder, against delivery of the certificates representing the
shares that have been converted, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled (in the number(s)
and denomination(s) designated by such holder), and the Corporation shall
deliver to such holder a certificate or certificates for the number of shares of
Series D Preferred that such holder has not elected to convert (in the number(s)
and denomination(s) designated by such holder). The Corporation shall effect
such issuance and shall transmit the certificates by messenger or overnight
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5
delivery service to reach the address designated by such holder within two
business days after the receipt of such notice. For all purposes of this
Certificate of Designations, such conversion shall be deemed to have been made
immediately prior to the close of business on the date such notice of conversion
is given. The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock at the close of business on
such date.
(d) Determination of Conversion Price.
(i) The "CONVERSION PRICE" shall be 72.125% of the least
of (x) the average of the daily means between the low trading price of the
Common Stock and the closing price of the Common Stock for all the trading days
between October 15, 1997 and November 15, 1997 (inclusive) for such trading
days, (y) the average of the daily means between the low trading price of the
Common Stock and the closing price of the Common Stock during the 3 consecutive
trading days immediately preceding the date of conversion and (z) the
weighted-average (based upon the number of shares sold) of the actual selling
price (but not less than the low trading price on the date of such trade as
reported on the principal market for the Common Stock), at which the holder
shall have sold shares of Common Stock received or receivable upon conversion of
the Series D Preferred, reduced by any trading commissions or underwriting
spreads paid by such holder, as certified to the Corporation by such holder;
provided, however, that clause (z) shall only apply to the extent shares of
Common Stock are actually sold and the holder converting Series D Preferred
shall have given notice to the Corporation of such sale not more than 24 hours
after such sale; provided further that clause (z) shall be unavailable if such
holder shall fail to give such notice within such time.
(ii) The "LOW TRADING PRICE" and the "CLOSING PRICE",
respectively, of the Common Stock on any day shall be (A) the lowest reported
sale price and the reported closing price (last sale price), regular way, of the
Common Stock on the principal stock exchange on which the Common Stock is
listed, or (B) if the Common Stock is not listed on a stock exchange, the lowest
reported sale price and the reported closing price of the Common Stock on the
principal automated securities price quotation system on which sale prices of
the Common Stock are reported, or (C) if the Common Stock is not listed on a
stock exchange and sale prices of the Common Stock are not reported on an
automated quotation system, the final bid price and the mean of the final bid
and asked prices for the Common Stock as reported by National Quotation Bureau
Incorporated if at least two securities dealers have inserted both bid and asked
quotations for the Common Stock on at least five of the ten preceding trading
days. If none of the foregoing provisions are applicable, the phrase "MEANS
BETWEEN THE LOW TRADING PRICE OF THE COMMON STOCK AND THE CLOSING PRICE OF THE
COMMON STOCK" on a day will be the fair market value of the Common Stock on that
day as determined by a member firm of the New York Stock
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6
Exchange, Inc., selected in good faith by the Board of Directors of the
Corporation. The term "TRADING DAY" means (x) if the Common Stock is listed on
at least one stock exchange, a day on which there is trading on the principal
stock exchange on which the Common Stock is listed, (y) if the Common Stock is
not listed on a stock exchange but sale prices of the Common Stock are reported
on an automated quotation system, a day on which trading is reported on the
principal automated quotation system on which sales of the Common Stock are
reported, or (z) if the foregoing provisions are inapplicable, a day on which
quotations are reported by National Quotation Bureau Incorporated.
(iii) In the event that during any period of consecutive
trading days provided for above, the Corporation shall declare or pay any
dividend on the Common Stock payable in Common Stock or in rights to acquire
Common Stock, or shall effect a stock split or reverse stock split, or a
combination, consolidation or reclassification of the Common Stock, then the
Conversion Price shall be proportionately decreased or increased, as
appropriate, to give effect to such event.
(e) Distributions. In the event the Corporation shall at any time
or from time to time make or issue, or fix a record date for the determination
of holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation or other property (other than cash paid
out of current earnings) or any of its subsidiaries other than additional shares
of Common Stock, then in each event, in addition to the number of shares of
Common Stock receivable upon conversion, provision shall be made so that the
holders of Series D Preferred shall receive, upon the conversion thereof, the
securities of the Corporation that they would have received had they been the
owners on the date of such event of the number of shares of Common Stock
issuable to them upon conversion.
(f) Certificates as to Adjustments. Upon the occurrence of any
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause independent public
accountants selected by the Corporation to verify such computation and prepare
and furnish to each holder of Series D Preferred a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series D Preferred, furnish or cause to be
furnished to such holder a like certificate prepared by the Corporation setting
forth (i) such adjustments and readjustments, and (ii) the number of other
securities and the amount, if any, of other property that at the time would be
received upon the conversion of Series D Preferred with respect to each share of
Common Stock received upon such conversion.
(g) Notice of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the
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7
holders thereof who are entitled to receive any dividend or other distribution,
any security or right convertible into or entitling the holder thereof to
receive additional shares of Common Stock, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive or exercise any other right, the
Corporation shall mail to each holder of Series D Preferred at least 10 days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution,
security or right and the amount and character of such dividend, distribution,
security or right.
(h) Issue Taxes. The Corporation shall pay any and all issue and
other taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series D Preferred pursuant hereto; provided, however,
that the Corporation shall not be obligated to pay any transfer taxes resulting
from any transfer requested by any holder in connection with any such
conversion.
(i) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series D Preferred, at least such number of its
shares of Common Stock that is the greater of (a) 10,000,000 and (b) 1.5 times
the number as shall from time to time be sufficient to effect the conversion of
all outstanding shares of the Series D Preferred at the Conversion Price
calculated using the method set forth in Section 4(d)(i)(v), adjusted for all
subdivisions or combinations of the Common Stock or payments of dividends on the
Common Stock made in shares of Common Stock, and if at any time the number of
authorized but unissued and reserved shares of Common Stock shall not be greater
than or equal to such larger amount, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued and reserved shares of Common Stock to such number of
shares as shall be sufficient for such purpose, including, without limitation,
engaging in best efforts to obtain the requisite stockholder approval. In the
event that the Corporation shall at any time fail to authorize or reserve the
number of shares of Common Stock sufficient to effect the conversion of all
outstanding shares of the Series D Preferred at the Conversion Price calculated
using the method set forth in Section 4(d)(i)(y), then at any time thereafter at
the request of any holder of shares of the Series D Preferred, the Corporation
shall promptly purchase from such holder, at a purchase price equal to (A) the
sum of the Liquidation Preference plus any Cash Payments due divided by (B)
72.125%, the number of shares of the Series D Preferred equal to such holder's
pro-rata share of the "DEFICIENCY." The "DEFICIENCY" shall be equal to the
number of shares of the Series D Preferred that would not be able to be
converted for shares of Common Stock, due to an insufficient amount of Common
Stock available, if all the then outstanding shares of the Series D Preferred
were submitted for conversion.
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8
(j) Fractional Shares. No fractional shares shall be issued upon
the conversion of any share or shares of Series D Preferred. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series D Preferred by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors of the Corporation).
(k) Reorganization or Merger. In case of any reorganization or
any reclassification of the Common Stock or other capital stock of the
Corporation or any consolidation or merger of the Corporation with or into any
other corporation or corporations or a sale of all or substantially all of the
assets of the Corporation to any other person (a "REORGANIZATION"), in which any
of the holders of Series D Preferred does not elect to require the Corporation
to redeem the Series D Preferred as provided in Section 3(e), then, as part of
such Reorganization, provision shall be made so that each share of Series D
Preferred shall thereafter be convertible into the number of shares of stock or
other securities or property (including cash) to which a holder of the number of
shares of Common Stock deliverable upon conversion of such share of Series D
Preferred not so redeemed would have been entitled upon the record date of (or
date of, if no record date is fixed) such event and, in any case, appropriate
judgment (as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of the Series D Preferred, to the end that
the provisions set forth herein shall thereafter be applicable, as nearly as
equivalent as is practicable, in relation to any shares of stock or the
securities or property (including cash) thereafter deliverable upon the
conversion of the shares of Series D Preferred.
(l) Additional Satellite DARS Licenses. If (i) prior to April 21,
1998, more than two licenses (including the license awarded to the Corporation)
have been awarded by the Federal Communications Commission that permit the
recipients thereof to provide satellite digital audio radio services ("SATELLITE
DARS"), (ii) more than two recipients of such licenses (including the
Corporation) commence or announce an intention to commence Satellite DARs using
their license and (iii) the holders of more than one-third of the then
outstanding shares of Series D Preferred shall so request in writing, then, on
the first business day following 60 calendar days after receipt of such request,
the Corporation shall promptly purchase one-half of the shares of Series D
Preferred held by each such requesting holder as of such date at a purchase
price per share equal to (A) the sum of the Liquidation Preference plus any Cash
Payments then due and unpaid divided by (B) 72.125%.
<PAGE>
<PAGE>
9
5. Other Provisions. For all purposes of this Certificate of
Designations, the term "DATE OF ORIGINAL ISSUANCE OF THE SERIES D PREFERRED"
shall mean the day on which any shares of the Series D Preferred are first
issued by the Corporation, and the terms "TRADING PRICE", "LAST TRADE PRICE",
"CLOSING PRICE" and "TRADING DAYS" shall have the meanings given them in Section
4(d)(ii) hereof. Any provision herein that conflicts with or violates any
applicable usury law shall be deemed modified to the extent necessary to avoid
such conflict or violation.
6. Restrictions and Limitations. The Corporation shall not undertake the
following actions without the consent of the holders of a majority of the Series
D Preferred: (A) modify its Certificate of Incorporation or Bylaws so as to
amend or change any of the rights, preferences or privileges of the Series D
Preferred; or (B) purchase or otherwise acquire for value any Common Stock or
other equity security of the Corporation or any non- wholly-owned subsidiary
thereof not held by the Corporation or any wholly-owned subsidiary while there
exists any arrearage in the payment of cumulative dividends hereunder or any
Cash Payments due or the Liquidation Preference exceeds $25. The Corporation
shall not, in connection with a repurchase of any shares of Series D Preferred,
undertake any of the following actions without the consent of all of the holders
of the Series D Preferred: (1) reduce the amount of Series D Preferred whose
holders must consent to an amendment or waiver, (2) reduce the rate of, or
change the time for payment of, dividends on the Series D Preferred or alter the
Liquidation Preference, or (3) alter the conversion provisions with respect to
the Series D Preferred.
7. Voting Rights. Except as provided herein or as provided for by law,
the Series D Preferred shall have no voting rights.
8. Notices. Any notice required by the provisions of this Certificate of
Designations to be given to the holders of shares of Series D Preferred shall be
deemed given five (5) days after deposit in the United States mail, postage
prepaid, or one day after deposit with a nationally-recognized overnight
courier, in either case addressed to each holder of record at its address
appearing on the books of the Corporation. The Corporation shall distribute to
the holders of shares of the Series D Preferred, copies of all notices,
materials, annual and quarterly reports, proxy statements, information
statements and any other documents distributed generally to the holders of
shares of Common Stock, at such times and by such method as such documents are
distributed to such holders.
9. Attorneys' Fees. Any holder of Series D Preferred shall be entitled
to recover from the Corporation the reasonable attorney's fees and expenses
incurred by such holder in connection with enforcement by such holder of any
obligation of the Corporation hereunder.
10. Cash Payments. The Company must make a cash payment in an amount per
share equal to 3% of the Liquidation Preference of the Series D Preferred per
month to each
<PAGE>
<PAGE>
10
holder if the Company fails (i) to honor any request for conversion of the
Series D Preferred as permitted by the terms and conditions of the Series D
Preferred or (ii) to maintain the listing of the Common Stock on the Nasdaq
Small Capitalization Market, the Nasdaq National Market, the New York Stock
Exchange or the American Stock Exchange.
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 Series D
Preferred, 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 Series D Preferred.
The cash payments referred to in this Section 10 are, collectively,
"CASH PAYMENTS," as such term is used in this Certificate of Designations.
11. Replacement Certificates. The certificate(s) representing the shares
of Series D Preferred held by any holder may be exchanged by such holder at any
time and from time to time for certificates with different denominations
representing an equal aggregate number of share of Series D Preferred, as
requested by such holder upon surrendering the same. No service charge will be
made for such registration of transfer or exchange.
12. Wire Transfers. All payments required to be made by the Corporation
with respect to the Series D Preferred shall, upon the written request of any
such holder of the Series D Preferred, be made by wire transfer to the account
designated by such holder.
13. Additional Financings. The Corporation shall not undertake to
conduct any debt or equity financing that is not either pari passu or junior, in
seniority, structure and maturity, to the Series D Preferred.
14. Like Treatment of Holders. Neither the Corporation nor any of its
affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
shares of Series D Preferred or any securities received upon conversion of
Series D Preferred shares, for or as an inducement to any consent, waiver or
amendment of any terms or provisions of such securities unless such
consideration is offered to be paid or agreed to be paid to all holders which so
consent, waive or agree to amend in the time frame set forth in solicitation
documents relating to such consent, waiver or agreement. Neither the Corporation
nor any of its affiliates shall, directly or indirectly, redeem or repurchase
any shares of Series D Preferred or any securities received upon conversion of
Series D Preferred shares unless such offer of redemption or repurchase is made
pro rata to all holders of such securities on identical terms.
<PAGE>
<PAGE>
Form of Certificate for Shares of 10 1/2% Series C Convertible Preferred Stock
================================================================================
NUMBER SHARES
10 1/2% SERIES C CONVERTIBLE PREFERRED STOCK, NO PAR VALUE
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CD Radio Inc.
Common Stock 200,000,000 Shares, Par Value $.001 Each
Preferred Stock 50,000,000 Shares
This Certifies that ____________________________________________ is the owner of
________________________________________________________________________________
fully paid and non-assessable Shares, no par value,
of the 10 1/2% Series C Convertible Preferred Stock of
CD Radio Inc.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
The Corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Witness the seal of the Corporation and the signatures
of its duly authorized officers.
Dated
------------------------------
------------------------------ ------------------------------
Secretary Treasurer President Vice-President
================================================================================
<PAGE>
<PAGE>
For Value Received, ____________________________________________________________
hereby sells, assigns and transfers unto _______________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
represented by the within Certificate and does hereby irrevocably constitute and
appoint ________________________________________________________________________
________________________________________________________________________Attorney
to transfer the said Shares on the Books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________ 19___
_______________________________________
In Presence of ________________________________
NOTICE: The Signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement or any change whatever.
Certificate No. C
-----
For _____ Shares From Whom Transferred Received Certificate No.____
<PAGE>
<PAGE>
Form of Certificate for Shares of Series D Convertible Preferred Stock
================================================================================
NUMBER SHARES
SERIES D CONVERTIBLE PREFERRED STOCK, NO PAR VALUE
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CD Radio Inc.
Common Stock 200,000,000 Shares, Par Value $.001 Each
Preferred Stock 50,000,000 Shares
This Certifies that ____________________________________________ is the owner of
________________________________________________________________________________
fully paid and non-assessable Shares, no par value,
of the Series D Convertible Preferred Stock of
CD Radio Inc.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
The Corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Witness the seal of the Corporation and the signatures
of its duly authorized officers.
Dated
------------------------------
------------------------------ ------------------------------
Secretary Treasurer President Vice-President
================================================================================
<PAGE>
<PAGE>
For Value Received, ____________________________________________________________
hereby sells, assigns and transfers unto _______________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
represented by the within Certificate and does hereby irrevocably constitute and
appoint ________________________________________________________________________
________________________________________________________________________Attorney
to transfer the said Shares on the Books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________ 19___
_______________________________________
In Presence of ________________________________
NOTICE: The Signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement or any change whatever.
Certificate No. C
-----
For _____ Shares From Whom Transferred Received Certificate No. ____
<PAGE>
<PAGE>
Exhibit 5.1
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 Avenue of the Americas
New York, New York 10019-6064
October 15, 1997
CD Radio Inc.
1001 22nd Street N.W.
Washington DC 20037
CD Radio Inc. --
Registration Statement on Form S-4
Registration No. 333-34761
-------------------------------------
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 Company's 10 1/2% Series C
Convertible Preferred Stock, (the "Series C Preferred Stock"), the shares of the
Company's Series D Convertible Preferred Stock, (the "Series D Preferred Stock")
and the shares of the Company's 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) a specimen of a Series C Preferred Stock
certificate included as Exhibit 4.4 to the Registration Statement; (iii) a
specimen of a Series D Preferred Stock certificate included as Exhibit 4.5 to
the Registration Statement; (iii) the Company's Certificate of Incorporation,
the proposed Certificate of Designations of the Series C Preferred Stock and the
proposed Certificate of Designations of the
<PAGE>
<PAGE>
2
Series D Preferred Stock, filed as Exhibits 4.1 and 4.2, respectively, to the
Registration Statement and the By-laws of the Corporation; and (iv) 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 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:
1. when the Certificate of Designation for the Series C Preferred
Stock is filed with the Secretary of State of Delaware and the Series C
Preferred Stock is issued, delivered and paid for as contemplated in the
Registration Statement, the Series C Preferred Stock will be duly authorized,
validly issued, fully paid and nonassessable;
2. when, and if, the Series D Preferred Stock is issued as
contemplated in the Registration Statement and the Certificate of Designations
of the Series C Preferred Stock, such Series D Preferred Stock will be duly
authorized, validly issued, fully paid and nonassessable; and
3. upon conversion of shares of the Series C Preferred Stock or
the Series D Preferred Stock, as the case may be, as contemplated in the
Registration Statement, the Certificate of Designations of the Series D
Preferred Stock and the Certificate of Designations of the Series C Preferred
Stock, the Common Stock issued upon such conversion 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
<PAGE>
<PAGE>
3
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,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)
<TABLE>
<S> <C>
Net Loss for the six months ended June 30, 1997............................................. $ (835)
Accretion of 5% Convertible Preferred Stock added to Liquidation Preference for the six
months ended June 30, 1997................................................................ (1,406)
Deemed Dividend on 5% Convertible Preferred Stock for the six months ended June 30, 1997.... (43,313)
--------
Coverage Deficiency.................................................................... $(45,554)
--------
--------
</TABLE>
<PAGE>
<PAGE>
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-4 (No. 333-34761) 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.
October 15, 1997
<PAGE>
<PAGE>
FORM OF LETTER OF TRANSMITTAL
TO EXCHANGE SHARES
OF THE 5% DELAYED CONVERTIBLE
PREFERRED STOCK ("5% PREFERRED STOCK")
OF
CD RADIO INC.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
____________, 1997 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF 5%
PREFERRED STOCK MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
To tender, this Letter of Transmittal should be delivered only to:
IBJ Schroder Bank & Trust Company, Exchange Agent
Facsimile Transmission:
(212) 858-2611
<TABLE>
<S> <C> <C>
By Mail: Overnight Delivery: By Hand:
P.O. Box 84 1 State Street 1 State Street
Bowling Green Station New York, New York 10004 New York, New York 10004
New York, New York 10274-0084 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
Attn.: Reorganization Dept. Securities Processing Window Securities Processing Window
SC-1 SC-1
</TABLE>
To confirm receipt of this Letter of Transmittal, please call:
(212) 858-2103
The Information Agent for the Exchange Offer is:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Any questions concerning the Exchange Offer or requests for additional copies of
this Letter of Transmittal may be directed to the Information Agent.
Delivery of this Letter of Transmittal to an address other than as set forth
above or transmission of instructions via a facsimile transmission to a number
other than as set forth above will not constitute a valid delivery.
<PAGE>
<PAGE>
2
The undersigned acknowledges receipt of the Prospectus dated October
__, 1997 (the "Prospectus") of CD Radio Inc. (the "Company") and this Letter of
Transmittal, which together describe the Company's offer to exchange (the
"Exchange Offer") up to 1,932,594 shares of its new 10 1/2% Series C Convertible
Preferred Stock (the "New Preferred Stock") for up to all of the outstanding
shares (the "Shares") of its 5% Delayed Convertible Preferred Stock (the "5%
Preferred Stock") at a rate of one share of New Preferred Stock for each $100 in
Exchange Rate Liquidation Preference represented by Shares not previously
converted. The "Exchange Rate Liquidation Preference" shall be the amount
determined by dividing the liquidation preference of the Shares being exchanged
(including accrued and unpaid dividends on the Shares) by 0.696145. As of
September 30, 1997, there were 5,222,608 Shares outstanding.
The undersigned has checked the appropriate boxes below and has signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANS MITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE INFORMATION AGENT OR THE
EXCHANGE AGENT AT THE ADDRESSES AND TELEPHONE NUMBERS SET FORTH ABOVE.
List below the shares of the 5% Preferred Stock to which this Letter of
Transmittal relates. If the space provided below is inadequate, the certificate
numbers and/or the number of shares of the 5% Preferred Stock tendered should be
listed on a separate signed schedule affixed hereto.
------------------
<PAGE>
<PAGE>
3
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF 5% PREFERRED STOCK TENDERED
- --------------------------------------------------------------------------------
Names(s) and Address(es) of Shares of 5% Preferred Stock Tendered
Registered Holder(s) (Attach additional signed schedule if necessary)
(Please fill in, if blank)
- --------------------------------------------------------------------------------
(1) (2) (3) (4)
- --------------------------------------------------------------------------------
Total Number
of Shares Number of
Represented Shares
Certificate by Tendered+ (if
Number(s)* Certificate(s)*+ less than all)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
+ Unless otherwise indicated, the holder will be deemed to have tendered the
full number of shares of 5% Preferred Stock.
- --------------------------------------------------------------------------------
This Letter of Transmittal is to be used either if certificates of
shares of the 5% Preferred Stock are to be forwarded herewith or if delivery of
shares of the 5% Preferred Stock is to be made by book-entry transfer to an
account maintained by the Exchange Agent at The Depository Trust Company,
pursuant to the procedures set forth in "The Exchange Offer -- Tender Procedure"
in the Prospectus. Delivery of documents to the book-entry transfer facility
does not constitute delivery to the Exchange Agent.
<PAGE>
<PAGE>
4
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED SHARES OF 5% PREFERRED STOCK ARE
ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED SHARES OF 5% PREFERRED STOCK ARE BEING DELIVERED
BY BOOK-ENTRY TRANSFER MADE TO THE EXCHANGE AGENT'S ACCOUNT AT THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution .............................................
Book-Entry Transfer Facility: The Depository Trust Company
Account No. ...............................................................
Transaction Code No. ......................................................
Date Tendered .............................................................
[ ] CHECK HERE IF TENDERED SHARES OF 5% PREFERRED STOCK ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Holder(s) ......................................................
Date of Execution of Notice of Guaranteed Delivery ........................
Name of Institution that Guaranteed Delivery ..............................
If delivery is by book-entry transfer, specify the account number of the
Book-Entry Transfer Facility and transaction code number:
Book-Entry Transfer Facility: The Depository Trust Company
Account No. ...............................................................
Transaction Code No........................................................
Date Tendered .............................................................
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name: .....................................................................
Address ...................................................................
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
5
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to the Company the number of shares of
5% Preferred Stock indicated above upon the terms and subject to the conditions
set forth in the Prospectus (receipt of which is hereby acknowledged) and in
this Letter of Transmittal, both of which together constitute the Company's
offer (the "Exchange Offer") to exchange New Preferred Stock for shares of 5%
Preferred Stock properly tendered.
Subject to, and effective upon, the acceptance for exchange of the
shares of the 5% Preferred Stock tendered herewith, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such shares of the 5% Preferred Stock. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent the
true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that said Exchange Agent acts as the agent of the Company, in
connection with the Exchange Offer) to cause the shares of 5% Preferred Stock to
be assigned, transferred and exchanged. The undersigned represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the shares of the 5% Preferred Stock and to acquire shares of the New Preferred
Stock issuable upon the exchange of such tendered shares of the 5% Preferred
Stock, and that, when the same are accepted for exchange, the Company will
acquire good and unencumbered title to the tendered shares of the 5% Preferred
Stock, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The undersigned also warrants that it will,
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered shares of the 5% Preferred Stock
or transfer ownership of such shares of the 5% Preferred Stock on the account
books maintained by the book-entry transfer facility.
The undersigned understands that tenders of shares of 5% Preferred
Stock pursuant to the procedures described in the Prospectus under the heading
"The Exchange Offer -- Tender Procedure" and in the instructions hereto
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions described in the Prospectus.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions of the Exchange
Offer." The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, at any time and from time to time, by the
Company), as more particularly set forth in the Prospectus, the Company may not
be required to exchange any of the shares of 5% Preferred Stock tendered hereby
and, in such event, the shares of 5% Preferred Stock not exchanged will be
returned to the undersigned at the address shown below the signature of the
undersigned.
<PAGE>
<PAGE>
6
The name(s) and address(es) of the registered holder(s) should be
printed above under "Description of Shares of 5% Preferred Stock Tendered," if
not already printed thereunder, exactly as they appear on the shares of the 5%
Preferred Stock tendered hereby. The certificate number(s) and the number of
shares of the 5% Preferred Stock to which this Letter of Transmittal relates,
together with the number of shares of the 5% Preferred Stock that the
undersigned wishes to tender, should be indicated in the appropriate boxes above
under "Description of Shares of 5% Preferred Stock Tendered."
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. A tender of
shares of 5% Preferred Stock made pursuant to the Exchange Offer may not be
withdrawn after the Expiration Date. A purported notice of withdrawal will be
effective only if delivered to the Exchange Agent in accordance with the
specific procedure set forth in the Prospectus under the heading "The Exchange
Offer -- Withdrawal and Revocation Rights."
Certificates for all shares of New Preferred Stock delivered in
exchange for tendered shares of 5% Preferred Stock and any shares of 5%
Preferred Stock delivered herewith but not exchanged, and registered in the name
of the undersigned, shall be delivered to the undersigned at the address shown
below the signature of the undersigned.
<PAGE>
<PAGE>
7
TENDERING HOLDER(S) SIGN HERE
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
- ------------------------------------- ---------------------------------------
Signature of Holder Signature of Holder (if more than one)
Dated: , 199
---------------------- ----
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for 5% Preferred Stock. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 3.
Name(s): Address:
- ------------------------------------- ---------------------------------------
- ------------------------------------- ---------------------------------------
(Please Print)
---------------------------------------
(Include Zip Code)
Area Code and
Capacity (full title): Telephone Number:
----------------------
Taxpayer Identification No.
- ------------------------------------- ------------
<PAGE>
<PAGE>
8
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
Certificates for all physically delivered shares of 5% Preferred Stock
or confirmation of any book-entry transfer to the Exchange Agent's or its
agent's account at a book-entry transfer facility of shares of 5% Preferred
Stock tendered by book-entry transfer, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile thereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein at any time prior to the
Expiration Date (as defined in the Prospectus).
The method of delivery of this Letter of Transmittal, the shares of 5%
Preferred Stock and any other required documents is at the election and risk of
the holder, and except as otherwise provided below, the delivery will be deemed
made only when actually received or confirmed by the Exchange Agent. If such
delivery is by mail, it is suggested that registered mail with return receipt
requested, properly insured, be used. In all cases sufficient time should be
allowed to permit timely delivery. No Letters of Transmittal or certificates for
shares of 5% Preferred Stock should be sent to the Company.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the shares of 5% Preferred Stock for exchange.
2. PARTIAL TENDERS; WITHDRAWALS.
If fewer than all of the shares of 5% Preferred Stock evidenced by a
submitted certificate are tendered, the tendering holder should fill in the
number of shares tendered in the column entitled "Number of Shares Tendered." A
newly issued certificate for the shares of 5% Preferred Stock submitted but not
tendered will be sent to such holder as soon as practicable after the Expiration
Date. All shares of 5% Preferred Stock delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise clearly indicated.
Tenders of 5% Preferred Stock pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. To be effective, a written,
telegraphic, telex or facsimile transmission notice of withdrawal must be
received by the Exchange Agent prior to the Expiration Date at any of its
addresses set forth herein, and with respect to a facsimile transmission, must
be confirmed by telephone and an original delivered by guaranteed overnight
delivery. Any such notice of withdrawal must specify the person named in this
Letter of Transmittal as having tendered the shares of 5% Preferred Stock to be
withdrawn, the certificate numbers of the shares of 5% Preferred Stock to be
<PAGE>
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9
withdrawn, a statement that such holder is withdrawing his election to have such
shares of 5% Preferred Stock exchanged, and the name of the registered holder of
such shares of 5% Preferred Stock, and must be signed by the holder in the same
manner as the original signature on this Letter of Transmittal (including any
required signature guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
ownership of the shares of 5% Preferred Stock being withdrawn. The Exchange
Agent will return the properly withdrawn shares of 5% Preferred Stock promptly
following receipt of notice of withdrawal. If shares of 5% Preferred Stock have
been tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn shares of 5% Preferred Stock
or otherwise comply with the book-entry transfer procedure. All questions as to
the validity of notices of withdrawals, including time of receipt, will be
determined by the Company, and such determination will be final and binding on
all parties.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN
INSTRUCTION AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of
the shares of 5% Preferred Stock tendered hereby, the signature must correspond
with the name(s) as written on the face of the certificates without alteration,
enlargement or any change whatsoever.
If any of the shares of 5% Preferred Stock tendered hereby are owned of
record by two or more joint owners, all such owners must sign this Letter of
Transmittal.
If a number of shares of 5% Preferred Stock registered in different
names are tendered, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of shares of 5% Preferred Stock.
When this Letter of Transmittal is signed by the registered holders or
holders (which term, for the purposes described herein, shall include the
book-entry transfer facility whose name appears on a security listing as the
owner of the shares of 5% Preferred Stock) of shares of 5% Preferred Stock
listed and tendered hereby, no endorsements of certificates or separate written
instruments of transfer or exchange are required.
If this Letter of Transmittal or any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
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10
4. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the
transfer and exchange of shares of 5% Preferred Stock to it or its order
pursuant to the Exchange Offer. If a transfer tax is imposed for any reason
other than the transfer and exchange of shares of 5% Preferred Stock to the
Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other person)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exception therefrom is not submitted herewith the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the certificates representing shares of 5%
Preferred Stock listed in this Letter of Transmittal.
5. WAIVER OF CONDITIONS.
The Company reserves the right to waive in its reasonable judgment, in
whole or in part, at any time and from time to time, any of the conditions to
the Exchange Offer set forth in the Prospectus.
6. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES.
Any holder whose certificates representing shares of 5% Preferred Stock
have been mutilated, lost, stolen or destroyed should contact the Exchange Agent
at the address set forth above for further instructions.
7. IRREGULARITIES.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of shares of 5% Preferred
Stock will be determined by the Company, whose determination will be final and
binding. The Company reserves the absolute right to reject any shares of 5%
Preferred Stock not properly tendered or the acceptance for exchange of which
may, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the absolute right to waive any defect or irregularity in the tender of
any shares of 5% Preferred Stock. Unless waived, any defects or irregularities
in connection with tenders of shares of 5% Preferred Stock for exchange must be
cured within such reasonable period of time as the Company will determine. None
of the Company, the Information Agent, the Exchange Agent or any other person
will be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests
for assistance or additional copies of the Prospectus and this Letter of
Transmittal, may be directed to the Information Agent or the Exchange Agent at
the addresses and telephone numbers set forth above.
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11
IMPORTANT: This Letter of Transmittal or a facsimile thereof (together
with certificates representing shares of 5% Preferred Stock or confirmation of
book-entry transfer and all other required documents) or a Notice of Guaranteed
Delivery must be received by the Exchange Agent on or prior to the Expiration
Date.
<PAGE>
<PAGE>
12
TO BE COMPLETED BY ALL TENDERING HOLDERS
PAYOR'S NAME: CD RADIO INC.
- --------------------------------------------------------------------------------
SUBSTITUTE Name (see Specific Instructions following):
Form W-9
Department of Treasury ____________________________________________________
Internal Revenue Service
Business name, if different from above (see
Payor's Request for Specific Instructions following):
Taxpayer Identification
Number ("TIN") and ____________________________________________________
Certification
---------------------------------------------------------------
Part 1-PLEASE PROVIDE YOUR TIN TIN: ___________________
IN THE BOX AT RIGHT AND CERTIFY Social Security Number or
BY SIGNING AND DATING BELOW. Employer Identification Number
---------------------------------------------------------------
Part 2-TIN Applied For [ ]
---------------------------------------------------------------
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number to be
issued to me).
(2) I am not subject to backup withholding either because:
(a) I am exempt from backup withholding, or (b) I have not
been notified by the Internal Revenue Service (the "IRS")
that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup
withholding, and
(3) any other information provided on this form is true and
correct.
SIGNATURE_______________________________ DATE ________________
- --------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
- ------------------------------------- ---------------------------------------
Signature Date
- --------------------------------------------------------------------------------
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13
Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9
Section references are to the Internal Revenue Code.
Purpose of Form.--A person who is required to file an information return
with the IRS must obtain your correct taxpayer identification number ("TIN") to
report income paid to you, real estate transactions, mortgage interest you paid,
the acquisition or abandonment of secured property, cancellation of debt, or
contributions you made to an IRA. For individuals, the TIN is generally a social
security number ("SSN"). Use Form W-9 to furnish your correct TIN to the
requester (the person asking you to furnish your TIN) and, when applicable, (1)
to certify that the TIN you are furnishing is correct (or that you are waiting
for a number to be issued), (2) to certify that you are not subject to backup
withholding, and (3) to claim exemption from backup withholding if you are an
exempt payee. Furnishing your correct TIN and making the appropriate
certifications will prevent certain payments from being subject to backup
withholding.
Note: If a requester gives you a form other than a W-9 that is
substantially similar to a Form W-9 to request your TIN, you must use the
requester's form.
How to Obtain a TIN.--If you do not have a TIN, apply for one immediately.
To apply, get Form SS-5, Application for a Social Security Card (for
individuals), from your local office of the Social Security Administration, or
Form SS-4, Application for Employer Identification Number (for businesses and
all other entities), from your local IRS office or by calling the IRS at
1-800-TAX-FORM (1-800-829-3676).
To complete Form W-9 if you do not have a TIN, write "Applied For" in the
space for the TIN in Part 1 (or check the box in Part 3 of Substitute Form W-9),
sign and date the form, and give it to the requester. Generally, you must obtain
a TIN and furnish it to the requester by the time of payment, but in any case,
within 60 calendar days. If the requester does not receive your TIN by the time
of payment, backup withholding, if applicable, will begin and continue until you
furnish your TIN to the requester.
Note: Writing "Applied For" (or check the box in Part 3 of the Substitute
Form W-9) on the form means that you have already applied for a TIN OR that you
intend to apply for one in the near future.
As soon as you receive your TIN, complete another Form W-9, include your
TIN, sign and date the form, and give it to the requester.
What is Backup Withholding?--Persons making certain payments to you are
required to withhold and pay to the IRS 31% of such payments under certain
conditions. This is called "backup withholding." Payments that could be subject
to backup withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee compensation, and certain payments
from fishing boat operators, but do not include real estate transactions.
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14
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS notifies the requester that you furnished an incorrect TIN,
or
3. You are notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and dividends
on your tax return (for reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to
backup withholding under 3 above (for reportable interest and dividend
accounts opened after 1983 only), or
5. You do not certify your TIN. This applies only to reportable
interest, dividend, broker, or barter exchange accounts opened after 1983,
or broker accounts considered inactive in 1983.
Except as explained in 5 above, other reportable payments are subject to
backup withholding only if 1 or 2 above applies. Certain payees and payments are
exempt from backup withholding and information reporting. See Payees and
Payments Exempt From Backup Withholding, below, and Example Payees and Payments
under Specific Instructions, below, if you are an exempt payee.
Payees and Payments Exempt From Backup Withholding.--The following is a
list of payees exempt from backup withholding and for which no information
reporting is required. For interest and dividends, all listed payees are exempt
except item (9). For broker transactions, payees listed in (1) through (13) and
a person registered under the Investment Advisers Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in items (1) through (7), except a corporation that provides medical
and health care services or bills and collects payments for such services is not
exempt from backup withholding or information reporting. Only payees described
in item (2) through (6) are exempt from backup withholding for barter exchange
transactions and patronage dividends.
(1) A corporation. (2) An organization exempt from tax under section
501(a), or an IRA, or a custodial account under section 403(b)(7). (3) The
United States or any of its agencies or instrumentalities. (4) A state, the
District of Columbia, a possession of the United States, or any of their
political subdivisions or instrumentalities. (5) A foreign government or any of
its political subdivisions, agencies, or instrumentalities. (6) An international
organization or any of its agencies or instrumentalities. (7) A foreign central
bank of issue. (8) A dealer in securities or commodities required to register in
the United States, the District of Columbia, or a possession of the United
States. (9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
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15
(10) A real estate investment trust. (11) An entity registered at all times
during the tax year under the Investment Company Act of 1940. (12) A common
trust fund operated by a bank under section 584(a). (13) A financial
institution. (14) A middleman known in the investment community as a nominee or
who is listed in the most recent publication of the American Society of
Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under
section 664 or described in section 4947.
Payments of dividend and patronage dividends generally not subject to
backup withholding include the following:
Payments to nonresident aliens subject to withholding under section
1441.
Payments to partnerships not engaged in a trade or business in the
United States and that have at least one nonresident alien partner.
Payments of patronage dividends not paid in money.
Payments made by certain foreign organizations.
Section 404(k) payments made by an ESOP.
Payments of interest generally not subject to backup withholding
include the following:
Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is
$600 or more and is paid in the course of the payer's trade or business
and you have not provided your correct TIN to the payer.
Payments of tax-exempt interest (including exempt-interest
dividends under section 852).
Payments described in section 6049(b)(5) to nonresident aliens.
Payments on tax-free covenant bonds under section 1451.
Payments made by certain foreign organizations.
Mortgage interest paid to you.
Payments that are not subject to information reporting are also not
subject to backup withholding. For details, see sections 6041, 6041A, 6042,
6044, 6045, 6049, 6050A, and 6050N, and the applicable regulations.
<PAGE>
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16
Penalties
Failure To Furnish TIN.--If you fail to furnish your correct TIN to a
requester, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
Civil Penalty for False Information With Respect to Withholding.--In
addition to any criminal penalty described below, if you make a false statement
with no reasonable basis that results in decreased or no backup withholding, you
will be subject to a $500 penalty.
Criminal Penalty for Falsifying Information.--If you willfully make a
false certification, then, in addition to any other penalty provided by law,
upon conviction thereof, you will be fined or imprisoned or both.
Misuse of TINs.--If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
Specific Instructions
Name.--If you are an individual, you must generally provide the name shown
on your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
social security card, and your new last name.
If you are a sole proprietor, you must furnish your individual name and
either your SSN or EIN. You may also enter your business name or "doing business
as" name on the business name line. Enter your name(s) as shown on your social
security card and/or as it was used to apply for your EIN on Form SS-4.
Signing the Certification.
1. Interest, Dividend, and Barter Exchange Accounts Opened Before 1984 and
Broker Accounts Considered Active During 1983. You are required to furnish your
correct TIN, but you are not required to sign the certification.
2. Interest, Dividend, Broker, and Barter Exchange Accounts Opened After
1983 and Broker Accounts Considered Inactive During 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. Real Estate Transactions. You must sign the certification. You may
cross out item 2 of the certification.
4. Other Payments. You are required to furnish your correct TIN, but you
are not required to sign the certification unless you have been notified of an
incorrect TIN.
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17
Other payments include payments made in the course of the requester's trade or
business for rents, royalties, goods (other than bills for merchandise), medical
and health care services (including payments to corporations), payments to a
nonemployee for services (including attorney and accounting fees), and payments
to certain fishing boat crew members.
5. Mortgage Interest Paid by You, Acquisition or Abandonment of Secured
Property, Cancellation of Debt, or IRA Contributions. You are required to
furnish your correct TIN, but you are not required to sign the certification.
6. Exempt Payees and Payments. If you are exempt from backup withholding,
you should complete this form to avoid possible erroneous backup withholding.
Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, and
sign and date the form. If you are a nonresident alien or foreign entity not
subject to backup withholding, give the requester a complete Form W-8,
Certificate of Foreign Status.
7. TIN "Applied For." Follow the instructions under How To Obtain a TIN,
on page 1, and sign and date this form.
Signature. -- For a joint account, only the person whose TIN is shown in
Part 1 should sign.
Privacy Act Notice. -- Section 6109 requires you to furnish your correct
TIN to persons who must file information returns with the IRS to report
interest, dividends, and certain other income paid to you, mortgage interest you
paid, the acquisition or abandonment of secured property, cancellation of debt,
or contributions you made to an IRA. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. The IRS may also
provide this information to the Department of Justice for civil and criminal
litigation and to cities, states, and the District of Columbia to carry out
their tax laws. You must provide your TIN whether or not you are required to
file a tax return. Payers must generally withhold 31% of taxable interest,
dividend, and certain other payments to a payee who does not furnish a TIN to a
payer. Certain penalties may also apply.
What Name and Number To Give the Requester
For this type of account: Give name and SSN of:
- ------------------------ --------------------
1. Individual The individual
2. Two or more individuals (joint The actual owner of the account or,
account) if combined funds, the first
individual on the account(1)
- --------
(1) List first and circle the name of the person whose number you furnish.
<PAGE>
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18
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings trust The grantor-trustee(3)
(grantor is also trustee)
b. So-called trust account that is not a The actual owner(3)
legal or valid trust under state law
5. Sole proprietorship The owner(4)
For this type of account: Give name and EIN of:
- ------------------------ --------------------
6. Sole proprietorship The owner(4)
7. A valid trust, estate, or pension trust Legal entity(5)
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or other tax-
exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a state or local
government, school district, or
prison) that receives agriculture
program payments
Note: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
- --------
(2) Circle the minor's name and furnish the minor's SSN.
(3) List first and circle the name of the person whose number you furnish.
(4) Show your individual name, but you may also enter your business or "doing
business as" name. You may use either your SSN or EIN (if you have one).
(5) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
<PAGE>
