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________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-24710
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CD RADIO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 52-1700207
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
SIXTH FLOOR, 2175 K STREET, N.W.
WASHINGTON, D.C. 20037
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (202) 296-6192
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
On March 2, 1998 the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant, using the closing price
of the Registrant's Common Stock on such date, was $153,419,223.
The number of shares of the Registrant's common stock outstanding as of
March 2, 1998 was 16,048,691.
DOCUMENTS INCORPORATED BY REFERENCE
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Proxy Statement for Annual Meeting of Part into which incorporated:
Shareholders to be held on April 20, 1998 Part III -- Items 10, 11, 12 and 13
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CD RADIO INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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ITEM NO. DESCRIPTION PAGE
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PART I
Item 1. Business....................................................................................... 1
Item 2. Properties..................................................................................... 22
Item 3. Legal Proceedings.............................................................................. 22
Item 4. Submission of Matters to a Vote of Security Holders............................................ 22
Item 4a. Executive Officers of the Registrant........................................................... 23
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PART II
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Item 5. Market for Registrant's Common Stock and Related Stockholder Matters........................... 25
Item 6. Selected Financial Data........................................................................ 25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 26
Item 8. Financial Statements and Supplementary Data.................................................... 31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 46
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PART III
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Item 10. Directors and Executive Officers of the Registrant............................................. 47
Item 11. Executive Compensation......................................................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 47
Item 13. Certain Relationships and Related Transactions................................................. 47
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PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 48
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PART I
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 Annual Report on Form 10-K. 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 that 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
Annual Report on Form 10-K, and particularly in the risk factors set forth
herein under 'Business -- 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
substantial additional financing. These and other factors are discussed herein
including under 'Business -- Risk Factors' in Part I of this Annual Report on
Form 10-K.
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.
ITEM 1. BUSINESS
CD Radio Inc. was founded in 1990 to pioneer and commercialize a digital
quality, multi-channel radio service broadcast directly from satellites to
vehicles. In October 1997, the Company was granted one of two licenses (the 'FCC
Licenses') from the Federal Communications Commission (the 'FCC') to build,
launch and operate a national satellite radio broadcast system. The Company is
constructing 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, digital 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 $9.95
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:
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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
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The Company's 50 music and non-music channels will be housed at its
national broadcast studio (the 'National Broadcast Studio') which will be
located in New York City. 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, digital quality music programming. The
Company's planned multiplicity of formats currently is not available to
motorists in any market within the United States.
CD Radio is primarily a service for motorists. The Yankee Group, a market
research organization, estimates that there will be approximately 198 million
registered private motor vehicles in the United States by the end of 1999, when
the Company expects to commence broadcasting. At present, approximately 89% of
all private vehicles have a radio that could easily be utilized to receive 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 The Arbitron Company ('Arbitron'), in 1996, despite the fact
that almost all vehicles contained either a cassette or compact disc player, 87%
of automobile commuters listened to the radio an average of 50 minutes a day
while commuting. According to the Radio Advertising Bureau, each week radio
reaches approximately 95% of all Americans over the age of 12, with the average
listener spending more than three hours per weekday and more than five hours per
weekend listening to the radio. More than 40% of all radio listening is done in
cars. In addition, in 1996, approximately 79% of total radio listening was to FM
stations, which primarily provides music programming, as compared with AM
stations which devote a greater proportion of their programming to talk and
news.
The Company believes that its ability to offer a wide variety of musical
formats simultaneously throughout the United States will enable it to tap
significant unmet consumer demand for specialized musical programming. The
economics of the existing advertiser supported radio industry dictate that
conventional radio stations generally program for the greatest potential
audience. Even in the largest metropolitan areas, station formats are limited.
Nearly half of all commercial radio stations in the United States offer one of
only three formats: country, adult contemporary and news/talk, and the next
three most prevalent formats account for another 30% of all stations. Although
niche music categories such as classical, jazz, rap, gospel, oldies,
soundtracks, new age, children's programming and others accounted for
approximately 27% of sales of recorded music in 1996, such formats generally are
unavailable on existing radio stations in many markets. Even in New York City,
the nation's largest radio market, there are no radio stations devoted solely to
such programming as opera, blues, chamber
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music, soundtracks, reggae, children's programming and many others. CD Radio's
wide choice of formats is expected to appeal to the large number of currently
underserved listeners.
In addition, the limited coverage area of conventional radio broadcasting
means that listeners often travel beyond the range of any single station. Unlike
conventional FM stations, which have an average range of only approximately 30
miles before reception fades, CD Radio's signal is designed to cover the entire
continental United States, enabling listeners almost always to remain within its
broadcast range. The Company's satellite delivery system is designed to permit
CD Radio to be received by motorists in all outdoor locations where the vehicle
has an unobstructed line-of-sight with one of the Company's satellites or is
within range of one of the Company's terrestrial repeating transmitters. The
ability to broadcast nationwide will also allow the Company to serve currently
underserved radio markets.
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.
PROGRESS TO DATE AND SIGNIFICANT DEVELOPMENT MILESTONES
The following chart sets forth the Company's past and projected development
milestones. There can be no assurance that the Company will be able to meet any
of its projections for 1998 or 1999, including completion of construction of its
National Broadcast Studio, completion of its satellite launches, or commencement
of its commercial operations in late 1999 as planned. See ' -- Risk
Factors -- Possible Delays and Adverse Effect of Delay on Financing
Requirements.'
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1990: CD Radio Inc. incorporated
Proposed FCC create satellite radio service and filed license application
1991: Conducted stationary service simulation
Conducted nationwide focus groups
1992: Satellite radio spectrum allocated
Conducted radio manufacturer discussions
1993: Contracted with Space Systems/Loral, Inc. ('Loral') for satellite construction
Contracted with Arianespace S.A. ('Arianespace') for satellite launch
Conducted additional nationwide focus groups
1994: Completed initial public offering of its common stock
1995: Completed Loral satellite design
Filed orbital slot registrations
Completed development of proprietary miniature satellite dish antenna
1996: Designed the radio card receiver
1997: Won auction for FCC license
Received one of two FCC national satellite radio broadcasting licenses
Completed $135 million private placement of 5% Delayed Convertible Preferred Stock ('5%
Preferred Stock')
Commenced construction of three satellites
Completed receipt of satellite broadcast patents
Arranged $105 million vendor financing with Arianespace Finance S.A. ('AEF')
Recruited key programming, marketing and financial management team
Completed strategic $25 million sale of Common Stock to Loral Space & Communications Ltd.
('Loral Space')
Executed radio manufacturer memoranda of understanding
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Completed exchange offer of 10 1/2% Series C Convertible Preferred Stock for all outstanding
shares of 5% Preferred Stock
Completed public offerings of 3,050,00 shares of Common Stock and 15% Senior Secured Discount
Notes due 2007
1998: Select non-music channel content providers
Select chipset manufacturer
Select radio card manufacturer
Complete significant satellite construction milestones
Begin terrestrial repeating transmitter build-out
1999: Complete construction of National Broadcast Studio
Begin commercial production of radio cards
Complete satellite launches
Test markets
Begin commercial operations
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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.
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 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 channels
and format selected, as well as the title, recording artist and album title of
the song being played. 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.
PROGRAMMING
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 that the initial
subscription fee for CD Radio, which will entitle subscribers to receive all CD
Radio channels, will be $9.95 per month.
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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 National Broadcast Studio in New
York City. 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.
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. On January 22,
1998, the Company and Bloomberg L.P. announced that they entered into an
agreement under which CD Radio will carry Bloomberg's 24 hour news and
information service on CD Radio channel 31. Under terms of the agreement, CD
Radio will make Bloomberg News Radio available to all subscribers. The two
companies also agreed to work together to jointly to develop custom programming
for an additional non-music channel on CD Radio.
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 digital 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 a new generation of radios capable of receiving
S-band as well as AM and FM signals ('S-band radios') and their associated
miniature satellite dish antennas.
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
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.
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 and consumers in areas with sparse radio coverage. 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,
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conduct direct mailings to specialized music mailing lists of record clubs and
sponsor and advertise at certain music events.
Truck Drivers. According to the U.S. Department of Transportation, there
are approximately three million professional truck drivers in the United States,
of whom approximately 1.1 million are long-distance haulers. The Company intends
to place sampling displays at truck stops and to advertise in publications and
on internet sites which cater to truck drivers.
Recreational Vehicle Owners. There are approximately three million
recreational vehicles in the United States. The Company plans to advertise in
magazines targeted to recreational vehicle 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.
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 optional equipment 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 a number of 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
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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 credit or debit card.
THE CD RADIO DELIVERY SYSTEM
The Company has designed the CD Radio delivery system to transmit an
identical signal from two satellites placed in geosynchronous orbit. The two
satellite system will permit CD Radio to provide seamless signal coverage
throughout the continental United States. This means that listeners will almost
always be within the broadcast range of CD Radio, unlike current FM radio
broadcasts, which have an average range of only approximately 30 miles. The CD
Radio system is designed to provide clear reception in most areas despite
variations in terrain, buildings and other obstructions. The system is designed
to enable motorists to receive CD Radio in all outdoor locations where the
vehicle has an unobstructed line-of-sight with one of the Company's satellites
or is within range of one of the Company's terrestrial repeating transmitters.
The portion of the S-band located between 2320 MHz and 2345 MHz has been
allocated by the FCC exclusively for national satellite radio broadcasts, and
will augment traditional AM and FM radio bands. This portion of the spectrum was
selected because there are virtually no other users of this frequency band in
the United States, thus minimizing potential signal interference. In addition,
this frequency band is relatively immune to weather related attenuation, which
is not the case with higher frequencies.
The Company expects to use 12.5 MHz of bandwidth in the 7025.0-7075.0 MHz
band (or some other suitable frequency) for uplink transmissions from the
National Broadcast Studio to the Company's satellites. Downlink transmission
from the satellites to subscribers' radio cards or S-band radios will use 12.5
MHz of bandwidth in the 2320.0-2332.5 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 220
years, and to date more than 52 such satellites have been built or ordered,
including 21 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
103 feet long, 8 feet wide and 31 feet tall.
Simple Design ('Bent Pipe'). The Company's satellites will incorporate a
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.
Memory Buffer. The Company's transmission design incorporates the use of a
memory buffer chip contained within radio cards and S-band radios, designed to
store signal. The Company plans to position its two satellites in complementary
orbital locations so as to achieve efficient signal diversity and allow the
memory buffer to mitigate service interruptions which can result from signal
blockage and fading. The 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. The Company has been granted patents on its satellite
broadcasting system, which incorporate a multisatellite design and memory
buffer.
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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 memory buffer. 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 rulemaking on this subject. 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 a contract for $275.8
million with Loral (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 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 a fourth satellite at any time prior to March 10, 1999.
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. On July 22, 1997, the Company contracted for two launches
(the 'Arianespace Launch Service Agreement') for $176.0 million with
Arianespace, a leading supplier of satellite launch services. 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, 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 Service Agreement.
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 March 2, 1998, 95
of 100 Arianespace launches (95%) have been completed successfully since May
1984. See ' -- Risk Factors -- Dependence upon Satellites,' ' -- Risk
Factors -- Dependence upon Satellite and Launch Contractors' and ' -- Risk
Factors -- Satellite Launch Risks.' However, the Ariane 5, the particular launch
vehicle being planned for the launch of the Company's satellites, has had only
two launches, one of which was a failure. There is no assurance that
Arianespace's launches of the Company's satellites will be successful. If the
third qualification flight of the Ariane 5 launch vehicle results in a failure,
or if for any reason there have not
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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 Service Agreement, the Company
has the right to require Arianespace to negotiate in good faith an amendment to
the Arianespace Launch Service Agreement 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.
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
Service Agreement 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 Service Agreement 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.
Arianespace has assisted the Company in securing financing for the launch
service prices through its subsidiary, AEF. The Company and AEF have entered
into two loan agreements (collectively, the 'AEF Agreements') which govern the
provisions of such financing. See Note 3 to the Company's Consolidated Financial
Statements included in Part II of this Annual Report on Form 10-K.
Risk Management and Insurance. Two custom-designed, fully dedicated
satellites are required to broadcast CD Radio. The Company has selected a launch
service supplier that has achieved the most reliable launch record in its class
in the industry. Each of the Company's two operational satellites will be
launched separately. The Arianespace Launch Service Agreement contains a
provision entitling the Company to a replacement launch in the event of a launch
failure caused by the Arianespace launch vehicle. In such event, the Company
would utilize the spare satellite that will be constructed. Thus, the Company
does not intend to insure for this contingency. The Company intends to insure
against other contingencies, including a failure during launch caused by factors
other than the launch vehicle and/or a failure involving the second satellite in
a situation in which the spare satellite has been used to replace the first
satellite. If the Company is required to launch the spare satellite due to
failure of the launch of one of the operational satellites, its operational
timetable would be delayed for approximately six months or more. The launch or
in-orbit failure of two satellites would require the Company to arrange for
additional satellites to be built and could delay the commencement or
continuation of the Company's operations for three years or more. See ' -- Risk
Factors -- Dependence upon Satellites,' ' -- Risk Factors -- Dependence upon
Satellite and Launch Contractors' and ' -- Risk Factors -- Satellite Launch
Risks.'
Once properly deployed and operational, the historical risk of premature
total satellite failure has been less than 1% for U.S. geosynchronous commercial
communication satellites. Insurance against in-orbit failure is currently
available and typically is purchased after the satellite is tested in orbit and
prior to the expiration of launch insurance. In recent years, annual premiums
have ranged from 1.3% to 2.5% of coverage. After the Company has launched the
satellites and begun to generate revenues, the Company will evaluate the need
for business interruption insurance.
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.
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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 satellite dish antenna is battery powered and 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 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 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.
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 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.
THE NATIONAL BROADCAST STUDIO
The Company plans to originate its 50 channels of programming from its
National Broadcast Studio, which will be located in New York City. 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 intends to create an extensive music library which will consist
of a deep range of recorded music. In addition to updating its music library
with new recordings as they are released, the Company will seek to acquire
recordings that in certain cases are no longer commercially available.
Programming will be originated at the National Broadcast Studio and
transmitted to the Company's two satellites for broadcast to CD Radio
subscribers. The Company expects that its broadcast transmissions will be
uplinked to its satellites at frequencies in the 7025.0-7075.0 MHz band. The
satellites will receive and convert the signal to the 2320.0-2332.5 MHz band.
The satellites then will broadcast the signal to the United States, at a power
sufficient to enable its receipt directly by the miniature satellite dish
antennas to be used by subscribers.
Service-related commands also will be relayed from the National Broadcast
Studio to the Company's satellites for retransmission to subscribers' radio
cards and S-band radios. These service-related commands include those required
to (i) initiate and suspend subscriber service, (ii) change the
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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
satellite orbital adjustments and monitoring of the satellites.
On March 16, 1998 the Company entered into an agreement with GE American
Communications Inc. ('GE Americom'), a subsidiary of GE Capital Corp., to
provide back-up telemetry tracking and control services for the Company's
satellites for a 15-year term. The agreement requires the Company to make an
initial nonrefundable payment of $3.0 million on signing, and annual payments
ranging from $0.9 - $1.95 million during the term, beginning on the launch of
the Company's satellites. The initial $3.0 million payment is to be credited
against payments that become due in the last two years of the term.
The Company has reached an agreement in principle on the significant
economic terms of a 15-year lease for an aggregate of approximately 100,000
square feet of class A office space in New York City to serve as the future
location of its executive offices and National Broadcast Studio. The Company
anticipates entering into a definitive lease in April 1998. Occupancy of the
space is expected in March 1999.
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 characters of the Company's
planned system. Because there currently are no commercial satellites in orbit
capable of transmitting S-band frequencies to the United States, the Company
constructed a terrestrial simulation of its planned system. For this purpose,
the Company selected a test range covering several kilometers near Washington,
D.C. which included areas shadowed by buildings, trees and overpasses. The
Company placed S-band transmitters on the rooftops of a number of tall buildings
in such a way as to simulate the signal power and angle of arrival of satellite
transmissions to be used for its proposed service. The Company also modified the
standard factory installed sound system of an automobile to create a radio
receiving AM, FM and S-band, and integrated the Company's satellite dish antenna
into the car roof. The demonstrations included the reception of 30 channels of
compact disc quality stereo music by the prototype radio while the car was
driven throughout the range. Prior to testing with orbiting satellites,
miniature satellite dish antennas and radio cards or S-band radios suitable for
commercial production, there can be no assurance that the CD Radio system will
function as intended. See ' -- Risk Factors -- Reliance on Unproven Technology.'
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) American Mobile Radio Corporation ('AMRC'),
the other holder of an FCC License.
The AM/FM radio broadcasting industry is very competitive. Radio stations
compete for listeners and advertising revenues directly with other radio
stations within their markets on the basis of a variety of factors, including
program content, on-air talent, transmitter power, assigned frequency, audience
characteristics, local program acceptance and the number and characteristics of
other radio stations in the market. Many of the Company's radio broadcasting
competitors have substantially greater financial, management and technical
resources than the Company.
Currently, radio stations broadcast by means of analog signals, as opposed
to digital transmission. The Company believes, however, that within several
years, 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
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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 American Mobile Satellite Corporation ('AMSC'), is
the other holder of an FCC License. AMRC, in which WorldSpace, Inc. (a company
that plans to provide satellite radio service outside of the United States) has
a 20% interest, and AMSC, which is owned in part by the Hughes Electronics
Corporation subsidiary of General Motors Corporation, have financial, management
and technical resources that exceed those of the Company. In addition, the FCC
could grant new licenses which would enable further competition to broadcast
satellite radio. Finally, there are many portions of the electromagnetic
spectrum that are currently licensed for other uses and certain other portions
for which licenses have been granted by the FCC without restriction as to use,
and there can be no assurance that these portions of the spectrum could not be
utilized for satellite radio broadcasting in the future. Although any such
licensees would face cost and competition barriers, there can be no assurance
that there will not be an increase in the number of competitors in the satellite
radio industry. See ' -- Risk Factors -- Competition.'
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.
TECHNOLOGY AND PATENTS
The Company has been granted certain U.S. patents (U.S. Patent Nos.
5,278,863; 5,319,673; 5,485,485; 5,592,471) on various features of satellite
radio technology. There can be no assurance, however, that any U.S. patent
issued to the Company will cover the actual commercialized technology of the
Company or will not be circumvented or infringed by others, or that if
challenged would be held to be valid. The Company has filed patent applications
covering CD Radio system technology in Argentina, Australia, Brazil, Canada,
China, France, Germany, India, Italy, Japan, South Korea, Mexico, the
Netherlands, Spain, Switzerland and the United Kingdom, and has been granted
patents in a number of these countries. There can be no assurance that
additional foreign patents will be awarded to the Company or, if any such
patents are granted, that the laws of foreign countries where the Company
receives patents will protect the Company's proprietary rights to its technology
to the same extent as the laws of the United States. Although the Company
believes that obtaining patent protection may provide benefits to the Company,
the Company does not believe that its business is dependent on obtaining patent
protection or successfully defending any such patents that may be obtained
against infringement by others.
Certain of the Company's know-how and technology are not the subject of
U.S. patents. To protect its rights, the Company requires certain employees,
consultants, advisors and collaborators to enter into confidentiality
agreements. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure. In
addition, the Company's business may be adversely affected by competitors who
independently develop competing technologies.
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The Company's proprietary technology was developed by Robert D. Briskman,
the Company's co-founder, and was assigned to the Company. The Company believes
that Mr. Briskman independently developed the technology covered by the
Company's issued patents and that it does not violate the proprietary rights of
any person. There can be no assurance, however, that third parties will not
bring suit against the Company for patent infringement or for declaratory
judgment to have any patents which may be issued to the Company declared
invalid.
If a dispute arises concerning the Company's technology, litigation might
be necessary to enforce the Company's patents, to protect the Company's trade
secrets or know-how or litigation may occur to determine the scope of the
proprietary rights of others. Any such litigation could result in substantial
cost to, and diversion of effort by, the Company, and adverse findings in any
proceeding could subject the Company to significant liabilities to third
parties, require the Company to seek licenses from third parties or otherwise
adversely affect the Company's ability to successfully develop and market CD
Radio.
GOVERNMENT REGULATION
As an operator of a privately owned satellite system, the Company is
subject to the regulatory authority of the FCC under the Communications Act of
1934, as amended (the 'Communications Act'). The FCC is the government agency
with primary authority in the United States over satellite radio communications.
The Company is currently subject to regulation by the FCC principally with
respect to (i) the licensing of its satellite system; (ii) preventing
interference with or to other users of radio frequencies; and (iii) compliance
with rules that the FCC has established specifically for United States
satellites and rules that the FCC has established for providing satellite radio
service.
On May 18, 1990, the Company proposed that the FCC establish a satellite
radio service and applied for an FCC License. On March 3, 1997, the FCC adopted
rules for the national satellite radio broadcast service (the 'FCC Licensing
Rules'). Pursuant to the FCC Licensing Rules, an auction was held among the
applicants on April 1 and 2, 1997. The Company was a winning bidder for one of
the two FCC Licenses with a bid of $83 million. AMRC was the other winning
bidder for an FCC License with a bid of $89 million. After payment of the full
amount by the Company, the FCC's International Bureau issued the FCC License to
the Company on October 10, 1997. The FCC License is effective immediately;
however, for a period of 30 days following the grant of the FCC License, those
parties that had filed comments or petitions to deny in connection with the
Company's application for an FCC License could petition the International Bureau
to reconsider its decision to grant the FCC License to the Company or request
review of the decision by the full FCC. An application for review by the full
Commission was filed by one of the low-bidding applicants in the auction. This
petition requests, among other things, that the Commission adopt restrictions on
foreign ownership, which were not applied in the a license issued to the Company
by the FCC's International Bureau on October 10, 1997 (the 'IB Order'), and, on
the basis of the Company's ownership, overrule the IB Order. Although the
Company believes the FCC will uphold the IB Order, the Company cannot predict
the ultimate outcome of any proceedings relating to this petition or any other
proceeding that may be filed. If this petition is denied, the complaining party
may file an appeal with the U.S. Court of Appeals which must find that the
decision of the FCC was not supported by substantial evidence, or was arbitrary,
capricious or unlawful in order to overturn the grant of the Company's FCC
License.
Pursuant to the FCC Licensing Rules, the Company is required to meet
certain progress milestones. Licensees are required to begin satellite
construction within one year of the grant of the FCC License; to launch and
begin operating their first satellites within four years; and to begin operating
their entire system within six years. The IB Order states that failure to meet
those milestones will render the FCC License null and void. On May 6, 1997, the
Company notified the FCC that it had begun construction on the first of its
satellites. On March 27, 1997, a third party requested reconsideration of the
FCC Licensing Rules, seeking, among other things, that the time period allotted
for these milestones be shortened. The Company cannot predict the outcome of
this petition.
The term of the FCC License for each satellite is eight years, commencing
from the time each satellite is declared operational after having been inserted
into orbit. Upon the expiration of the term with respect to each satellite, the
Company will be required to apply for a renewal of the relevant FCC License.
Although the Company anticipates that, absent significant misconduct on the part
of the
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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.
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. With respect to Mexico, this obligation could
be complicated by that country's plan to license a similar satellite radio
service on the same frequencies as licensed for use by the Company in the United
States. There can be no assurance that the licensees will be able to coordinate
the use of this spectrum with Canadian or Mexican operators or will be able to
do so in a timely manner.
In order to operate its satellites, the Company also will have to obtain a
license from the FCC to operate its uplink facility. Normally, such approval is
sought after issuance of the FCC License. Although there can be no assurances
that such licenses will be granted, the Company does not expect difficulties in
obtaining a feeder link frequency and ground station approval in the ordinary
course.
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 rulemaking on the subject was initiated by
the FCC on March 3, 1997. The deadline for the public to file comments was June
13, 1997 and the deadline for filing reply comments was June 27, 1997. Several
comments were received by the FCC that sought to cause the FCC to consider
placing restrictions on the Company's ability to deploy its terrestrial
repeating transmitters. However, the Company believes that the FCC will neither
prohibit it from deploying such transmitters nor place unreasonable requirements
upon such deployment.
AMRC has proposed to use a 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 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 March 2, 1998, the Company had 14 employees, of whom four were
involved in technology development, six in business development and four in
administration. In addition, the Company relies upon a number of consultants and
other advisors. By commencement of operations, the Company expects to have
approximately 130 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.
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RISK FACTORS
In addition to the other information in this Annual Report on Form 10-K,
the following factors should be considered carefully in evaluating the Company
and its business. This Annual Report on Form 10-K 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 herein. 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 December 31, 1997, the Company has had no
revenues and has incurred aggregate net losses of approximately $23.3 million,
including net losses of approximately $2.8 million during the year ended
December 31, 1996 and $4.7 million during the year ended December 31, 1997. The
Company does not expect to generate any revenues from operations until 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 $648.5 million to
develop and commence commercial operation of CD Radio by the end of 1999. Of
this amount, the Company has raised approximately $446.4 million to date,
leaving anticipated additional cash needs of approximately $202.1 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. 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
and the indenture (the 'Indenture') governing the Company's outstanding 15%
Senior Secured Discount Notes due 2007 (the 'Notes') issued in November 1997
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 $275.8 million under the Loral Satellite Contract and
$176.0 million under the Arianespace Launch Service Agreement. Under the Loral
Satellite Contract, payments are to be made in 22 installments, which commenced
in April 1997. Payments due under the Arianespace Launch Service Agreement
commenced in November 1997 for the first launch and February 1998 for the second
launch. See 'Item 7. 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 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
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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's current stockholders of the common stock, par value $.001 per share
(the '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. 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. A significant delay in the planned development,
construction, launch and commencement of operation of the Company's satellites
would have a material adverse effect on the Company. Other delays in the
development or commencement of commercial operations of CD Radio may also have a
material adverse effect on the Company. Any such delays could result from a
variety of causes, including delays associated with obtaining additional FCC
authorizations, coordinating use of spectrum with Canada and Mexico, inability
to obtain necessary financing in a timely manner, delays in or modifications to
the design, development, construction or testing of satellites, the National
Broadcast Studio or other aspects of the CD Radio system, changes of technical
specifications, delay in commercial availability of radio cards, S-band radios
or miniature satellite dish antennas, failure of the Company's vendors to
perform as anticipated or a delayed or unsuccessful satellite launch or
deployment. During any period of delay, the Company would continue to have
significant cash requirements, including capital expenditures, administrative
and overhead costs, contractual obligations and debt service requirements that
could materially increase the aggregate amount of funding required to permit the
Company to commence operating CD Radio. Additional financing may not be
available on favorable terms or at all during periods of delay. Delay also could
cause the Company to be placed at a competitive disadvantage in relation to any
competitor that succeeds in beginning operations earlier than the Company.
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.
DEPENDENCE UPON SATELLITE AND LAUNCH CONTRACTORS
The Company's business will depend upon the successful construction and
launch of the satellites which will be used to transmit CD Radio. The Company
will rely upon its satellite vendor, Loral, for the construction and timely
delivery of these satellites. Failure by Loral to deliver functioning satellites
in a timely manner could materially adversely affect the Company's business.
Although the Loral Satellite Contract provides for certain late delivery
penalties, Loral will not be liable for indirect or consequential damages or
lost revenues or profits resulting from late delivery or other defaults. Title
and risk of loss for the first and second satellites are to pass to the Company
at the time of launch. The satellites are warranted to be in accordance with the
performance specifications in the Loral Satellite Contract and free from defects
in materials and workmanship at the time of delivery, which for the first
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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.
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
Service Agreement 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 Service Agreement 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. 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.
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 March 2, 1998, 95 of 100 Arianespace launches (95%) have been
completed successfully since May 1984. However, the Ariane 5, the particular
launch vehicle intended for the launches of the Company's satellites, has had
only two launches, one of which was a failure. In the event of a significant
delay in the Ariane 5 program, the Company has the right to request launch on an
Ariane 4 launch vehicle. There is no assurance that Arianespace's launches of
the Company's satellites will be successful. Satellites also may fail to achieve
a proper orbit or be damaged in space. 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 Service Agreement. 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.
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
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.
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
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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 Service
Agreement, 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 Service Agreement 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.
RISK ASSOCIATED WITH CHANGING TECHNOLOGY
The industry in which the Company operates is characterized by rapid
technological advances and innovations. There is no assurance that one or more
of the technologies utilized or under development by the Company will not become
obsolete, or that its services will be in demand at the time they are offered.
The Company will be dependent upon technologies developed by third parties to
implement key aspects of its proposed system, and there can be no assurance that
more advanced technologies will be available to the Company on a timely basis or
on reasonable terms or that more advanced technologies will be used by the
Company's competitors and that such technologies will be available to the
Company. In addition, unforeseen problems in the development of the Company's
satellite radio broadcasting system may occur that could adversely affect
performance, cost or timely implementation of the system and could have a
material adverse effect on the Company.
UNAVAILABILITY OF RADIO CARDS, S-BAND RADIOS OR MINIATURE SATELLITE DISH
ANTENNAS
The Company's business strategy requires that subscribers to CD Radio
purchase radio cards or S-band radios as well as the associated miniature
satellite dish antennas in order to receive the service. 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
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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 for each of these products on an exclusive basis for the first
year of CD Radio broadcasts. There can be no assurance, however, that these
discussions or memoranda of understanding will result in a binding commitment on
the part of any manufacturer to produce radio cards, S-band radios and miniature
satellite dish antennas in a timely manner and at an affordable price so as to
permit the widespread introduction of CD Radio in accordance with the Company's
business plan or that sufficient quantities of radio cards, S-band radios and
miniature satellite dish antennas will be available to meet anticipated consumer
demand. The failure to have one or more consumer electronics manufacturers
develop these products for commercial sale in a timely manner, at an affordable
price and with mass market nationwide distribution would have a material adverse
effect on the Company's business. In addition, the FCC, in its order granting
the FCC License, conditioned the Company's license on certification by the
Company that its final receiver design is interoperable with respect to the
final receiver design of the other licensee, which has proposed to use a
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.
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, Broadcast
Music, Inc. and SESAC, Inc. 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 Recordings Act'), with the
owners of the sound recordings. The determination of certain royalty
arrangements with the owners of sound recordings under the Digital Recordings
Act currently are subject to arbitration proceedings. The Company believes that
it will be able to negotiate 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 fourteen employees
and does not have sufficient staff to program its broadcast service, manage
operations, control the operation of its satellites, handle sales and marketing
efforts or perform finance and accounting functions. Although the Company has
recently retained experienced executives in several of these areas, the Company
will be required to hire a broad range of additional personnel before its
planned service begins commercial operations. Growth, including the creation of
a management infrastructure and staffing, is likely to place a substantial
strain on the Company's management and operational resources. The failure to
develop and implement effective systems or to hire and train sufficient
personnel for the performance of all of the functions necessary to the effective
provision of its service and management of its subscriber base and business, and
the failure to manage growth effectively, would have a material adverse effect
on the Company.
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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 and the FCC's International
Bureau issued such a license to the Company on October 10, 1997. Although the
FCC License is effective immediately, for a period of 30 days following the
grant of the FCC License certain parties could petition either the International
Bureau or the full FCC to reconsider the decision to grant the FCC License to
the Company. An application for review by the full Commission was filed by one
of the low-bidding applicants in the auction. This petition requests, among
other things, that the Commission adopt restrictions on foreign ownership, which
were not applied in the IB Order, and, on the basis of the Company's ownership,
overrule the IB Order. If this petition is denied, the complaining party may
file an appeal with the U.S. Court of Appeals, which must find that the decision
of the FCC was not supported by substantial evidence, or was arbitrary,
capricious or unlawful in order to overturn the grant of the Company's FCC
License. Although the Company believes the FCC will uphold the IB Order, the
Company cannot predict the ultimate outcome of any proceedings relating to this
petition or any other proceedings that may be filed.
In order to ensure compliance with the transfer of control rule
restrictions contained in 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 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. With respect to Mexico, this obligation
could be complicated by that country's plan to license a similar satellite radio
service on the same frequencies as licensed for use by the Company in the United
States. There can be no assurance that the Company will be able to coordinate
use of this spectrum or will be able to do so in a timely manner.
Changes in law, FCC regulations or international agreements relating to
communications policy generally or to matters relating specifically to the
services to be offered by the Company could affect the Company's ability to
retain the FCC License and obtain or retain other approvals required to provide
CD Radio or the manner in which CD Radio would be offered or regulated.
The IB Order determined that as a private carrier, the Company is not
subject to the current provisions of the Communications Act restricting
ownership in the Company by non-U.S. private citizens or organizations. The
Executive Branch of the U.S. government has expressed interest in changing this
policy, which could lead to restrictions on foreign ownership of the Company's
shares in the future. The IB Order stated that its finding that the Company is
not subject to the foreign ownership restrictions of the Communications Act is
subject to being revisited in a future proceeding The pending
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application for review of the IB Order brings the question of foreign ownership
restrictions before the full FCC.
The FCC has indicated that it may in the future impose public service
obligations, such as channel set-asides for educational programming, on
satellite radio licensees. The Company cannot predict whether the FCC will
impose public service obligations or the impact that any such obligations, if
imposed, would have on the Company.
The foregoing discussion reflects the application of current communications
law, FCC regulations and international agreements to the Company's proposed
service in the United States. Changes in law, regulations or international
agreements relating to communications policy generally or to matters affecting
specifically the services proposed by the Company could adversely affect the
Company's ability to retain the FCC License and obtain or retain other approvals
required to provide CD Radio or the manner in which the Company's proposed
service would be regulated. Further, actions of the FCC are subject to judicial
review and there can be no assurance that if challenged, such actions would be
upheld.
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.
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, within several years,
some traditional FM radio broadcasting stations will begin to transmit digital
quality signals. The Company also expects to compete directly with AMRC, a
subsidiary of AMSC, which is the holder of the other FCC License. AMSC, which is
owned in part by the Hughes Electronics Corporation subsidiary of General Motors
Corporation, has financial, management and technical resources that exceed those
of the Company. In addition, the FCC could grant new licenses which would enable
further competition to broadcast satellite radio. Finally, there are many
portions of the electromagnetic spectrum that are currently licensed for other
uses and certain other portions for which licenses have been granted by the FCC
without restriction as to use, and there can be no assurance that these portions
of the spectrum could not be utilized for satellite radio broadcasting in the
future. Although any such licensees would face cost and competition barriers,
there can be no assurance that there will not be an increase in the number of
competitors in the satellite radio industry or any assurance that one or more
competitors will not design a satellite radio broadcast system that is superior
to the Company's system, either of which events could have a material adverse
effect on the Company.
UNCERTAIN PATENT PROTECTION
The Company has been granted certain U.S. patents covering various features
of satellite radio technology including, among other features, signal diversity
and memory reception. There can be no certainty that the Company's system or
products will be covered by the Company's patents. If the
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Company's system or products are not covered by the Company's patents, others
may duplicate the Company's system or products without liability to the Company.
In addition, there can be no assurance that the Company's U.S. patents will not
be challenged, invalidated or circumvented by others. Litigation, which could
result in substantial cost to the Company, may be necessary to enforce the
Company's patents or may occur to determine the scope and validity of other
parties' proprietary rights, and there can be no assurance of success in any
such litigation. There can be no assurance that there are no patents, or pending
patent applications which will later mature into patents, or inventions
developed earlier which will later mature into patents, of others which may
block the Company's ability to operate its system or license its technology. The
earliest of the Company's patents is due to expire, upon payment of all
necessary fees, on April 10, 2012.
ITEM 2. PROPERTIES
The Company's executive offices are located at Sixth Floor, 2175 K Street,
N.W., Washington, D.C. 20037, and are leased pursuant to a lease agreement that
will expire on October 31, 1998.
The Company has reached an agreement in principle on the significant
economic terms of a 15-year lease for an aggregate of approximately 100,000
square feet of class A office space in New York City to serve as the future
location of its executive offices and National Broadcast Studio. The Company
anticipates entering into a definitive lease in April 1998. Occupancy of the
space is expected in March 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 23, 1997, the Company mailed stockholders a notice of proposed
amendments (the 'Proposed Amendment') to the Certificate of Designations of the
Company's 5% Preferred Stock and solicited their consent to the Proposed
Amendment pursuant to an accompanying Consent Solicitation Statement (the
'Consent Solicitation'). The Proposed Amendment would allow the Company (i) 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 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 provisions of the
Certificate of Designations relating to the delivery of a notice of redemption
in connection therewith. The Proposed Amendments did not affect any rights of
the Company's Common Stock.
The Company received the written consent to the Proposed Amendment of
stockholders representing (i) more than 50% of the total voting power of the
Company, (ii) 62.4% of the voting power associated with the Common Stock of the
Company and (iii) 57.2% of the voting power associated with the 5% Preferred
Stock, and the Proposed Amendment was adopted.
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ITEM 4a. EXECUTIVE OFFICERS
The following persons are the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ----------------------------- --- ------------------------------------------------------------------------
<S> <C> <C>
David Margolese.............. 40 Chairman and Chief Executive Officer
Robert D. Briskman........... 65 Executive Vice President, Engineering and Operations
Andrew J. Greenebaum......... 35 Executive Vice President and Chief Financial Officer
Keno V. Thomas............... 40 Executive Vice President, Marketing
Joseph S. Capobianco......... 48 Executive Vice President, Content
Lawrence F. Gilberti......... 47 Secretary
</TABLE>
Set forth below is certain information with respect to the executive
officers of the Company.
DAVID MARGOLESE. Mr. Margolese has served as the Company's Chairman
since August 1993, as Chief Executive Officer since November 1992 and as a
director since August 1991. Prior to his involvement with the Company,
Mr. Margolese proposed and co-founded Cantel Inc., Canada's national
cellular telephone carrier, and Canadian Telecom Inc., a radio paging company.
He served as a Vice President of Cantel from 1982 to 1984 and as President of
Canadian Telecom from 1980 until its sale in 1987. Cantel was acquired by
Rogers Communications Inc. in 1989.
ROBERT D. BRISKMAN. Mr. Briskman is CD Radio's co-founder and has served as
Executive Vice President, Engineering and Operations and as a director since
October 1991. Mr. Briskman is one of the world's leading satellite engineering
authorities, and has overseen the design, development and launch of numerous
major satellite systems. During his twenty-two year career at COMSAT, he was
responsible for the engineering and implementation of satellite systems for both
COMSAT and various nations (PALAPA, ITALSAT, MORELOS, ARABSAT, CHINASAT, among
others) that contracted with COMSAT for turnkey satellite programs. Mr. Briskman
was one of the early engineers hired at NASA in 1959, and received the APOLLO
Achievement Award for the design and implementation of the Unified S-Band
System. He is a past chairman of the IEEE Standards Board, past president of the
Aerospace and Electronics Systems Society and served on the industry advisory
council to NASA. He is the Telecommunications Editor of McGraw Hill's
Encyclopedia of Science and Technology and is a recipient of the IEEE Centennial
Medal.
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 Director, Strategic Planning. From October 1992
to May 1995, he was Director, Corporate Finance and from April 1991 to October
1992, he was Manager, Corporate Finance. From August 1989 to April 1991, he was
a Senior Treasury Analyst. Prior to Disney, Mr. Greenebaum was an investment
banker with L.F. Rothschild.
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 televisions 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
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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 Entertainment
Inc. and EMI.
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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK MATTERS
The Common Stock began trading on the Nasdaq SmallCap Market on September
13, 1994. Since October 24, 1997 the Company's Common Stock has traded on the
Nasdaq National Market under the symbol 'CDRD'. The following table sets forth
the high and low closing bid price for the Common Stock, as reported by Nasdaq,
for the periods indicated below. The prices set forth below for periods prior to
October 24, 1997 reflect interdealer quotations, without retail markups,
markdowns, fees or commissions and do not necessarily reflect actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year Ended December 31, 1997
First Quarter....................................................................... 8 3 9/16
Second Quarter...................................................................... 20 1/4 10 3/4
Third Quarter....................................................................... 20 14
Fourth Quarter...................................................................... 24 5/8 16 5/8
Year Ended December 31, 1996
First Quarter....................................................................... 9 1/8 2 15/16
Second Quarter...................................................................... 13 3/4 7 1/8
Third Quarter....................................................................... 9 5/8 6 3/4
Fourth Quarter...................................................................... 8 1/2 3 7/16
</TABLE>
On March 2, 1998, the closing bid price of the Company's Common Stock on
Nasdaq was $15 7/8 per share. On March 2, 1998, there were approximately 133
record holders and approximately 4,855 beneficial owners of the Company's Common
Stock. The Company has never paid cash dividends on its capital stock. The
Company currently intends to retain earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future. The
AEF Agreements and the Indenture contain provisions that limit the Company's
ability to pay dividends on the Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the Company set forth below
with respect to the statements of operations for the years ended December 31,
1995, 1996 and 1997 and with respect to the balance sheets at December 31, 1996
and 1997 are derived from the consolidated financial statements of the Company,
audited by Coopers & Lybrand L.L.P., independent accountants, included in Item 8
of this report. The selected consolidated financial data for the Company with
respect to the balance sheets at December 31, 1993, 1994, and 1995 and with
respect to the statement of operations data for the years ended December 31,
1993 and 1994, are derived from audited consolidated financial statements of the
Company, which are not included herein. The selected consolidated financial data
should be read in conjunction with the Consolidated Financial Statements and
related notes thereto included in Item 8 of this report and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations'
included in Item 7 of this Annual Report on Form 10-K.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating revenues..................................... $ -- $ -- $ -- $ -- $ --
Net loss............................................... $(6,568) $ (4,065) $ (2,107) $ (2,831) $ (4,737)
Net loss per share (basic and diluted)................. $ (.79) $ (.48) $ (.23) $ (.29) $ (.41)
Weighted average common shares (basic and diluted)
outstanding.......................................... 8,284 8,398 9,224 9,642 11,626
</TABLE>
25
<PAGE>
<PAGE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.............................. $ 777 $ 3,400 $ 1,800 $ 4,584 $170,381
Working capital (deficit).............................. $ (250) $ 2,908 $ 1,741 $ 4,442 $170,894
Total assets........................................... $ 1,663 $ 3,971 $ 2,334 $ 5,065 $323,807
Deficit accumulated during the development stage....... $(9,533) $(13,598) $(15,705) $(18,536) $(23,273)
Stockholders' equity(1)................................ $ 505 $ 3,431 $ 1,991 $ 4,898 $ 79,430
</TABLE>
- ------------
(1) No cash dividends were declared or paid in any of the periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report on Form 10-K 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 'Business -- Risk Factors' and elsewhere herein. 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,
obtaining regulatory approval for the CD Radio service, commencement of
construction of three satellites, acquisition of content for its programming,
strategic planning, market research, recruitment of its senior management team
and securing financing for working capital and capital expenditures. The Company
does not expect to generate any revenues from operations until 2000 at the
earliest, and expects that positive cashflow from operations will not be
generated until late 2000 at the earliest. In addition, the Company will require
substantial additional capital to complete development and commence commercial
operations of CD Radio. There can be no assurance that CD Radio will ever
commence operations, that the Company will attain any particular level of
revenues or that the Company will achieve profitability.
Upon commencing commercial operations, the Company expects its primary
source of revenues to be monthly subscription fees. The Company currently
anticipates that its subscription fee will be approximately $9.95 per month to
receive CD Radio broadcasts, with a one time, modest activation fee per
subscriber. In addition, the Company expects to derive additional revenues from
providers of sports, news and talk programming for providing national
distribution of their programming to CD Radio subscribers or from directly
selling or bartering advertising time on the Company's sports, news and talk
channels. 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.
The Company expects that the operating expenses associated with commercial
operations will consist primarily of marketing, sales, programming, maintenance
of the satellite and broadcasting system and 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). Marketing, sales, general and
administrative costs are expected to consist primarily of advertising costs,
salaries of employees, rent and other administrative expenses. The Company
expects that the number of its employees will increase from 14 to approximately
130 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
26
<PAGE>
<PAGE>
will increase significantly as a result of the public offering of Units (the
'Units') consisting of the Company's Notes and warrants (the 'Warrants') to
purchase additional Notes. However, a substantial portion of this indebtedness
will not require cash payments of interest and principal for some time.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
The Company recorded net losses of $4,737,000 ($.41 per share) and
$2,831,000 ($.29 per share) for the years ended December 31, 1997 and 1996,
respectively. The Company's total operating expenses were $6,865,000 and
$2,930,000 for the years ended December 31, 1997 and 1996, respectively.
Legal, consulting and regulatory fees increased for the year ended December
31, 1997 to $3,236,000 from $1,582,000 for the year ended December 31, 1996.
These levels of expenditures are the result of increased activity since winning
the FCC License in April 1997, and in connection with the Company's public
offerings of Common Stock and Units and the Exchange Offer.
Research and development costs were $57,000 and $117,000 for the years
ended December 31, 1997 and 1996, respectively. The Company completed the
majority of such activities in 1994.
Other general and administrative expenses increased for the year ended
December 31, 1997 to $3,572,000 from $1,231,000 for the year ended December 31,
1996. 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 $448,125 for the year ended December 31, 1997, attributable
to the recognition of compensation expense in connection with stock options
issued to an officer of the Company.
The increase in interest income to $4,074,000 for the year ended December
31, 1997, from $113,000 in the year ended December 31, 1996, was the result of a
higher average cash balance during 1997. The cash and cash equivalents on hand
were primarily obtained from several debt and equity offerings in 1997.
Interest expense increased for the year ended December 31, 1997 to
$1,946,000 from $13,000 for the year ended December 31, 1996. The increase is
the result of the issuance of the Units in November 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
The Company recorded net losses of $2,831,000 ($.29 per share) and
$2,107,000 ($.23 per share) for the years ended December 31, 1996 and 1995,
respectively. The Company's total operating expenses were $2,930,000 in 1996
compared to $2,230,000 in 1995.
Legal, consulting and regulatory fees increased in 1996 to $1,582,000 from
$1,046,000 in 1995, as the result of increased efforts to obtain the FCC
License.
Research and development costs were $117,000 in 1996, compared with
$122,000 in 1995. Non-recurring costs associated with the design and development
of the CD Radio demonstration system were substantially completed in 1993. Costs
incurred in subsequent years relate to the operations of the demonstration
system, including leasing satellite time, taking transmission measurements, and
testing multipath fading.
Other general and administrative expenses increased in 1996 to $1,231,000
from $1,062,000 in 1995. The increase is due to the Company requiring general
administrative support for the effort to obtain the FCC License.
Interest income decreased to $113,000 in 1996 from $143,000 in 1995 as a
result of the Company having a higher average cash balance in 1995. Proceeds
relating to the exercise of stock warrants were not received until late 1996
and, therefore, did not generate a significant amount of interest income.
Interest expense decreased from $20,000 in 1995 to $13,000 in 1996 as a result
of the Company repaying a promissory note due to an officer of the Company in
1996.
27
<PAGE>
<PAGE>
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millenium (year 2000) approaches. The 'year
2000' problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to
'00.' The issue is whether the computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
The Company is in the process of working with its suppliers to identify,
modify or upgrade relevant systems which are not currently year 2000-compliant
and to ensure that systems under development will be year 2000 compliant. The
Company believes that the cost of completing the modifications necessary to
become year 2000-compliant will not be material. There can be no assurance,
however, that the Company will be able to identify all aspects of its business
that are subject to year 2000 problems, or identify year 2000 problems of
suppliers that affect the Company's business. There can be no assurance that the
Company's estimate of the cost of systems preparation for year 2000 compliance
ultimately will prove to be accurate.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had working capital of approximately
$171,039,000 compared to $4,442,000 at December 31, 1996. The increase in
working capital was primarily the result of remaining cash proceeds from several
debt and equity offerings in 1997.
FUNDING REQUIREMENTS
The Company is a development stage company and as such will continue to
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 $648.5 million to develop and commence
commercial operation of CD Radio by the end of 1999. Of this amount, the Company
has raised approximately $446.4 million, leaving anticipated additional cash
needs of approximately $202.1 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.
In April 1997, the Company was the winning bidder in an FCC auction for one
of two FCC 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 Service Agreement. 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 Service Agreement, Arianespace has agreed to launch two
of the Company's satellites into orbit. The Company is committed to make
aggregate payments of $275.8 million under the Loral Satellite Contract and of
$176.0 million under the Arianespace Launch Service Agreement. As of December
31, 1997 the Company has made aggregate payments of $49.4 million to Loral.
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 $20.4 million of the contract price, which is to be paid in four equal
installments of $5.1 million commencing November 2001 until March 2003, subject
to the completion of certain milestones. Amounts due under the Arianespace
Launch Service Agreement, except for payments made for each of the two launches
prior to the execution of the Arianespace
28
<PAGE>
<PAGE>
Launch Service Agreement, are payable on various dates between November 1997 and
July 1999 for the first launch, and, for the second launch, are payable on
various dates between February 1998 and the earlier of October 1999 or ten days
prior to the second launch. As of December 31, 1997, the Company had made
payments of $6.4 million to Arianespace.
The Company also will require funds for working capital, interest on
borrowings, acquisition of programming, financing costs and operating expenses
until some time after the commencement of commercial operations of CD Radio. The
Company's interest expense will increase significantly as a result of its
financing plan; however, a substantial portion of its planned indebtedness will
not require cash payments of interest and principal for some time. The Notes do
not require cash payments until June 2003. Interest on funds borrowed by the
Company under the AEF Agreements is deferred until repayment of such amounts.
The Company believes that its working capital at December 31, 1997 is sufficient
to fund planned operations and construction of its satellite system through the
first quarter of 1999.
SOURCES OF FUNDING
To date the Company has funded its capital needs through the issuance of
debt and equity. As of December 31, 1997, the Company had received a total of
$221.5 million in equity capital. A significant portion of the Company's equity
capital was received in 1997 as a result of the Company's issuance of 5,400,000
shares of 5% Preferred Stock and 4,955,488 shares of Common Stock resulting in
net proceeds of $120.5 and $70.8 respectively. 1,905,488 shares of Common Stock
were sold to Loral in August, 1997 and 3,050,000 shares of Common Stock were
sold to the public in November, 1997. In November 1997, the Company exchanged
1,846,799 shares of its newly issued 10 1/2% Series C Convertible Preferred
Stock for all of the outstanding shares of 5% Preferred Stock. The Company
received no proceeds from the Exchange Offer.
In November 1997, the Company received net proceeds of $116,335,045 from
the issuance of 12,910 Units, each Unit consisting of $20,000 aggregate
principal amount at maturity of Notes and a Warrant to purchase additional Notes
with an aggregate principal amount at maturity of $3,000. All warrants were
exercised in 1997. The aggregate value at maturity of the Notes originally
issued and Notes resulting from the exercise of Warrants is $258,200,000 and
$38,730,000, respectively. The Notes mature on November 15, 2007 with the first
cash interest payment due in June 2003. The Indenture under which the Notes were
issued contains certain limitations on the Company's ability to incur additional
indebtedness. The Notes are secured by a pledge of the stock of Satellite CD
Radio, Inc., the subsidiary of the Company that holds the Company's FCC License.
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. 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 convert up to $80 million of the
Tranche A loans into term loans (the 'Tranche B Loans'). If not converted, or
the Company is unable to comply with the terms and covenants of the Tranche B
Loans, the Company will be required to repay the 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. As of December 31, 1997, the
Company had borrowed approximately $4.5 million under the AEF Agreements.
The AEF Agreements impose certain 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 Tranche B 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.
29
<PAGE>
<PAGE>
In addition, the Indenture permits indebtedness under the AEF Agreements to be
secured on a pari passu basis with the Notes by a first priority security
interest in the stock (the 'Pledged Stock') of Satellite CD Radio, Inc.
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 Service Agreement, the
Company will be required to pay Arianespace a termination fee ranging from 5% to
40% of the launch services price, based on the proximity of the date of
termination to the scheduled launch date. The termination fee will be payable
prior to the time the Company commences commercial operations and there can be
no assurance that the Company will have sufficient funds to pay this fee.
The Loral Satellite Contract provides for payments to be made in
installments commencing in April 1997 and ending in November 2000, subject to
achievement by Loral of certain milestones in the manufacture of the satellites.
Loral has agreed to defer payment of $20.4 million from two milestone payments
due in June and September of 1998. The deferred amount will be paid in four
installments of $5.1 million, with the first payment to be made 27 months after
the delivery of the first satellite, the second payment to be made 27 months
after delivery of the second satellite, the third payment to be made one year
after the first payment date and the fourth payment to be one year after the
second payment date.
In the event of a satellite or launch failure, the Company will be required
to pay Loral the full deferred amount for the affected satellite no later than
120 days after the date of the failure. If the Company should elect to put a
satellite into ground storage, rather than having it shipped to the launch site,
the full deferred amount for the affected satellite will become due within 60
days of such election.
As a condition to the deferred payments, the Company has agreed to provide
Loral a security interest in properties and assets of the Company and its
subsidiaries, of substantially the same nature and quality, and of substantially
equivalent value relative to the amount of the secured obligations, and on the
same terms and conditions, as the Company has provided or may provide to any
other party under any and all of its loan, credit and other similar agreements.
There currently is no such security interest. The Indenture permits indebtedness
under the Loral Satellite Contract to be secured on a pari passu basis with the
Notes by a first priority security interest in the Pledged Stock.
The Company expects it will require an additional $202.1 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 and the Indenture 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 the Company's
current stockholders. 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.
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.
30
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants............................................................................ 32
Consolidated Balance Sheets as of December 31, 1996 and 1997................................................. 33
Consolidated Statements of Operations for each of the three years in the period ended December 31, 1997, and
for the period May 17, 1990 (date of inception) to December 31, 1997....................................... 34
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31,
1997 and for the period May 17, 1990 (date of inception) to December 31, 1997.............................. 35
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997 and
for the period May 17, 1990 (date of inception) to December 31, 1997....................................... 37
Notes to Consolidated Financial Statements................................................................... 38
</TABLE>
31
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
CD RADIO INC.
We have audited the accompanying consolidated balance sheets of CD Radio
Inc. and subsidiary (A Development Stage Enterprise) as of December 31, 1996 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997 and for the period May 17, 1990 (date of inception) to December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CD Radio Inc.
and subsidiary as of December 31, 1996 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 and for the period May 17, 1990 (date of inception) to
December 31, 1997 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
McLean, VA
March 3, 1998
32
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 4,583,562 $170,381,220
Prepaid expense and other................................................... 9,368 928,068
------------ ------------
Total current assets................................................... 4,592,930 171,309,288
------------ ------------
Property and equipment, at cost:
Satellite construction in process........................................... -- 49,400,000
Launch construction in process.............................................. -- 10,884,804
Technical equipment......................................................... 254,200 254,200
Office equipment and other.................................................. 89,220 96,345
Demonstration equipment..................................................... 38,664 38,664
------------ ------------
382,084 60,674,013
Less accumulated depreciation............................................... (213,344) (243,031)
------------ ------------
168,740 60,430,982
Other Assets:
FCC license................................................................. -- 83,346,000
Debt issue cost, net........................................................ -- 8,617,398
Deposits.................................................................... 303,793 103,793
------------ ------------
Total other assets..................................................... 303,793 92,067,191
------------ ------------
Total assets........................................................... $ 5,065,463 $323,807,461
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....................................... $ 131,118 $ 401,147
Other....................................................................... 20,174 14,356
------------ ------------
Total current liabilities.............................................. 151,292 415,503
Notes payable and accrued interest............................................... -- 131,364,073
Dividends payable................................................................ -- 2,337,592
Deferred rent and accrued interest............................................... 15,795 22,537
------------ ------------
Total liabilities...................................................... 167,087 134,139,705
------------ ------------
Commitments and contingencies:
10.5% Series C Convertible Preferred Stock, no par value: 2,000,000 shares
authorized, 1,846,799 shares issued and outstanding at December 31, 1997
(liquidation preference of $184,679,900), at net carrying value................ -- 110,237,336
Stockholders' equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized; 8,000,000
shares designated as 5% Delayed Convertible Preferred Stock; none issued
or outstanding............................................................ -- --
Common stock, $0.001 par value; 200,000,000 shares authorized; 10,300,391
and 16,048,691 shares issued and outstanding as of December 31, 1996 and
1997, respectively........................................................ 10,300 16,049
Additional paid-in capital.................................................. 23,423,936 102,687,033
Deficit accumulated during the development stage............................ (18,535,860) (23,272,662)
------------ ------------
Total stockholders' equity............................................. 4,898,376 79,430,420
------------ ------------
Total liabilities and stockholders' equity............................. $ 5,065,463 $323,807,461
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE FOR
THE PERIOD
MAY 17, 1990
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION)
------------------------------------------ TO DECEMBER 31,
1995 1996 1997 1997
----------- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
Revenue........................................ $ -- $ -- $ -- $ --
Expenses:
Legal, consulting and regulatory fees..... 1,045,562 1,582,091 3,236,444 10,485,408
Other general and administrative.......... 1,062,343 1,230,748 3,571,578 11,104,341
Research and development.................. 122,210 117,299 56,626 1,972,981
Write-off of investment in Sky-Highway
Radio Corp. ............................ -- -- -- 2,000,000
----------- ----------- ------------ -------------------
Total expenses....................... 2,230,115 2,930,138 6,864,648 25,562,730
----------- ----------- ------------ -------------------
Other income (expense)
Interest income........................... 142,549 112,811 4,073,809 4,402,481
Interest expense.......................... (19,783) (13,268) (1,945,963) (2,112,413)
----------- ----------- ------------ -------------------
122,766 99,543 2,127,846 2,290,068
----------- ----------- ------------ -------------------
Net loss....................................... (2,107,349) (2,830,595) (4,736,802) (23,272,662)
----------- ----------- ------------ -------------------
Preferred stock dividend....................... -- -- (2,337,592) (2,337,592)
Preferred stock deemed dividend................ -- -- (51,975,000) (51,975,000)
----------- ----------- ------------ -------------------
Net loss applicable to common stockholders..... $(2,107,349) $(2,830,595) $(59,049,394) $ (77,585,254)
----------- ----------- ------------ -------------------
----------- ----------- ------------ -------------------
Per common share (basic and diluted):
Net loss before preferred stock dividend
requirements............................ $(0.23) $(0.29) $(0.41)
Preferred stock dividend requirements..... -- -- (4.67)
----------- ----------- ------------
Net loss applicable to common stockholders..... $(0.23) $(0.29) $(5.08)
----------- ----------- ------------
----------- ----------- ------------
Weighted average common shares outstanding
(basic and diluted).......................... 9,224,431 9,642,048 11,625,834
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Initial Sale of no par value common
stock, $5.00 per share, May 17, 1990... 11,080 $ 55,400 -- $ -- -- $ --
Initial issuance of common stock in
satisfaction of amount due to related
party, $5.00 per share................. 28,920 144,600 -- -- -- --
Conversion of no par value common stock
to Class A and Class B no par value
common stock........................... (40,000) (200,000) 2,000,000 169,492 360,000 30,580
Sale of Class B common stock, $0.4165
per share.............................. -- -- -- -- 442,000 184,101
Issuance of Class B common stock in
satisfaction of due related party
$0.4165 per share...................... -- -- -- -- 24,000 10,000
Net loss................................ -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1990.............. -- -- 2,000,000 169,492 826,000 224,609
Sale of Class B common stock, $0.50 per
share.................................. -- -- -- -- 610,000 305,000
Issuance of Class B common stock in
satisfaction of due to related party,
$0.50 per share........................ -- -- -- -- 300,000 150,000
Net loss................................ -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1991.............. -- -- 2,000,000 169,492 1,736,000 679,609
Sale of Class B common stock, $0.50 per
share.................................. -- -- -- -- 200,000 100,000
Issuance of Class B common stock in
satisfaction of due to related party,
$0.50 per share........................ -- -- -- -- 209,580 104,790
Conversion of note payable to related
party to Class B common stock,
$0.4165................................ -- -- -- -- 303,440 126,380
Conversion of Class A and Class B common
stock to no par value common stock..... 4,449,020 1,180,271 (2,000,000) (169,492) (2,449,020) (1,010,779)
Sale of no par value common stock, $1.25
per share.............................. 1,600,000 2,000,000 -- -- -- --
Conversion of no par value common stock
to $.001 par value common stock........ -- (3,174,222) -- -- -- --
Sale of $.001 par value common stock,
$5.00 per share........................ 315,000 315 -- -- -- --
Net loss................................ -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1992.............. 6,364,020 6,364 -- -- -- --
Sale of $.001 per value common stock,
$5.00 per share, net of commissions.... 1,029,000 1,029 -- -- -- --
Compensation expense in connection with
issuance of stock options.............. -- -- -- -- -- --
Common stock issued in connection with
conversion of note payable at $5.00 per
share.................................. 60,000 60 -- -- -- --
Common stock issued in satisfaction of
commissions payable, $5.00 per share... 4,000 4 -- -- -- --
Net loss................................ -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1993.............. 7,457,020 7,457 -- -- -- --
Sales of $.001 par value common stock,
$5.00 per share, net of commissions.... 250,000 250 -- -- -- --
Initial public offering of Units,
consisting of two shares of $.001 par
value common stock and one warrant,
$10.00 per Unit, net of expenses....... 1,491,940 1,492 -- -- -- --
Deferred compensation on stock options
granted................................ -- -- -- -- -- --
Forfeiture of stock options by Company
officer................................ -- -- -- -- -- --
Compensation expense in connection with
issuance of stock options.............. -- -- -- -- -- --
Amortization of deferred compensation... -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1994.............. 9,198,960 9,199 -- -- -- --
</TABLE>
(continued)
<TABLE>
<CAPTION>
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Initial Sale of no par value common
stock, $5.00 per share, May 17, 1990... $ -- $ -- $ -- $ 55,400
Initial issuance of common stock in
satisfaction of amount due to related
party, $5.00 per share................. -- -- -- 144,600
Conversion of no par value common stock
to Class A and Class B no par value
common stock........................... -- -- -- --
Sale of Class B common stock, $0.4165
per share.............................. -- -- -- 184,101
Issuance of Class B common stock in
satisfaction of due related party
$0.4165 per share...................... -- -- -- 10,000
Net loss................................ -- (838,911 ) -- (838,911)
------------ ------------ ------------ ------------
Balance, December 31, 1990.............. -- (838,911 ) -- (444,810)
Sale of Class B common stock, $0.50 per
share.................................. -- -- -- 305,000
Issuance of Class B common stock in
satisfaction of due to related party,
$0.50 per share........................ -- -- -- 150,000
Net loss................................ -- (574,963 ) -- (574,963)
------------ ------------ ------------ ------------
Balance, December 31, 1991.............. -- (1,413,874 ) -- (564,773)
Sale of Class B common stock, $0.50 per
share.................................. -- -- -- 100,000
Issuance of Class B common stock in
satisfaction of due to related party,
$0.50 per share........................ -- -- -- 104,790
Conversion of note payable to related
party to Class B common stock,
$0.4165................................ -- -- -- 126,380
Conversion of Class A and Class B common
stock to no par value common stock..... -- -- -- --
Sale of no par value common stock, $1.25
per share.............................. -- -- -- 2,000,000
Conversion of no par value common stock
to $.001 par value common stock........ 3,174,222 -- -- --
Sale of $.001 par value common stock,
$5.00 per share........................ 1,574,685 -- -- 1,575,000
Net loss................................ -- (1,550,802 ) -- (1,550,802)
------------ ------------ ------------ ------------
Balance, December 31, 1992.............. 4,748,907 (2,964,676 ) -- 1,790,595
Sale of $.001 per value common stock,
$5.00 per share, net of commissions.... 4,882,163 -- -- 4,883,192
Compensation expense in connection with
issuance of stock options.............. 80,000 -- -- 80,000
Common stock issued in connection with
conversion of note payable at $5.00 per
share.................................. 299,940 -- -- 300,000
Common stock issued in satisfaction of
commissions payable, $5.00 per share... 19,996 -- -- 20,000
Net loss................................ -- (6,568,473 ) -- (6,568,473)
------------ ------------ ------------ ------------
Balance, December 31, 1993.............. 10,031,006 (9,533,149 ) -- 505,314
Sales of $.001 par value common stock,
$5.00 per share, net of commissions.... 1,159,125 -- -- 1,159,375
Initial public offering of Units,
consisting of two shares of $.001 par
value common stock and one warrant,
$10.00 per Unit, net of expenses....... 4,833,922 -- -- 4,835,414
Deferred compensation on stock options
granted................................ 1,730,000 -- (1,730,000 ) --
Forfeiture of stock options by Company
officer................................ (207,000) -- 207,000 --
Compensation expense in connection with
issuance of stock options.............. 112,500 -- -- 112,500
Amortization of deferred compensation... -- -- 883,000 883,000
Net loss................................ -- (4,064,767 ) -- (4,064,767)
------------ ------------ ------------ ------------
Balance, December 31, 1994.............. 17,659,553 (13,597,916 ) (640,000 ) 3,430,836
</TABLE>
35
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued for services
rendered, between $3.028 and $3,916 per
share.................................. 107,000 107 -- -- -- --
Amortization of deferred compensation... -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1995.............. 9,305,960 9,306 -- -- -- --
Exercise of stock warrants at $6.00 per
share.................................. 791,931 792 -- -- -- --
Exercise of stock options by Company
officers, between $1.00 and $5.00 per
share.................................. 135,000 135 -- -- -- --
Common stock issued for services
rendered, between $5.76 and $12.26 per
share.................................. 67,500 67 -- -- -- --
Common stock options granted for
services rendered, to purchase 60,000
shares at $4.50 a share................ -- -- -- -- -- --
Amortization of deferred compensation... -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1996.............. 10,300,391 10,300 -- -- -- --
Exercise of stock options between $1.00
and $2.00 per share.................... 43,000 43 -- -- -- --
Value of beneficial conversion feature
on 5% Preferred Stock.................. -- -- -- -- -- --
Accretion of deemed dividend............ -- -- -- -- -- --
Sale of $.001 par value common stock,
$13.12, net of expenses................ 1,905,488 1,905 -- -- -- --
Conversion of 5% Preferred Stock into
$.001 par value common stock........... 749,812 750 -- -- -- --
Public offering of $.001 per value
common stock at $18.00 per share, net
of expenses............................ 3,050,000 3,050 -- -- -- --
Dividend on 10.5% Preferred Stock....... -- -- -- -- -- --
Issuance of fully vested in the money
stock options at $8.56 per share....... -- -- -- -- -- --
Net loss................................ -- -- -- -- -- --
---------- ----------- ---------- --------- ---------- -----------
Balance, December 31, 1997.............. 16,048,691 $ 16,049 -- $ -- -- $ --
---------- ----------- ---------- --------- ---------- -----------
---------- ----------- ---------- --------- ---------- -----------
<CAPTION>
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common stock issued for services
rendered, between $3.028 and $3,916 per
share.................................. 347,176 -- -- 347,283
Amortization of deferred compensation... -- -- 320,000 320,000
Net loss................................ -- (2,107,349 ) -- (2,107,349)
------------ ------------ ------------ ------------
Balance, December 31, 1995.............. 18,006,729 (15,705,265 ) (320,000 ) 1,990,770
Exercise of stock warrants at $6.00 per
share.................................. 4,588,296 -- -- 4,589,088
Exercise of stock options by Company
officers, between $1.00 and $5.00 per
share.................................. 154,865 -- -- 155,000
Common stock issued for services
rendered, between $5.76 and $12.26 per
share.................................. 554,226 -- -- 554,293
Common stock options granted for
services rendered, to purchase 60,000
shares at $4.50 a share................ 119,820 -- -- 119,820
Amortization of deferred compensation... -- -- 320,000 320,000
Net loss................................ -- (2,830,595 ) -- (2,830,595)
------------ ------------ ------------ ------------
Balance, December 31, 1996.............. 23,423,936 (18,535,860 ) -- 4,898,376
Exercise of stock options between $1.00
and $2.00 per share.................... 55,957 -- -- 56,000
Value of beneficial conversion feature
on 5% Preferred Stock.................. 51,975,000 -- -- 51,975,000
Accretion of deemed dividend............ (51,975,000) -- -- (51,975,000)
Sale of $.001 par value common stock,
$13.12, net of expenses................ 24,393,095 -- -- 24,395,001
Conversion of 5% Preferred Stock into
$.001 par value common stock........... 10,279,725 -- -- 10,280,475
Public offering of $.001 per value
common stock at $18.00 per share, net
of expenses............................ 46,423,787 -- -- 46,426,837
Dividend on 10.5% Preferred Stock....... (2,337,592) -- -- (2,337,592)
Issuance of fully vested in the money
stock options at $8.56 per share....... 448,125 448,125
Net loss................................ -- (4,736,802 ) -- (4,736,802)
------------ ------------ ------------ ------------
Balance, December 31, 1997.............. $102,687,033 $(23,272,662) $ -- $ 79,430,420
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
36
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE FOR
THE PERIOD
MAY 17, 1990
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION)
------------------------------------------- TO DECEMBER 31,
1995 1996 1997 1997
----------- ----------- ------------- -------------------
<S> <C> <C> <C> <C>
Cash flows from development stage
activities:
Deficit accumulated during the
development stage................. $(2,107,349) $(2,830,595) $ (4,736,802) $ (23,272,662)
Adjustments to reconcile deficit
acumulated during the development
stage to net cash used in
development stage activities:
Depreciation expense.............. 57,593 52,846 29,687 253,730
Amortization of debt issue
costs........................... -- -- 73,161 73,161
Write off of investment in
Sky-Highway Radio Corp. ........ -- -- -- 2,000,000
Accretion of note payable charged
as interest expense............. -- -- 1,867,816 1,867,816
Compensation expense in connection
with issuance of stock options.. 320,000 320,000 448,125 2,163,625
Common stock issued for services
rendered........................ 347,283 554,293 -- 901,576
Common stock options granted for
services rendered............... -- 19,820 -- 119,820
Increase (decrease) in cash and cash
equivalents resulting from changes
in assets and liabilities:
Prepaid expense and other......... (7,465) (587) (918,700) (928,068)
Due to related party.............. -- -- -- 350,531
Deposits.......................... -- -- -- (303,793)
Accounts payable and accrued
expenses........................ (189,755) 84,597 270,029 476,386
Accrued executive compensation.... -- -- -- --
Other liabilities................. (6,930) (20,714) (21,613) 14,356
----------- ----------- ------------- -------------------
Net cash used in development
stage activities.............. (1,586,623) (1,720,340) (2,988,297) (16,283,522)
----------- ----------- ------------- -------------------
Cash flows from investing activities:
Purchase of FCC license............. -- -- (83,346,000) (83,346,000)
Payments for satellite
construction...................... -- -- (49,300,000) (49,300,000)
Advance payments for launch
services.......................... -- -- (6,291,614) (6,291,614)
Capital expenditures................ (13,824) -- (7,125) (399,308)
Acquisition of Sky-Highway Radio
Corp. ............................ -- -- -- (2,000,000)
----------- ----------- ------------- -------------------
Net cash used in investing
activities.................... (13,824) -- (138,944,739) (141,336,922)
----------- ----------- ------------- -------------------
Cash flows from financing activities:
Proceeds from issuance of Common
Stock, net........................ -- -- 70,821,838 85,379,320
Proceeds from issuance of 5%
Preferred Stock, net.............. -- -- 120,517,811 120,517,811
Proceeds from exercise of stock
options........................... -- 155,000 56,000 211,000
Proceeds from exercise of stock
warrants.......................... -- 4,589,088 4,589,088
Proceeds from issuance of promissory
note and Units.................... -- -- 116,335,045 116,535,045
Proceeds from issuance of promissory
notes to related parties.......... -- -- 2,965,000
Repayment of promissory note........ -- -- -- (200,000)
Repayment of promissory notes to
related parties................... -- (240,000) (2,435,000)
Loan from officer................... -- -- -- 440,000
----------- ----------- ------------- -------------------
Net cash provided by financing
activities.................... -- 4,504,088 307,730,694 328,002,264
----------- ----------- ------------- -------------------
Net increase (decrease) in cash and cash
equivalents........................... (1,600,447) 2,783,748 165,797,658 170,381,220
Cash and cash equivalents at the
beginning of period................... 3,400,261 1,799,814 4,583,562 --
----------- ----------- ------------- -------------------
Cash and cash equivalents at the end of
period................................ $ 1,799,814 $ 4,583,562 $ 170,381,220 $ 170,381,220
----------- ----------- ------------- -------------------
----------- ----------- ------------- -------------------
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest.......................... $ -- $ 42,666 $ -- $ 82,729
----------- ----------- ------------- -------------------
----------- ----------- ------------- -------------------
Supplemental disclosure of non-cash
investing activities:
Borrowings under the AEF
Agreements........................ -- -- $ 4,470,653 $4,470,653
----------- ----------- ------------- -------------------
----------- ----------- ------------- -------------------
Supplemental disclosure of non-cash
financing activities:
Common stock issued in satisfaction
of notes payable to related
parties, including accrued
interest.......................... $ -- $ -- $ -- $ 998,452
----------- ----------- ------------- -------------------
----------- ----------- ------------- -------------------
Common stock issued for services
rendered.......................... $ 347,176 $ 554,226 $ -- $ 901,402
----------- ----------- ------------- -------------------
----------- ----------- ------------- -------------------
Common stock options granted for
services rendered................. $ -- $ 119,820 $ -- $ 119,820
----------- ----------- ------------- -------------------
----------- ----------- ------------- -------------------
Issuance of fully vested in the
money stock options............... $ -- $ -- $ 448,125 $ 448,125
----------- ----------- ------------- -------------------
----------- ----------- ------------- -------------------
Deferred compensation in connection
with stock options granted........ $ 320,000 $ 320,000 $ -- $ 640,000
----------- ----------- ------------- -------------------
----------- ----------- ------------- -------------------
Common stock issued in satisfaction
of amount due to related parties
including accrued interest........ $ -- $ -- $ -- $ 409,390
----------- ----------- ------------- -------------------
----------- ----------- ------------- -------------------
Exchange of 5% Preferred Stock
for 10.5% Series C Preferred
Stock............................. $ -- $ -- $ 110,237,336 $ 110,237,336
----------- ----------- ------------- -------------------
----------- ----------- ------------- -------------------
</TABLE>
The accompanying notes are an intergral part of these consolidated financial
statements.
37
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND FINANCING
BUSINESS
CD Radio Inc. (the 'Company') was originally incorporated in the State of
Delaware on May 17, 1990, under the name Satellite CD Radio, Inc. On December 7,
1992, the Company changed its name to CD Radio Inc. The Company shortly
thereafter formed a wholly-owned subsidiary, Satellite CD Radio, Inc. ('SCDR')
which was capitalized with nominal assets. On April 29, 1993, the Company
acquired all of the outstanding shares of stock of Sky-Highway Radio Corp., a
Colorado corporation ('SHRC'), and on December 23, 1994, SHRC was liquidated and
dissolved. SCDR and SHRC were formed primarily to apply for certain Federal
Communications Commission (the 'FCC') licenses. CD Radio Inc., SCDR, and SHRC
are hereinafter collectively referred to as the 'Company.'
The Company is a pioneer in the development of a service for broadcasting
digital quality music programming via satellites to subscribers' vehicles
('satellite radio'). The Company intends to focus exclusively on providing a
consumer service, and anticipates that the equipment required to receive its
broadcasting will be manufactured by consumer electronics manufacturers.
In April 1997, the Company was the winning bidder in an FCC auction for one
of two national satellite radio 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.
FINANCING REQUIREMENTS
The Company does not expect to generate any revenues from operations until
2000 at the earliest, and expects that positive cash flow from operations will
not be generated until late 2000 at the earliest.
Prior to commencing CD Radio broadcast, the Company estimates that it will
require approximately $202.1 million of additional funds in order to finance the
remaining construction of its satellite system, to plan and implement its
service, to provide working capital and to sustain its operations until it
generates positive cash flows from operations. Failure to obtain the additional
required funding would prevent the Company from realizing its objective of
providing satellite radio. Management intends to fund operations and capital
expansion through the sale of additional debt and equity securities. The Company
believes that its working capital at December 31, 1997 is sufficient to fund
planned operations and construction of its satellite system through the first
quarter of 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The consolidated financial statements include the accounts of CD Radio Inc.
and its wholly-owned subsidiaries, SCDR and SHRC (through the date of SHRC's
dissolution, December 23, 1994). Intercompany transactions are eliminated in
consolidation. The Company's principal activities to date have included
technology development, obtaining regulatory approval for the CD Radio service,
commencement of construction of two satellites, acquisition of content for its
programming, strategic planning, market research, recruitment of its senior
management team and securing financing for working capital and capital
expenditures. Accordingly, the Company's financial statements are presented as
those of a development stage enterprise, as prescribed by Statement of Financial
Accounting Standards ('SFAS') No. 7, 'Accounting and Reporting by Development
Stage Enterprises.'
38
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of expenses during the
reported period. The estimates involve judgments with respect to, among other
things, various future factors which are difficult to predict and are beyond the
control of the Company. Therefore, actual amounts could differ from these
estimates.
DEPRECIATION
Depreciation of office equipment is computed on the straight-line method
over three to five years based upon estimated useful lives. Depreciation of
technical equipment, primarily satellite communications equipment, is computed
on the straight-line method based on an estimated useful life of ten years.
Depreciation of demonstration equipment, primarily an automobile used in a
prototype system, is computed on the straight-line method based on an estimated
useful life of four years. All costs incurred related to activities necessary to
prepare the CD Radio satellite system for use are capitalized. To date, such
costs consist of satellite construction in process, launch construction in
process and the cost to acquire the FCC license at auction. Charges to
operations for depreciation and amortization will begin upon commencement of
commercial broadcasting which is projected to be in late 1999. The Company
anticipates that it will depreciate satellite and launch costs over 15 years and
amortize the FCC license costs over 40 years.
CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company has invested its excess cash in U.S. Treasury Obligations. The
Company has not experienced any losses on its investments.
LONG-LIVED ASSETS
The Company evaluates the recoverability of long-lived assets, utilizing
qualitative and quantative factors. At such time as an impairment in value is
identified, the impairment, will be quantatively measured in accordance with
SFAS No. 121, 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be disposed of,' and charged to operations. No such
impairment losses have been recognized to date.
FAIR VALUE INFORMATION
The carrying amount of current assets and current liabilities approximates
fair value because of the short maturity of these investments. The fair value of
fixed-rate long-term debt and redeemable preferred stock is estimated using
quoted marked prices where applicable or by discounting remaining cash flows at
the current market rate. As of December 31, 1997, carrying amount of these
financial instruments approximates fair value. The carrying amount of
variable-rate long-term debt approximates fair value.
39
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the sum of tax payable for the period and the change
during the period in deferred tax assets and liabilities.
NET LOSS PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128, 'Earnings
Per Share,' which requires the presentation of basic earnings per share and
diluted earnings per share. Basic earnings per share is based on the weighted
average number of outstanding shares of common stock. Diluted earnings per share
adjusts the weighted average for the potential dilution that could occur if
stock options, warrants or other convertible securities were exercised or
converted into common stock. Diluted earnings per share is the same as basic
earnings per share because the effects of such items were anti-dilutive.
Differences between historical quarterly earnings per share amounts, reported on
primary earnings per share basis, and amounts now reported as basic are not
material. Earnings per share for all periods presented conform to SFAS No. 128.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued two new standards which
become effective for reporting periods beginning after December 15, 1997. SFAS
No. 130, 'Reporting Comprehensive Income,' requires additional disclosures with
respect to certain changes in assets and liabilities that previously were not
required to be reported as results of operations for the period. The Company
will begin making the additional disclosures required by SFAS No. 130 in the
first quarter of 1998. SFAS No. 131, 'Disclosures about Segments of an
Enterprise and Related Information,' requires financial and descriptive
information with respect to 'operating segments' of an entity based on the way
management disaggregates the entity for making internal operating decisions. The
Company will begin making the disclosures required by SFAS No. 131 with
financial statements for the period ending December 31, 1998.
3. NOTES PAYABLE
In November 1997, the Company received net proceeds of $116,335,045 from
the issuance of 12,910 units consisting of $20,000 principal amount at maturity
of 15% Senior Secured Discount Notes (the 'Notes') and a warrant to purchase an
additional $3,000 principal amount at maturity of Notes for no additional
consideration to the holder. All of the warrants were exercised in 1997. The
aggregate maturity value of the Notes including Notes issued upon the exercise
of the warrants is $296,930,000. The Notes mature on December 1, 2007 and the
first cash interest payment is deferred until June 2003. The Indenture under
which the Notes were issued contains various restrictive covenants, including a
limitation on the amount of additional indebtedness that may be incurred by the
Company. As of December 31, 1997 the Company had accrued $1,867,816 of interest
relating to the Notes. The Notes are redeemable, at the option of the Company,
in whole or in part, at any time on or after December 1, 2002, at specified
redemption prices plus accrued interest, if any, to the date of redemption. The
Notes are senior obligations of the Company and are collaterized by a first
priority perfected security interest in all of the issued and outstanding common
stock of SCDR. SCDR conducts no business activities and its only asset is the
FCC license.
40
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company incurred $8,690,559 in costs in connection with the issuance of
the Notes. Debt issuance costs are capitalized and amortized over the 10 year
life of the Notes. Accumulated amortization of debt issuance costs was $73,161
at December 31, 1997.
On July 22, 1997, the Company entered into two loan agreements
(collectively the 'AEF Agreements') with Arianespace Finance S.A. ('AEF'), a
subsidiary of Arianespace S.A. ('Arianespace'), to finance approximately $105
million of the estimated $176 million price of the launch services to be
provided by Arianespace. 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 'Loans'). Interest on the loans
currently accrues at the rate of 3% per annum above LIBOR and is capitalized.
The Company has the opportunity upon satisfying a variety of conditions
specified in the AEF Agreements to extend the term of the Loans. If not
extended, or the Company is unable to comply with the terms and covenants of
such extended loans, the Company will be required to repay the 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, which is anticipated to be in late
1999. 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. As of December 31, 1997, the Company had borrowed approximately
$4.4 million under the AEF Agreements. For the year ended December 31, 1997, the
Company capitalized $22,537 in interest related to the Loans.
4. CAPITAL STOCK
COMMON STOCK, PAR VALUE $.001 PER SHARE
On September 29, 1994 the Company completed its initial public offering in
connection with which the Company received net proceeds of $4.8 million and
issued 1,491,940 shares of Common Stock.
On August 5, 1997 the Company sold approximately 1.9 million shares of
Common Stock to Loral Space & Communication Ltd. ('Loral Space') for net
proceeds of approximately $24.4 million.
In November 1997, the Company issued 2.8 million shares of Common Stock for
net proceeds of $42.2 million in connection with a public offering. In December
1997, the Company issued an additional 250,000 shares, in connection with the
partial exercise of an option granted to the underwriters of the public offering
solely to cover overallotments, for net proceeds of $4.2 million.
PREFERRED STOCK
In April 1997, the Company completed a private placement of its 5% Delayed
Convertible Preferred Stock (the '5% Preferred Stock'). The Company sold a total
of 5.4 million shares of the 5% Preferred Stock for an aggregate sales price of
$135 million and net proceeds of $120.5 million. The 5% Preferred Stock was
convertible at a discount to the market and accordingly, based on SEC
guidelines, the Company recorded approximately $52 million as a deemed
dividend in net loss attributable to common stockholders.
In November 1997, the Company exchanged 1,846,799 shares of 10 1/2% Series
C Convertible Preferred Stock (the '10 1/2% Preferred Stock') for all
outstanding shares of its 5% Preferred Stock. Each share of 10 1/2% Preferred
Stock is convertible into a number of shares of Common Stock calculated by
dividing the $100 per share liquidation preference (the 'Liquidation
Preference') by a conversion price of $18.00. This conversion price is subject
to adjustment for certain corporate events. Any shareholder who converts the
10 1/2% Preferred Stock into Common Stock prior to November 15, 2002 will
forfeit the right to any accrued and unpaid dividends. Dividends on the 10 1/2%
Preferred Stock are cumulative from the date of issuance and payable, if
declared by the Board of Directors, on a quarterly basis commencing on November
15, 2002. Dividends can be paid with cash or Common Stock at the option of the
Company. Commencing November 15, 1999, the Company may redeem the 10 1/2%
41
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock at the Liquidation Preference plus any accrued and unpaid
dividends, provided the price of Company's Common Stock is at least $31.50 per
share during a specified period. After November 15, 2002, the Company's right to
redeem the 10 1/2% Preferred Stock is not restricted by the market price of its
Common Stock. The Company is required to redeem all outstanding shares of
10 1/2% Preferred Stock on November 15, 2012 at a price equal to the Liquidation
Preference plus any accrued and unpaid dividends. As of December 31, 1997 the
Company accrued a dividend payable relating to the 10 1/2% Preferred Stock of
$2,337,592.
WARRANTS
In connection with the Company's initial public offering in 1994, and the
partial exercise of the underwriters' over-allotment option in connection
therewith the Company issued warrants to purchase 745,970 shares of the
Company's Common Stock. Additionally, the Company issued to the underwriters as
consideration warrants to purchase 123,560 shares of the Company's Common Stock.
Each warrant originally entitled the holder to purchase one share of Common
Stock at a purchase price of $5.00 per share until March 20, 1995 and at a
purchase price of $6.00 per share during the six-month period thereafter. In
September 1995, the Company extended the expiration date of the warrants to
March 20, 1996, and, in March 1996, extended the expiration date of these
warrants to September 20, 1996, in each case at a purchase price of $6.00 per
share. In September 1996, the Company received proceeds of $4,589,088 relating
to the exercise of 864,848 warrants and the remaining 4,682 warrants expired
unexercised. Of the warrants exercised, 764,848 shares of Common Stock were
issued in exchange for cash and 27,083 shares of Common Stock were issued in a
cashless exercise of 100,000 warrants held by the underwriters.
In connection with the April 1997 issuance of 5% Preferred Stock, the
Company agreed to grant a warrant to an investment advisor to purchase 486,000
shares of the 5% Preferred Stock with an exercise price of $25.00 per share. In
connection with the November 1997 issuance of the 10 1/2% Preferred Stock, the
Company agreed to grant to its investment advisor and certain related persons,
in lieu of a warrant to purchase shares of 5% Preferred Stock, warrants to
purchase an aggregate of 177,178 shares of 10 1/2% Preferred Stock at an initial
exercise price of $68.47 per share. The exercise price of the warrants declines
by approximately $0.12 per month to $60.24 per share on and after April 1, 2002.
In 1995, the Company adopted the 1995 Stock Compensation Plan
('Compensation Plan') from which up to 175,000 shares of the Company's Common
Stock could be issued in lieu of cash compensation to employees and or
consultants. During 1995 and 1996, respectively, 107,000 and 67,500 shares of
the Company's Common Stock were issued pursuant to this Compensation Plan.
STOCK OPTION PLANS
In February 1994, the Company adopted its 1994 Stock Option Plan (the '1994
Plan') and its 1994 Directors' Nonqualified Stock Option Plan (the 'Directors'
Plan'), under which the Company was authorized to grant up to 1,250,000 options
in the aggregate Options granted under the 1994 Plan generally vest over a
four-year period and generally are exercisable for a period of ten years from
the date of grant. In 1996, the Board of Directors voted to increase the number
of shares of Common Stock available for issuance pursuant to the 1994 Plan and
the Directors' Plan by 350,000 shares to 1,600,000 shares. As of December 31,
1997 the Company has granted 187,500 options subject to approval by the
stockholders of amendments to the Company's 1994 Plan and Directors' Plan to
increase the number of options that may be granted thereunder.
42
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of option activity under the 1994 Plan, the Directors' Plan, and of
all other option activity follows:
<TABLE>
<CAPTION>
1994 PLAN DIRECTORS' PLAN OTHER
--------------------- ------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTION PRICE PER OPTION PRICE PER OPTION PRICE PER
SHARES SHARE SHARES SHARE SHARES SHARE
--------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 1994................. -- -- 410,000 $4.33
--------- ------- --------
Granted................................... 702,500 $ 3.82 20,000 $ 4.25 --
Exercised................................. -- --
Cancelled................................. (90,000) $ 5.00 -- --
--------- ------- --------
Outstanding at December 31, 1994............... 612,500 $ 3.64 20,000 $ 4.25 410,000 $4.33
--------- ------- --------
Granted................................... 25,000 2.88 85,000 $ 3.18 --
Exercised................................. -- -- --
Cancelled................................. -- -- (60,000) $6.25
--------- ------- --------
Outstanding at December 31, 1995............... 637,500 $ 3.61 105,000 $ 3.39 350,000 $4.00
--------- ------- --------
Granted................................... 545,000 $ 8.10 40,000 $ 6.875 --
Exercised................................. (60,000) $ 1.00 (5,000) $ 1.00 (120,000) $1.00
Cancelled................................. -- -- --
--------- ------- --------
Outstanding at December 31, 1996............... 1,122,500 $ 5.93 140,000 $ 4.47 230,000 $5.57
--------- ------- --------
--------- ------- --------
Granted................................... 515,000 $ 14.52 -- --
Exercised................................. (13,000) $ 2.00 -- (30,000) $1.00
Cancelled................................. (55,000) $ 5.98 -- --
--------- ------- --------
Outstanding at December 31, 1997............... 1,569,500 $ 8.73 140,000 $ 4.47 200,000 $6.25
--------- ------- --------
--------- ------- --------
</TABLE>
As of December 31, 1997:
<TABLE>
<CAPTION>
1994 PLAN DIRECTORS' PLAN OTHER
----------------- ---------------- ----------------
<S> <C> <C> <C>
Range of exercise prices.......................................... $1.00 - $17.63 $1.00 - $6.88 $1.00 - $6.25
Weighted average remaining contractual life for options
outstanding (years)............................................. 9.53 7.72 5.39
</TABLE>
The weighted average fair value of options granted during 1996 and 1997 was
$8.56 and $4.37, respectively.
No shares of Common Stock remain available for grant pursuant to either the
1994 Plan or the Directors' Plan. The Company has reserved a total of 1,909,500
shares of Common Stock issuable upon the exercise of outstanding options and
options available for issuance pursuant to the Company's stock option plans. As
of December 31, 1997, 187,500 options were issued and subject to replenishment
of the stock options plan.
As a result of certain option grants at exercise prices below fair market
value, the Company recorded deferred compensation which is amortized over the
vesting period of the related options. Deferred compensation related to options
that were forfeited has been charged to additional paid-in capital. For the
years ended December 31, 1995, 1996 and 1997, and for the period May 17, 1990
(date of inception) to December 31, 1997, the Company recognized non-cash
compensation expense in connection with stock option issuances of $320,000,
$439,820, $448,125 and $2,283,445, respectively.
The Company has adopted the disclosure-only provisions of SFAS No. 123 as
they pertain to financial statement recognition of compensation expense
attributable to option grants. If the Company
43
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
had elected to recognize compensation cost for the option grants consistent with
FAS No. 123, the Company's net loss and net loss per share (basic and diluted)
on a pro-forma basis would have been.
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Net loss -- as reported......................................... $(2,830,595) $(4,736,802)
Net loss -- pro-forma........................................... (4,428,995) (6,254,321)
Net loss per share -- as reported............................... (0.29) (.41)
Net loss per share -- pro-forma................................. (0.46) (.54)
</TABLE>
The pro-forma expense related to stock options is recognized over the
vesting period, generally four years. The fair value of each option grant was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions for each year:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Risk-free interest rate....................................................... 6.00% 6.11%
Expected life of options -- years............................................. 2.79 3.11
Expected stock price volatility............................................... 75% 75%
Expected dividend yield....................................................... N/A N/A
</TABLE>
5. RELATED PARTIES
Since inception, the Company has relied upon related parties for certain
consulting, legal and management services. Total expenses incurred in
transactions with related parties are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD MAY
FOR THE YEARS ENDED 17, 1990 (DATE OF
DECEMBER 31, INCEPTION) TO
-------------------------------- DECEMBER 31,
1995 1996 1997 1997
-------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Consulting fees.......................................... $ 34,575 $187,820 $137,687 $ 850,897
Legal fees............................................... 74,761 70,582 141,208 868,758
Management fees.......................................... -- -- -- 361,800
Interest expense......................................... 19,783 13,268 -- 113,474
Office space............................................. -- -- -- 40,500
Patent and FCC fees...................................... -- -- -- 56,600
Other.................................................... -- -- -- 26,750
-------- -------- -------- -------------------
$129,119 $271,670 $278,895 $ 2,318,779
-------- -------- -------- -------------------
-------- -------- -------- -------------------
</TABLE>
Of the $187,820 in consulting fee expenses for the year ended December 31,
1996, $119,820 relate to issuance of common stock options to a related party for
consulting services performed for the Company.
44
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the period May 17, 1990 (date of inception) to December 31, 1997,
the Company issued Common Stock in lieu of cash in settlement of certain
liabilities and expenses as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD MAY
FOR THE YEARS ENDED 17, 1990 (DATE OF
DECEMBER 31, INCEPTION) TO
-------------------------------- DECEMBER 31,
1995 1996 1997 1997
-------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Consulting fees.......................................... $ 36,330 $ 32,550 $ -- $ 168,880
Legal fees............................................... 310,953 521,743 -- 1,028,227
Management fees.......................................... -- -- -- 60,000
Interest expense......................................... -- -- -- 14,259
Patent and FCC fees...................................... -- -- -- 39,600
-------- -------- -------- -------------------
$347,283 $554,293 $ -- $ 1,310,966
-------- -------- -------- -------------------
-------- -------- -------- -------------------
</TABLE>
Liabilities settled through the issuance of Common Stock in lieu of cash
are reflected in the statements of stockholders' equity.
6. INCOME TAXES
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
tax assets and deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Tax credits..................................................... $ -- $ 114,000
Capitalized start-up costs...................................... 5,377,000 6,887,700
Net operating loss carryforwards................................ 1,511,300 446,600
Deferred compensation........................................... 542,300 542,300
Accrual to cash adjustments..................................... 60,500 313,700
----------- -----------
7,491,100 8,304,300
Valuation allowance............................................. (7,491,100) (8,304,300)
----------- -----------
Net deferred tax asset.......................................... $ -- $ --
----------- -----------
----------- -----------
</TABLE>
Realization of the net deferred tax asset at the balance sheet date is
dependent upon future earnings which are uncertain. Accordingly, a full
valuation allowance was recorded against the asset.
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $1,097,300 for federal and state income tax purposes available to
offset future taxable income. The net operating loss carryforwards expire at
various dates beginning 2008. There may be limitations on the annual utilization
of these net operating losses as a result of certain changes in ownership that
have occurred since the Company's inception. In addition, a significant portion
of costs incurred have been capitalized for tax purposes as a result of the
Company's status as a start-up enterprise. Total start-up costs as of December
31, 1997 are $16,703,300. Once the Company begins its active trade or business,
these capitalized costs will be amortized over 60 months. The total deferred tax
asset related to capitalized start-up costs of $7,056,700 include $169,000
which, when realized, would not affect financial statement income but will be
recorded directly to shareholders' equity.
45
<PAGE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENT
In October 1992, the Company entered into a lease with an unaffiliated
property management company for its office space in Washington, D.C. that the
Company previously subleased from a company controlled by a former director and
executive officer of the Company. The lease term extends through October 1998.
The lease provided for the abatement of rental payments for the first three
months of each of the first two years of the lease term. Also, in addition to
the base rental payments, the Company is obligated to pay a monthly allocation
of the building's operating expenses. The Company does not intend to renew this
lease.
Total rent expense for the years ended December 31, 1995, 1996 and 1997 and
the period May 17, 1990 (date of inception) to December 31, 1997 was $274,653,
$301,765, $277,996 and $1,483,004, respectively.
SATELLITE CONSTRUCTION
The Company has entered into an agreement (the 'Construction Contract')
with Space Systems/Loral, Inc. pursuant to which Space Systems/Loral has agreed
to construct three satellites and, at the Company's option, a fourth satellite
in accordance with stipulated specifications. The amount of the Construction
Contract as amended is approximately $275.8 million. The total value of
satellite construction in progress was $49.3 million as of December 31, 1997.
LAUNCH SERVICES
The Company has reserved two launch slots with Arianespace during the
period extending from August 1, 1999 through March 31, 2000. If the Company's
satellites are not available for launch during this period, the Company will
arrange to launch the satellites on the first launch dates available after the
satellites are completed. The amount of the launch services contract is
approximately $176 million. In connection with this agreement, the Company paid
a non-refundable launch date reservation fee of $100,000 which is included in
deposits on the balance sheets as of December 31, 1996. 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. 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, or the
Company is unable to comply with the terms and covenants of such extended loans,
the Company will be required to repay the Tranche A Loans in full, together with
accrued interest and all fees and other amounts due, approximately three months
before the applicable launch date, which will be prior to the time CD Radio
commences commercial operations. As of December 31, 1997 the Company had paid
Launch Deposits of $6,292,000 and received credit from the AEF Agreements for
$4,470,653.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
46
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
Company's definitive proxy statement (the 'Proxy Statement') prepared with
respect to the Annual Meeting of Shareholders to be held on April 20, 1998. The
Proxy Statement will be filed with the Commission at a later date, that is not
more than 120 days after the end of the Company's 1997 fiscal year. The
information with respect to Executive Officers is set forth, pursuant to General
Instruction G of Form 10-K, under Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement prepared with respect to the Annual Meeting
of Shareholders to be held on April 20, 1998. The Proxy Statement will be filed
with the Commission at a later date, that is not more than 120 days after the
end of the Company's 1997 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement prepared with respect to the Annual Meeting
of Shareholders to be held on April 20, 1998. The Proxy Statement will be filed
with the Commission at a later date, that is not more than 120 days after the
end of the Company's 1997 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement prepared with respect to the Annual Meeting
of Shareholders to be held on April 20, 1998. The Proxy Statement will be filed
with the Commission at a later date, that is not more than 120 days after the
end of the Company's 1997 fiscal year.
47
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statement, Financial Statement Schedules and Exhibits
(1) Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997, and for the period May 17, 1990
(date of inception) to December 31, 1997 Consolidated Statements of
Stockholders' Equity for the period May 17, 1990 (date of inception) to
December 31, 1997
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997, and for the period May 17, 1990
(date of inception) to December 31, 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted since they are either not
applicable or the required information is contained elsewhere in 'Item
8. Financial Statements and Supplementary Data.'
(3) Exhibits
All exhibits listed below are filed with this Annual Report on Form
10-K unless specifically stated to be incorporated by reference to other
documents previously filed with the Securities and Exchange Commission
(the 'Commission').
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
3.1. -- Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (File No. 33-74782) (the 'S-1 Registration Statement')).
3.2 -- Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the S-1 Registration
Statement).
3.3 -- Certificate of Designations of 5% Delayed Convertible Preferred Stock (incorporated by reference to
Exhibit 10.24 to the Form 10-K/A for the year ended December 31, 1996 (the '1996 Form 10-K')).
3.4 -- Form of Certificate of Designations of Series B Preferred Stock (incorporated by reference to Exhibit
A to Exhibit 1 to the Company's Registration Statement on Form 8-A, filed with the Commission on
October 30, 1997 (the 'Form 8-A')).
3.5.1 -- Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special
Rights of 10 1/2% Series C Convertible Preferred Stock (the 'Series C Certificate of Designations')
(incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 (File No.
333-34761) (the 'S-4 Registration Statement')).
3.5.2 -- Certificate of Correction of the Series C Certificate of Designations.
3.6 -- Certificate of Designations of Series D Convertible Preferred Stock (incorporated by reference to
Exhibit 4.2 to the S-4 Registration Statement).
4.1 -- Form of Certificate for Shares of Common Stock (incorporated by reference to Exhibit 4.3 to the S-1
Registration Statement).
4.2 -- Form of Certificate for Shares of 10 1/2% Series C Convertible Preferred Stock (incorporated by
reference to Exhibit 4.4 to the S-4 Registration Statement).
4.3 -- Form of Certificate for Shares of Series D Convertible Preferred Stock (incorporated by reference to
Exhibit 4.5 to the S-4 Registration Statement).
4.4 -- Rights Agreement, dated as of October 22, 1997, between the Company and Continental Stock Transfer &
Trust Company, as Rights Agent (incorporated by reference to Exhibit 1 to the Form 8-A).
4.5 -- Form of Right Certificate (incorporated by reference to Exhibit B to Exhibit 1 to Form 8-A).
</TABLE>
48
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
4.6 -- Indenture, dated as of November 26, 1997, between the Company and IBJ Schroder Bank & Trust Company,
as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form
S-3 (File No. 333-34769) (the 'Units Registration Statement')).
4.7 -- Form of Note (incorporated by reference to Exhibit 4.2 to the Units Registration Statement).
4.8 -- Pledge Agreement, dated as of November 26, 1997, between the Company, as Pledgor, and IBJ Schroder
Bank & Trust Company, as Collateral Agent (incorporated by reference to Exhibit 4.5 to the Units
Registration Statement).
4.9 -- Warrant Agreement, dated as of November 26, 1997, between the Company and IBJ Schroder Bank & Trust
Company, as Warrant Agent (incorporated by reference to Exhibit 4.3 to the Units Registration
Statement).
4.10 -- Form of Warrant (incorporated by reference to Exhibit 4.4 to the Units Registration Statement).
4.11 -- Form of Preferred Stock Warrant Agreement, dated as of April 9, 1997, between the Company and each
Warrantholder thereof.
4.12 -- Form of Common Stock Purchase Warrant granted by the Company to Everest Capital Master Fund, L.P. and
to The Ravich Revocable Trust of 1989.
9.1 -- Voting Trust Agreement, dated August 26, 1997, by and among Darlene Friedland, as Grantor, David
Margolese, as Trustee, and the Company (incorporated by reference to Exhibit (c) to the Company's
Issuer Tender Offer Statement on Form 13E-4, filed with the Commission on October 16, 1997).
10.1 -- Lease Agreement, dated October 20, 1992, between 22nd & K Street Office Building Limited Partnership
and the Company (incorporated by reference to Exhibit 10.3 to the S-1 Registration Statement).
10.2.1 -- Engagement Letter Agreement, dated November 18, 1992, between the Company and Batchelder & Partners,
Inc. (incorporated by reference to Exhibit 10.4 to the S-1 Registration Statement).
10.2.2 -- Engagement Termination Letter Agreement, dated December 4, 1997, between the Company and Batchelder &
Partners, Inc.
*10.3.1 -- Proprietary Information and Non-Competition Agreement, dated February 9, 1993, for Robert D. Briskman
(incorporated by reference to Exhibit 10.8.1 to the S-1 Registration Statement).
*10.3.2 -- Amendment No. 1 to Proprietary Information and Non-Competition Agreement between the Company and
Robert D. Briskman (incorporated by reference to Exhibit 10.8.2 to the S-1 Registration Statement).
'D'10.4.1 -- Satellite Construction Agreement, dated March 2, 1993, between Space Systems/Loral, Inc. and the
Company (incorporated by reference to Exhibit 10.9.1 to the S-1 Registration Statement).
'D'10.4.2 -- Amendment No. 1 to Satellite Construction Agreement, effective December 28, 1993, between Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.9.2 to the S-1
Registration Statement).
'D'10.4.3 -- Amendment No. 2 to Satellite Construction Agreement, effective March 8, 1994, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.9.3 to the S-1
Registration Statement).
10.4.4 -- Amendment No. 3 to Satellite Construction Agreement, effective February 12, 1996, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.9.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 (the '1995 Form 10-K')).
10.4.5 -- Amendment No. 4 to Satellite Construction Agreement, effective June 18, 1996, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.8.5 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1996).
10.4.6 -- Amendment No. 5 to Satellite Construction Agreement, effective August 26, 1996, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.8.6 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1996).
10.4.7 -- Amendment No. 6 to Satellite Construction Agreement, effective August 26, 1996, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.5.7 to the 1996 Form
10-K).
</TABLE>
49
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.4.8 -- Amendment No. 8 to Satellite Construction Agreement, effective January 29, 1997, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.5.8 to the 1996 Form
10-K).
10.4.9 -- Amendment No. 9 to Satellite Construction Agreement, effective February 26, 1997, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.5.9 to the 1996 Form
10-K).
10.4.10 -- Amendment No. 11 to Satellite Construction Agreement, effective March 24, 1997, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.5.10 to the 1996 Form
10-K).
10.4.11 -- Amendment No. 12 to Satellite Construction Agreement, effective April 25, 1997, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.4.11 to the Company's
Quarterly Report on Form 10-Q/A for the period ended March 31, 1997).
10.4.12 -- Amendment No. 13 to Satellite Construction Agreement, effective April 28, 1997, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.4.12 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1997).
10.4.13 -- Amendment No. 14 to Satellite Construction Agreement, effective June 30, 1997, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.4.13 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1997).
10.4.14 -- Amendment No. 15 to Satellite Construction Agreement, effective July 31, 1997, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 99.1 to the Company's Current
Report on Form 8-K, filed with the Commission on October 7, 1997).
10.4.15 -- Amendment No. 16 to Satellite Construction Agreement, effective August 4, 1997, between the Space
Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 99.2 to the Company's Current
Report on Form 8-K, filed with the Commission on October 7, 1997).
10.5 -- Assignment of Technology Agreement, dated April 15, 1993, between Robert D. Briskman and the Company
(incorporated by reference to Exhibit 10.10 to the S-1 Registration Statement).
*10.6.1 -- Amended and Restated Option Agreement between the Company and Robert D. Briskman (incorporated by
reference to Exhibit 10.13 to the S-1 Registration Statement).
*10.6.2 -- Stock Option Agreement, dated as of October 15, 1997, between the Company and Robert D. Briskman.
10.7.1 -- Launch Reservation Agreement, dated September 20, 1993, between the Company and Arianespace S.A.
(incorporated by reference to Exhibit 10.15.1. to the S-1 Registration Statement).
10.7.2 -- Modification of Launch Reservation Agreement, dated April 1, 1994, between the Company and Arianespace
S.A. (incorporated by reference to Exhibit 10.15.2 to the S-1 Registration Statement).
10.7.3 -- Second Modification of Launch Reservation Agreement, dated August 10, 1994, between the Company and
Arianespace S.A. (incorporated by reference to Exhibit 10.15.3 to the S-1 Registration Statement).
10.7.4 -- Third Modification of Launch Reservation Agreement, dated November 8, 1995, between the Company and
Arianespace S.A. (incorporated by reference to Exhibit 10.14.4 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1996).
10.7.5 -- Fourth Modification of Launch Reservation Agreement, dated August 30, 1996, between the Company and
Arianespace S.A. (incorporated by reference to Exhibit 10.14.5 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1995).
10.7.6 -- Fifth Modification of Launch Reservation Agreement, dated December 10, 1996, between the Company and
Arianespace S.A. (incorporated by reference to Exhibit 10.10.6 to the 1996 Form 10-K).
*10.8.1 -- Employment and Noncompetition Agreement between the Company and David Margolese (incorporated by
reference to Exhibit 10.18.1 to the S-1 Registration Statement).
*10.8.2 -- First Amendment to Employment Agreement between the Company and David Margolese (incorporated by
reference to Exhibit 10.18.2 to the S-1 Registration Statement).
*10.9.1 -- Employment and Noncompetition Agreement between the Company and Robert D. Briskman (incorporated by
reference to Exhibit 10.19.1 to the S-1 Registration Statement).
</TABLE>
50
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
*10.9.2 -- First Amendment to Employment Agreement between the Company and Robert D. Briskman (incorporated by
reference to Exhibit 10.19.2 to the S-1 Registration Statement).
*10.9.3 -- Second Amendment to Employment Agreement between the Company and Robert D. Briskman (incorporated by
reference to Exhibit 10.12.3 to the 1996 Form 10-K).
*10.10 -- Employment and Noncompetition Agreement, dated as of July 10, 1997, between the Company and Andrew J.
Greenebaum (incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1997).
*10.11 -- Employment and Noncompetition Agreement, dated as of April 16, 1997, between the Company and Joseph S.
Capobianco (incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q/A
for the period ended March 31, 1997).
*10.12 -- Employment and Noncompetition Agreement, dated as of April 28, 1997, between the Company and Keno V.
Thomas (incorporated by reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q/A for
the period ended March 31, 1997).
10.13 -- Registration Agreement, dated January 2, 1994, between the Company and M.A. Rothblatt and B.A.
Rothblatt (incorporated by reference to Exhibit 10.20 to the S-1 Registration Statement).
*10.14 -- 1994 Stock Option Plan (incorporated by reference to Exhibit 10.21 to the S-1 Registration Statement).
*10.15 -- Amended and Restated 1994 Directors' Nonqualified Stock Option Plan (incorporated by reference to
Exhibit 10.22 to the 1995 Form 10-K).
10.16.1 -- Option Agreement, dated as of October 21, 1992, between the Company and Batchelder & Partners, Inc.
(incorporated by reference to Exhibit 10.24 to the S-1 Registration Statement).
10.16.2 -- Form of Option Agreement, dated as of December 29, 1997, between the Company and each Optionee.
10.17 -- Settlement Agreement, dated as of April 1, 1994, among the Company, M.A. Rothblatt, B.A. Rothblatt and
Marcor, Inc. (incorporated by reference to Exhibit 10.27 to the S-1 Registration Statement).
*10.18 -- 1995 Stock Compensation Plan (incorporated by reference to Exhibit 10.37 to the 1995 Form 10-K).
10.19.1 -- Preferred Stock Investment Agreement dated October 23, 1996 between the Company and certain investors
(incorporated by reference to Exhibit 10.24 to the 1996 Form 10-K).
10.19.2 -- First Amendment to Preferred Stock Investment Agreement dated March 7, 1997 between the Company and
certain investors (incorporated by reference to Exhibit 10.24.1 to the 1996 Form 10-K).
10.19.3 -- Second Amendment to Preferred Stock Investment Agreement dated March 14, 1997 between the Company and
certain investors (incorporated by reference to Exhibit 10.24.2 to the 1996 Form 10-K).
10.20 -- Stock Purchase Agreement, dated as of August 5, 1997, between the Company, David Margolese and Loral
Space & Communications Ltd. (incorporated by reference to Exhibit 99.1 to the Company's Current Report
on Form 8-K, filed with the Commission on August 19, 1997).
10.21.1 -- Arianespace Customer Loan Agreement, dated as of July 22, 1997, between the Company and Arianespace
Finance S.A., relating to Launch 1 (the 'Arianespace Loan Agreement 1') (incorporated by reference to
Exhibit 10.11.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30,
1997).
10.21.2 -- Amendment No. 1 and Waiver to Arianespace Loan Agreement 1, dated as of July 22, 1997, between
Arianespace S.A., Arianespace Finance S.A. and the Company (incorporated by reference to Exhibit
10.11.1.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997).
10.22 -- Multiparty Agreement relating to Launch 1, entered into as of July 22, 1997, among Arianespace S.A.,
Arianespace Finance S.A. and the Company (incorporated by reference to Exhibit 10.11.2 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1997).
10.23.1 -- Arianespace Customer Loan Agreement, dated as of July 22, 1997, between the Company and Arianespace
Finance S.A., relating to Launch 2 (the 'Arianespace Loan Agreement 2') (incorporated by reference to
Exhibit 10.12.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30,
1997).
</TABLE>
51
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.23.2 -- Amendment No. 1 and Waiver to Arianespace Loan Agreement 2, dated as of July 22, 1997, between
Arianespace S.A., Arianespace Finance S.A. and the Company (incorporated by reference to Exhibit
10.12.1.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997).
10.24 -- Multiparty Agreement relating to Launch 2, entered into as of July 22, 1997, among Arianespace S.A.,
Arianespace Finance S.A. and the Company (incorporated by reference to Exhibit 10.12.2 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1997).
10.25 -- Summary Term Sheet/Commitment, dated June 15, 1997, among the Company and Everest Capital
International, Ltd., Everest Capital Fund, L.P. and The Ravich Revocable Trust of 1989 (incorporated by
reference to Exhibit 99.1 to the Company's Current Report on Form 8-K, filed with the Commission on
July 8, 1997).
10.26.1 -- Engagement Letter Agreement, dated June 14, 1997, between the Company and Libra Investments, Inc.
10.26.2 -- Engagement Termination Letter Agreement, dated August 6, 1997, between the Company and Libra
Investments, Inc.
10.27 -- Engagement Letter Agreement, dated October 8, 1997, between the Company and Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
12.1 -- Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
21.1 -- List of the Company's Subsidiaries.
23.1 -- Consent of Coopers & Lybrand L.L.P.
24.1 -- Power of Attorney (included on signature page).
27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* This document has been identified as a management contract or compensatory
plan or arrangement.
'D' Portions of these exhibits, which are incorporated by reference to the S-1
Registration Statement, have been omitted pursuant to an Application for
Confidential Treatment filed by the Company with the Commission pursuant to
Rule 406 of the Securities Act of 1933, as amended.
(b) Reports on Form 8-K
A report on Form 8-K was filed on October 22, 1997 with the Commission
relating to a dividend distribution and Rights Agreement between the
Company and Continental Stock Transfer & Trust Company, as Rights Agent.
A report on Form 8-K was filed on November 10, 1997 with the
Commission relating to the Company's offer to exchange shares of its new
10 1/2% Series C Convertible Preferred Stock for all outstanding shares of
5% Delayed Convertible Preferred Stock.
As of the date of the filing of this Annual Report on Form 10-K, no proxy
materials have been furnished to security holders. Copies of all proxy materials
will be furnished to the Commission in compliance with its rules.
52
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 19th day of
March, 1998.
CD RADIO INC.
By: /S/ DAVID MARGOLESE
.................................
DAVID MARGOLESE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
We, the undersigned officers and directors of CD Radio Inc., hereby
severally constitute David Margolese and Lawrence F. Gilberti, and each of them
singly, our true and lawful attorneys with full power to them, and each of them
singly, to sign for us and in our names in the capacities indicated below, any
and all reports, with all exhibits thereto and any and all documents in
connection therewith, and generally do all such things in our name and on our
behalf in such capacities to enable CD Radio Inc. to comply with the applicable
provisions of the Securities Exchange Act of 1934, as amended, and all
requirements of the Securities and Exchange Commission, and we hereby ratify and
confirm our signatures as they may be signed by our said attorneys, or either of
them, to any and all such amendments.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ DAVID MARGOLESE Chairman of the Board and Chief Executive March 19, 1998
......................................... Officer (Principal Executive Officer)
(DAVID MARGOLESE)
/s/ ANDREW J. GREENEBAUM Executive Vice President and Chief Financial March 19, 1998
......................................... Officer (Principal Financial and
(ANDREW J. GREENEBAUM) Accounting Officer)
/s/ ROBERT D. BRISKMAN Director March 19, 1998
.........................................
(ROBERT D. BRISKMAN)
/s/ LAWRENCE F. GILBERTI Director March 19, 1998
.........................................
(LAWRENCE F. GILBERTI)
/s/ PETER K. PITSCH Director March 19, 1998
.........................................
(PETER K. PITSCH)
/s/ JACK Z. RUBINSTEIN Director March 19, 1998
.........................................
(JACK Z. RUBINSTEIN)
/s/ RALPH V. WHITWORTH Director March 19, 1998
.........................................
(RALPH V. WHITWORTH)
</TABLE>
53
<PAGE>
<PAGE>
CD RADIO INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- --------- --------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
3.1 -- Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-1 (File No. 33-74782) (the 'S-1
Registration Statement')).................................................................
3.2 -- Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the S-1
Registration Statement)...................................................................
3.3 -- Certificate of Designations of 5% Delayed Convertible Preferred Stock (incorporated by
reference to Exhibit 10.24 to the Form 10-K/A for the year ended December 31, 1996 (the
'1996 Form 10-K'))........................................................................
3.4 -- Form of Certificate of Designations of Series B Preferred Stock (incorporated by reference
to Exhibit A to Exhibit 1 to the Company's Registration Statement on Form 8-A, filed with
the Commission on October 30, 1997 (the 'Form 8-A'))......................................
3.5.1 -- Certificate of Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of 10 1/2% Series C Convertible Preferred Stock (the 'Series C Certificate
of Designations') (incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (File No. 333-34761) (the 'S-4 Registration Statement'))............
3.5.2 -- Certificate of Correction of the Series C Certificate of Designations.....................
3.6 -- Certificate of Designations of Series D Convertible Preferred Stock (incorporated by
reference to Exhibit 4.2 to the S-4 Registration Statement)...............................
4.1 -- Form of Certificate for Shares of Common Stock (incorporated by reference to Exhibit 4.3
to the S-1 Registration Statement)........................................................
4.2 -- Form of Certificate for Shares of 10 1/2% Series C Convertible Preferred Stock
(incorporated by reference to Exhibit 4.4 to the S-4 Registration Statement)..............
4.3 -- Form of Certificate for Shares of Series D Convertible Preferred Stock (incorporated by
reference to Exhibit 4.5 to the S-4 Registration Statement)...............................
4.4 -- Rights Agreement, dated as of October 22, 1997, between the Company and Continental Stock
Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 1 to the
Form 8-A).................................................................................
4.5 -- Form of Right Certificate (incorporated by reference to Exhibit B to Exhibit 1 to Form
8-A)......................................................................................
4.6 -- Indenture, dated as of November 26, 1997, between the Company and IBJ Schroder Bank &
Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-3 (File No. 333-34769) (the 'Units Registration
Statement'))..............................................................................
4.7 -- Form of Note (incorporated by reference to Exhibit 4.2 to the Units Registration
Statement)................................................................................
4.8 -- Pledge Agreement, dated as of November 26, 1997, between the Company, as Pledgor, and IBJ
Schroder Bank & Trust Company, as Collateral Agent (incorporated by reference to Exhibit
4.5 to the Units Registration Statement)..................................................
4.9 -- Warrant Agreement, dated as of November 26, 1997, between the Company and IBJ Schroder
Bank & Trust Company, as Warrant Agent (incorporated by reference to Exhibit 4.3 to the
Units Registration Statement).............................................................
4.10 -- Form of Warrant (incorporated by reference to Exhibit 4.4 to the Units Registration
Statement)................................................................................
4.11 -- Form of Preferred Stock Warrant Agreement, dated as of April 9, 1997, between the Company
and each Warrantholder thereof............................................................
4.12 -- Common Stock Purchase Warrant granted by the Company to Everest Capital Master Fund, L.P.
and to The Ravich Revocable Trust of 1989.................................................
9.1 -- Voting Trust Agreement, dated August 26, 1997, by and among Darlene Friedland, as Grantor,
David Margolese, as Trustee, and the Company (incorporated by reference to Exhibit (c) to
the Company's Issuer Tender Offer Statement on Form 13E-4, filed with the Commission on
October 16, 1997).........................................................................
10.1 -- Lease Agreement, dated October 20, 1992, between 22nd & K Street Office Building Limited
Partnership and the Company (incorporated by reference to Exhibit 10.3 to the S-1
Registration Statement)...................................................................
</TABLE>
54
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- --------- --------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
10.2.1 -- Engagement Letter Agreement, dated November 18, 1992, between the Company and Batchelder &
Partners, Inc. (incorporated by reference to Exhibit 10.4 to the S-1 Registration
Statement).................................................................................
10.2.2 -- Engagement Termination Letter Agreement, dated December 4, 1997, between the Company and
Batchelder & Partners, Inc. ...............................................................
*10.3.1 -- Proprietary Information and Non-Competition Agreement, dated February 9, 1993, for Robert
D. Briskman (incorporated by reference to Exhibit 10.8.1 to the S-1 Registration
Statement).................................................................................
*10.3.2 -- Amendment No. 1 to Proprietary Information and Non-Competition Agreement between the
Company and Robert D. Briskman (incorporated by reference to Exhibit 10.8.2 to the S-1
Registration Statement)....................................................................
'D'10.4.1 -- Satellite Construction Agreement, dated March 2, 1993, between Space Systems/Loral, Inc.
and the Company (incorporated by reference to Exhibit 10.9.1 to the S-1 Registration
Statement).................................................................................
'D'10.4.2 -- Amendment No. 1 to Satellite Construction Agreement, effective December 28, 1993, between
Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.9.2 to
the S-1 Registration Statement)............................................................
'D'10.4.3 -- Amendment No. 2 to Satellite Construction Agreement, effective March 8, 1994, between the
Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.9.3 to
the S-1 Registration Statement)............................................................
10.4.4 -- Amendment No. 3 to Satellite Construction Agreement, effective February 12, 1996, between
the Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.9.4
to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (the '1995
Form 10-K'))...............................................................................
10.4.5 -- Amendment No. 4 to Satellite Construction Agreement, effective June 18, 1996, between the
Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.8.5 to
the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1996).......
10.4.6 -- Amendment No. 5 to Satellite Construction Agreement, effective August 26, 1996, between
the Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.8.6
to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1996)....
10.4.7 -- Amendment No. 6 to Satellite Construction Agreement, effective August 26, 1996, between
the Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.5.7
to the 1996 Form 10-K).....................................................................
10.4.8 -- Amendment No. 8 to Satellite Construction Agreement, effective January 29, 1997, between
the Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.5.8
to the 1996 Form 10-K).....................................................................
10.4.9 -- Amendment No. 9 to Satellite Construction Agreement, effective February 26, 1997, between
the Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.5.9
to the 1996 Form 10-K).....................................................................
10.4.10 -- Amendment No. 11 to Satellite Construction Agreement, effective March 24, 1997, between
the Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.5.10
to the 1996 Form 10-K).....................................................................
10.4.11 -- Amendment No. 12 to Satellite Construction Agreement, effective April 25, 1997, between
the Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.4.11
to the Company's Quarterly Report on Form 10-Q/A for the period ended March 31, 1997)......
10.4.12 -- Amendment No. 13 to Satellite Construction Agreement, effective April 28, 1997, between
the Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.4.12
to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997).........
10.4.13 -- Amendment No. 14 to Satellite Construction Agreement, effective June 30, 1997, between the
Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 10.4.13 to
the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997)............
</TABLE>
55
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- --------- --------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
10.4.14 -- Amendment No. 15 to Satellite Construction Agreement, effective July 31, 1997, between the
Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K, filed with the Commission on October 7, 1997)........
10.4.15 -- Amendment No. 16 to Satellite Construction Agreement, effective August 4, 1997, between
the Space Systems/Loral, Inc. and the Company (incorporated by reference to Exhibit 99.2 to
the Company's Current Report on Form 8-K, filed with the Commission on October 7, 1997)....
10.5 -- Assignment of Technology Agreement, dated April 15, 1993, between Robert D. Briskman and
the Company (incorporated by reference to Exhibit 10.10 to the S-1 Registration
Statement).................................................................................
*10.6.1 -- Amended and Restated Option Agreement between the Company and Robert D. Briskman
(incorporated by reference to Exhibit 10.13 to the S-1 Registration Statement).............
*10.6.2 -- Stock Option Agreement, dated as of October 15, 1997, between the Company and Robert D.
Briskman...................................................................................
10.7.1 -- Launch Reservation Agreement, dated September 20, 1993, between the Company and
Arianespace S.A. (incorporated by reference to Exhibit 10.15.1 to the S-1 Registration
Statement).................................................................................
10.7.2 -- Modification of Launch Reservation Agreement, dated April 1, 1994, between the Company and
Arianespace S.A. (incorporated by reference to Exhibit 10.15.2 to the S-1 Registration
Statement).................................................................................
10.7.3 -- Second Modification of Launch Reservation Agreement, dated August 10, 1994, between the
Company and Arianespace S.A. (incorporated by reference to Exhibit 10.15.3 to the S-1
Registration Statement)....................................................................
10.7.4 -- Third Modification of Launch Reservation Agreement, dated November 8, 1995, between the
Company and Arianespace S.A. (incorporated by reference to Exhibit 10.14.4 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1996).....................
10.7.5 -- Fourth Modification of Launch Reservation Agreement, dated August 30, 1996, between the
Company and Arianespace S.A. (incorporated by reference to Exhibit 10.14.5 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1995).....................
10.7.6 -- Fifth Modification of Launch Reservation Agreement, dated December 10, 1996, between the
Company and Arianespace S.A. (incorporated by reference to Exhibit 10.10.6 to the 1996 Form
10-K)......................................................................................
*10.8.1 -- Employment and Noncompetition Agreement between the Company and David Margolese
(incorporated by reference to Exhibit 10.18.1 to the S-1 Registration Statement)...........
*10.8.2 -- First Amendment to Employment Agreement between the Company and David Margolese
(incorporated by reference to Exhibit 10.18.2 to the S-1 Registration Statement)...........
*10.9.1 -- Employment and Noncompetition Agreement between the Company and Robert D. Briskman
(incorporated by reference to Exhibit 10.19.1 to the S-1 Registration Statement)...........
*10.9.2 -- First Amendment to Employment Agreement between the Company and Robert D. Briskman
(incorporated by reference to Exhibit 10.19.2 to the S-1 Registration Statement)...........
*10.9.3 -- Second Amendment to Employment Agreement between the Company and Robert D. Briskman
(incorporated by reference to Exhibit 10.12.3 to the 1996 Form 10-K).......................
*10.10 -- Employment and Noncompetition Agreement, dated as of July 10, 1997, between the Company
and Andrew J. Greenebaum (incorporated by reference to Exhibit 10.10 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1997).....................
*10.11 -- Employment and Noncompetition Agreement, dated as of April 16, 1997, between the Company
and Joseph S. Capobianco (incorporated by reference to Exhibit 10.17 to the Company's
Quarterly Report on Form 10-Q/A for the period ended March 31, 1997).......................
</TABLE>
56
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- --------- --------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
*10.12 -- Employment and Noncompetition Agreement, dated as of April 28, 1997, between the Company
and Keno V. Thomas (incorporated by reference to Exhibit 10.18 to the Company's Quarterly
Report on Form 10-Q/A for the period ended March 31, 1997).................................
10.13 -- Registration Agreement, dated January 2, 1994, between the Company and M.A. Rothblatt and
B.A. Rothblatt (incorporated by reference to Exhibit 10.20 to the S-1 Registration
Statement).................................................................................
*10.14 -- 1994 Stock Option Plan (incorporated by reference to Exhibit 10.21 to the S-1 Registration
Statement).................................................................................
*10.15 -- Amended and Restated 1994 Directors' Nonqualified Stock Option Plan (incorporated by
reference to Exhibit 10.22 to the 1995 Form 10-K)..........................................
10.16.1 -- Option Agreement, dated as of October 21, 1992, between the Company and Batchelder &
Partners, Inc. (incorporated by reference to Exhibit 10.24 to the S-1 Registration
Statement).................................................................................
10.16.2 -- Form of Option Agreement, dated as of December 29, 1997, between the Company and each
Optionee...................................................................................
10.17 -- Settlement Agreement, dated as of April 1, 1994, among the Company, M.A. Rothblatt, B.A.
Rothblatt and Marcor, Inc. (incorporated by reference to Exhibit 10.27 to the S-1
Registration Statement)....................................................................
*10.18 -- 1995 Stock Compensation Plan (incorporated by reference to Exhibit 10.37 to the 1995 Form
10-K)......................................................................................
10.19.1 -- Preferred Stock Investment Agreement dated October 23, 1996 between the Company and
certain investors (incorporated by reference to Exhibit 10.24 to the 1996 Form 10-K).......
10.19.2 -- First Amendment to Preferred Stock Investment Agreement dated March 7, 1997 between the
Company and certain investors (incorporated by reference to Exhibit 10.24.1 to the 1996
Form 10-K).................................................................................
10.19.3 -- Second Amendment to Preferred Stock Investment Agreement dated March 14, 1997 between the
Company and certain investors (incorporated by reference to Exhibit 10.24.2 to the 1996
Form 10-K).................................................................................
10.20 -- Stock Purchase Agreement, dated as of August 5, 1997, between the Company, David Margolese
and Loral Space & Communications Ltd. (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K, filed with the Commission on August 19, 1997)........
10.21.1 -- Arianespace Customer Loan Agreement, dated as of July 22, 1997, between the Company and
Arianespace Finance S.A., relating to Launch 1 (the 'Arianespace Loan Agreement 1')
(incorporated by reference to Exhibit 10.11.1 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1997)..............................................
10.21.2 -- Amendment No. 1 and Waiver to Arianespace Loan Agreement 1, dated as of July 22, 1997,
between Arianespace S.A., Arianespace Finance S.A. and the Company (incorporated by
reference to Exhibit 10.11.1.1 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1997)...........................................................
10.22 -- Multiparty Agreement relating to Launch 1, entered into as of July 22, 1997, among
Arianespace S.A., Arianespace Finance S.A. and the Company (incorporated by reference to
Exhibit 10.11.2 to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997)........................................................................
10.23.1 -- Arianespace Customer Loan Agreement, dated as of July 22, 1997, between the Company and
Arianespace Finance S.A., relating to Launch 2 (the 'Arianespace Loan Agreement 2')
(incorporated by reference to Exhibit 10.12.1 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1997)..............................................
10.23.2 -- Amendment No. 1 and Waiver to Arianespace Loan Agreement 2, dated as of July 22, 1997,
between Arianespace S.A., Arianespace Finance S.A. and the Company (incorporated by
reference to Exhibit 10.12.1.1 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1997)...........................................................
</TABLE>
57
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<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- --------- --------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
10.24 -- Multiparty Agreement relating to Launch 2, entered into as of July 22, 1997, among
Arianespace S.A., Arianespace Finance S.A. and the Company (incorporated by reference to
Exhibit 10.12.2 to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997)........................................................................
10.25 -- Summary Term Sheet/Commitment, dated June 15, 1997, among the Company and Everest Capital
International, Ltd., Everest Capital Fund, L.P. and The Ravich Revocable Trust of 1989
(incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K,
filed with the Commission on July 8, 1997).................................................
10.26.1 -- Engagement Letter Agreement, dated June 14, 1997, between the Company and Libra
Investments, Inc. .........................................................................
10.26.2 -- Engagement Termination Letter Agreement, dated August 6, 1997, between the Company and
Libra Investments, Inc. ...................................................................
10.27 -- Engagement Letter Agreement, dated October 8, 1997, between the Company and Merrill Lynch,
Pierce, Fenner & Smith Incorporated........................................................
12.1 -- Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends..................................................................................
21.1 -- List of the Company's Subsidiaries........................................................
23.1 -- Consent of Coopers & Lybrand L.L.P........................................................
24.1 -- Power of Attorney (included on signature page)............................................
27.1 -- Financial Data Schedule...................................................................
</TABLE>
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* This document has been identified as a management contract or compensatory
plan or arrangement.
'D' Portions of these exhibits, which are incorporated by reference to
Registration No. 33-74782, have been omitted pursuant to an Application for
Confidential Treatment filed by the Company with the Commission pursuant to
Rule 406 of the Securities Act of 1933, as amended.
58
STATEMENT OF DIFFERENCES
------------------------
The degree symbol shall be expressed as.................................... [d]
The dagger symbol shall be expressed as ................................... 'D'
<PAGE>
<PAGE>
Exhibit 3.5.2
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF
10 1/2% SERIES C CONVERTIBLE PREFERRED STOCK
OF
CD RADIO INC.
------------------------------------
PURSUANT TO SECTION 103(f) OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
------------------------------------
CD Radio Inc., a Delaware corporation (the "Corporation"),
certifies pursuant to Section 103(f) of the Delaware General Corporation Law
that:
FIRST: A Certificate of Designations, Preferences and
Relative, Participating, Optional and Other Special Rights of 10 1/2% Series C
Convertible Preferred Stock (the "Certificate of Designations") was filed in the
office of the Secretary of State of Delaware on the 18th day of November, 1997.
SECOND: The Certificate of Designations so filed is an
inaccurate record of the corporate action therein referred to in that Section 1
incorrectly states the number of authorized shares of 10 1/2% Series C
Convertible Preferred Stock of the Corporation (the "Series C Preferred Stock"),
Section 3(a)(1) incorrectly describes the formula for calculating dividends on
shares of Series C Preferred Stock, and Section 6(h) incorrectly states the
method for calculating an automatic exchange of shares of Series C Preferred
Stock for shares of the Corporation's Series D Preferred Stock.
THIRD: The Certificate of Designations is corrected so that
Section 1 of said Certificate shall read in its entirety as set forth below:
"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."
FOURTH: The Certificate of Designations is corrected so that
Section 3(a)(1) of said Certificate shall read in its entirety as set forth
below:
"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
<PAGE>
<PAGE>
2
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."
FIFTH: The Certificate of Designations is corrected so that
Section 6(h) of said Certificate shall read in its entirety as set forth below:
"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%
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<PAGE>
3
Delayed Convertible Preferred Stock yielding gross proceeds in an
aggregate cash amount of not less than $100 million."
IN WITNESS WHEREOF, the undersigned officer of the Corporation
does hereby certify under penalties of perjury that this Certificate of
Correction to the Certificate of Designations is the act and deed of the
Corporation and the facts stated therein are true and, accordingly, has hereunto
set his hand this day of January, 1998.
CD RADIO INC.
By: /s/ Lawrence F. Gilberti
---------------------------
Name: Lawrence F. Gilberti
Title: Secretary
<PAGE>
<PAGE>
EXHIBIT 4.11
PREFERRED STOCK WARRANT AGREEMENT
WHEREAS, pursuant to a letter agreement, dated as of August
29, 1996 (the "Letter Agreement"), between CD Radio Inc., a Delaware corporation
(the "Company") and Libra Investments, Inc. ("Libra"), the Company agreed to
issue to Libra a warrant (the "Libra Warrant"); and
WHEREAS the Company and Libra subsequently agreed that the
Libra Warrant should be issued as of April 9, 1997, and since that date Libra
has had full rights to the Libra Warrant issuable under the Letter Agreement;
and
WHEREAS the Company and Libra have agreed that the Company's
issuance to Libra of a warrant to purchase 177,178 shares of the Company's 10
1/2% Series C Convertible Preferred Stock ("Series C Preferred Stock"), upon the
terms set forth herein, shall be in full satisfaction of the Company's
obligation to issue the Libra Warrant pursuant to the Letter Agreement; and
WHEREAS Libra has requested, and the Company has agreed, that
in lieu of issuing to Libra a warrant to purchase the entire amount of shares of
Series C Preferred Stock, the Company shall issue warrants to purchase the same
aggregate number of shares to Libra and to certain individuals and entities
designated by Libra;
NOW THEREFORE this Warrant Agreement (the "Agreement"), dated
as of April 9, 1997, is made and entered into between the Company and
______________________________________________ (the "Warrantholder").
The Company hereby issues to the Warrantholder a Stock
Purchase Warrant as hereinafter described (the "Warrant") to purchase up to an
aggregate of ________ shares (subject to adjustment pursuant to Section 7
hereof) of Series C Preferred Stock (the "Shares").
Capitalized terms used herein and not otherwise defined shall
have the meanings specified from time to time in the Certificate of Designations
of the Series C Preferred Stock, as filed in the office of the Secretary of
State of Delaware (the "Certificate of Designations").
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<PAGE>
In consideration of the foregoing and for the purpose of
defining the terms and provisions of the Warrant and the respective rights and
obligations thereunder, the Company and the Warrantholder hereby agree as
follows:
1. FORM AND TRANSFERABILITY OF WARRANT.
1.1 Form of Warrant. The text of the Warrant and of the form
of election to purchase Shares shall be substantially as set forth in Exhibit A
attached hereto. The price per Share and the number of Shares issuable upon
exercise of the Warrant are subject to adjustment upon the occurrence of certain
events, all as hereinafter provided. The Warrant shall be executed on behalf of
the Company by its Chairman and Chief Executive Officer, Chief Financial Officer
or other authorized officer.
The Warrant shall be dated as of the date of signature thereof
by the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
1.2 Registration. The Warrant shall be numbered and shall be
registered on the books of the Company when issued.
1.3 Transfer. Subject to Section 10 hereof, the Warrant shall
be transferable on the books of the Company only upon delivery thereof duly
endorsed by the Warrantholder or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer and compliance with securities laws. Upon any registration
or transfer, the Company shall execute and deliver a new Warrant to the person
entitled thereto. The Warrant may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates representing
the right to purchase the same aggregate number of Shares. Unless the context
indicates otherwise, the term "Warrant" shall include any and all warrants
outstanding pursuant to this Agreement, including those evidenced by a
certificate or certificates issued upon division, exchange, substitution or
transfer pursuant to this Agreement, and the term "Warrantholder" shall include
any holder of a Warrant.
1.4 Legend on Warrants and Shares. Each Warrant certificate
and certificate for Shares initially issued upon exercise of this Warrant shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD,
EXCHANGED, HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE ACT."
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<PAGE>
Any certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Securities Act of 1933, as amended (the "Act"), of the securities
represented thereby) shall also bear the foregoing legend unless, in the opinion
of the Company's counsel, the securities represented thereby need no longer be
subject to such restrictions.
2. TERMS OF WARRANTS; EXERCISE OF WARRANTS.
2.1 Exercise of Warrants. Subject to the terms of this
Agreement, the Warrantholder shall have the right, at any time during the
five-year period ending at 5:00 P.M., New York City time, on April 9, 2002 (the
fifth anniversary of the date hereof) (the "Termination Date"), to purchase from
the Company up to the number of fully paid and nonassessable Shares which the
Warrantholder may at the time be entitled to purchase pursuant to this
Agreement, upon surrender to the Company, at its principal office, of the
certificate evidencing the Warrant to be exercised, together with the purchase
form annexed thereto duly filled in and signed, and upon payment to the Company
of the Warrant Price (as defined in and determined in accordance with the
provisions of Sections 6 and 7 hereof) for the number of Shares in respect of
which such Warrant is then exercised. Payment of the aggregate Warrant Price
shall be made in cash or by certified or cashier's check or by wire transfer of
funds or by surrender of Warrants for cashless exercise as provided in Section
6.
Upon such surrender of the Warrant and payment of the Warrant
Price, the Company shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the Warrantholder and in such name or
names as the Warrantholder may designate, a certificate or certificates for the
number of full Shares so purchased upon the exercise of the Warrant, together
with cash, as provided in Section 8 hereof, in respect of any fractional Shares
otherwise issuable upon such surrender. Such certificate or certificates shall
be deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Shares as of the date
of surrender of the Warrant and payment of the Warrant Price, as aforesaid,
notwithstanding that the certificates representing such Shares shall not
actually have been delivered or that the stock transfer books of the Company
shall then be closed. The Warrant shall be exercisable, at the election of the
Warrantholder, either in full or from time to time in part and, in the event
that a certificate evidencing the Warrant is exercised in respect of less than
all of the Shares specified therein at any time prior to the Termination Date, a
new certificate evidencing the remaining portion of the Warrant shall be issued
by the Company.
2.2 Special Limitation on Exercise. Notwithstanding any
other provision contained herein, the Warrant shall under no circumstances be
exercisable by any Warrantholder or Warrantholders that is or are a "person" or
a member of a "group" within the meaning of Regulation 13D under the Securities
Exchange Act of 1934, as
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<PAGE>
amended (the "Exchange Act"), for securities, when taken together with all other
securities beneficially owned by such Warrantholder or Warrantholders,
representing or convertible into securities representing "beneficial ownership"
within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act of more than
4.99% of the Company's outstanding Common Stock.
2.3 No Accrual of Dividends. For the avoidance of doubt, it is
hereby agreed that no dividends on the Shares or shares of any other class of
securities issuable hereunder shall accrue for the benefit of the Warrantholder
unless and until such Shares or shares of such class of securities are actually
issued.
3. PAYMENT OF TAXES.
The Company shall pay all documentary stamp taxes, if any,
attributable to the initial issuance of the Shares to the Warrantholder;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any secondary transfer of the Warrant
or the Shares.
4. MUTILATED OR MISSING WARRANTS.
In case the certificate or certificates evidencing the Warrant
shall be mutilated, lost, stolen or destroyed, the Company shall, at the request
of the Warrantholder, issue and deliver in exchange and substitution for and
upon cancellation of the mutilated certificate or certificates, or in lieu of
and in substitution for the certificate or certificates lost, stolen or
destroyed, a new Warrant certificate or certificates of like tenor and
representing an equivalent right or interest, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant
and of a bond of indemnity, if requested, also satisfactory to the Company in
form and amount, at the applicant's cost. Applicants for such a substitute
Warrant certificate shall also comply with such other reasonable regulations and
pay such other reasonable charges as the Company may prescribe.
5. RESERVATION OF SHARES.
The Company shall at all times keep reserved so long as the
Warrant remains outstanding, out of its authorized Series C Preferred Stock,
such number of Shares as shall be subject to purchase under the Warrant, or out
of the authorized shares of any other class of securities which may be purchased
upon exercise of this Warrant, such number of shares of such other class as may
be so purchased.
-4-
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<PAGE>
6. WARRANT PRICE; METHODS OF EXERCISE.
6.1 Price. The price per Share (the "Warrant Price") at which
Shares shall be purchasable upon the exercise of the Warrant shall be as set
forth in Appendix 1 attached hereto, subject to further adjustment pursuant to
Section 7 hereof.
6.2 Cashless Exercise. In addition to the exercise of all or a
portion of this Warrant by the payment of the Warrant Price as provided in
Subsection 2.1, and in lieu of any such payment, the Warrantholder may exercise
the Warrant in full or in part by surrendering the Warrant certificate in
exchange for a number of Shares equal to the product obtained by multiplying (a)
the number of Shares as to which this Warrant is then being exercised multiplied
by (b) a number equal to (i) the Derived Market Price, as defined below, minus
the Warrant Price, divided by (ii) the Derived Market Price. For the purposes of
this Subsection 6.2, the term "Derived Market Price" shall mean the product
obtained by multiplying (x) the per-share closing price, on the trading day
immediately preceding the date of exercise, of the Common Stock on the principal
stock exchange on which it is listed or, if not so listed, on the principal
market on which it is traded, by (y) the number of shares of Common Stock into
which a Share, if issued hereunder upon the date of cashless exercise and
immediately converted into Common Stock, could be converted.
7. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
7.1 The number and kind of securities purchasable upon the
exercise of the Warrants and the Warrant Price shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) In case the Company shall (i) subdivide its
outstanding shares of Series C Preferred Stock, (ii) combine
its outstanding shares of Series C Preferred Stock or (iii)
issue by reclassification of its Series C Preferred Stock
other securities of the Company, the number of Shares
purchasable upon exercise of the Warrants immediately prior
thereto shall be adjusted so that the Warrantholder shall be
entitled to receive the kind and number of shares or other
securities of the Company which it would have owned or would
have been entitled to receive after the happening of any of
the events described above, had the Warrants been exercised
immediately prior to the happening of such event or any record
date with respect thereto. Any adjustment made pursuant to
this paragraph (a) shall become effective immediately after
the effective date of such event retroactive to the record
date, if any, for such event.
(b) No adjustment in the number of Shares purchasable
hereunder shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%)
in the number of Shares
-5-
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<PAGE>
then purchasable upon the exercise of a Warrant; provided,
however, that any adjustments which by reason of this
paragraph (b) are not required to be made immediately shall be
carried forward and taken into account in any subsequent
adjustment.
(c) Whenever the number of Shares purchasable upon
the exercise of a Warrant is adjusted as herein provided, the
Warrant Price payable upon exercise of a Warrant shall be
adjusted by multiplying such Warrant Price immediately prior
to such adjustment by a fraction, of which the numerator shall
be the number of Shares purchasable upon the exercise of a
Warrant immediately prior to such adjustment and of which the
denominator shall be the number of Shares so purchasable
immediately thereafter. Such adjustment shall be made to all
Warrant Prices set forth in Appendix 1 attached hereto.
(d) Whenever the number of Shares purchasable upon
the exercise of a Warrant or the Warrant Price is adjusted as
herein provided, the Company shall cause to be promptly mailed
to the Warrantholder by first class mail, postage prepaid,
notice of such adjustment or adjustments and a certificate of
a firm of independent public accountants selected by the Board
of Directors of the Company (who my be the regular accountants
employed by the Company) setting forth the number of Shares
purchasable upon the exercise of a Warrant and the Warrant
Price after such adjustment, a brief statement of the facts
requiring such adjustment and the computation by which such
adjustment was made.
(e) For the purpose of this Subsection 7.1, the term
"Series C Preferred Stock" shall mean (i) the class of stock
designated as the Series C Preferred Stock of the Company at
the date of this Agreement or (ii) any other class of stock
resulting from successive changes or reclassifications of such
Series C Preferred Stock. In the event that at any time, as a
result of an adjustment made pursuant to this Section 7, the
Warrantholder shall become entitled to purchase any securities
of the Company other than shares of Series C Preferred Stock,
thereafter the number of such other securities so purchasable
upon exercise of the Warrant and the Warrant Price of such
securities 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 Shares contained in this
Section 7.
(f) For the avoidance of doubt, it is hereby agreed
that with respect to any Shares issued upon exercise of the
Warrant, adjustments to the Conversion Price pursuant to
Section 6(f) of the Certificate of Designations, as well as
analogous adjustments pursuant to the terms of
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<PAGE>
any New Security, shall be calculated as if such Shares had
been issued upon exercise of the Warrant immediately prior to
the making of such adjustment.
7.2 No Adjustment for Dividends. Except as provided in
Subsection 7.1 and subject to Subsection 2.3, no adjustment in respect of any
dividends shall be made during the term of the Warrant or upon the exercise of
the Warrant.
7.3 Preservation of Purchase Rights Upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall provide by agreement that the
Warrantholder shall have the right thereafter upon payment of the Warrant Price
in effect immediately prior to such action to purchase upon exercise of the
Warrant the kind and amount of shares and/or other securities, cash and property
which he would have owned or have been entitled to receive after the happening
of such consolidation, merger, sale or conveyance had the Warrant been exercised
immediately prior to such action. Such agreement shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 7 and in Appendix 1 attached hereto. The provisions
of this Subsection 7.3 shall similarly apply to successive consolidations,
mergers, sales or conveyances.
7.4 Par Value of Shares. Before taking any action that would
cause an adjustment reducing the Warrant Price below the then par value of the
Shares of Series C Preferred Stock issuable upon exercise of the Warrant, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully paid
and non-assessable shares of Series C Preferred Stock at such adjusted Warrant
Price.
7.5 Statement on Warrant Certificates. Irrespective of any
adjustments in the Warrant Price or the number of securities purchasable upon
the exercise of the Warrant, the Warrant certificate or certificates theretofore
or thereafter issued may continue to express the same price and number of
securities as are stated in the similar Warrant certificates initially issuable
pursuant to this Agreement. However, the Company may at any time in its sole
discretion (which shall be conclusive) make any change in the form of the
Warrant certificate that it may deem appropriate and that does not affect the
substance thereof; and any Warrant certificate thereafter issued, whether upon
registration or transfer of, or in exchange or substitution for, an outstanding
Warrant certificate, may be in the form so changed.
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<PAGE>
8. FRACTIONAL INTERESTS.
The Warrant shall not be exercisable for fractional Shares. If
any fraction of a share of Series C Preferred Stock would, but for the
provisions of this Section 8, be issuable on the exercise of the Warrant (or a
specified portion thereof), the Company shall, in lieu thereof, pay an amount in
cash equal to the then Current Market Price multiplied by such fraction. For
purposes of this Agreement, the term "Current Market Price" shall mean (i) if
the Series C Preferred Stock is traded on a national securities exchange, the
average for the 20 consecutive trading days immediately preceding the date in
question of the daily per-share closing prices of the Series C Preferred Stock
on the principal stock exchange on which it is listed, (ii) if the Series C
Preferred Stock is not traded on a national securities exchange but is traded in
the over-the-counter market or on the National Market or SmallCap Market of the
National Association of Securities Dealers, Inc., the average per-share closing
price of the Series C Preferred Stock on the 20 consecutive trading days
immediately preceding the date in question, as reported by such market or by an
equivalent generally accepted reporting service, or (iii) if the Series C
Preferred Stock is not so listed or traded, but the Common Stock is so listed or
traded, the average for the 20 consecutive trading days immediately preceding
the date in question of the daily per-share closing prices of the Common Stock
on the principal stock exchange on which it is listed or, if not so listed, on
the principal market on which it is traded, multiplied by the number of shares
of Common Stock into which a share of Series C Preferred Stock is then
convertible.
9. COMPANY RIGHT TO REDEEM.
9.1 Proportional Redemption. If the Company exercises any
right to redeem, repurchase or retire any security issuable upon exercise of
this Warrant, the Company may, at its option, upon not less than 30 days' nor
more than 60 days' notice given to each Warrantholder, call for redemption a
percentage of the Warrants held by each such Warrantholder equal to the
percentage of the total number of outstanding shares or other units of such
security being redeemed, repurchased or retired at a per-share redemption price
equal to (i) the per-share redemption or purchase price of such other shares or
units being redeemed, repurchased or retired, minus (ii) an amount equal to that
part of the per-share redemption or repurchase price that is attributable to the
dividends accrued and unpaid on such shares or units, if any, whether or not
declared, to the redemption date, and further minus (iii) the Warrant Price at
the date of redemption.
9.2 Redemption in General. In the event the Company exercises
its right to redeem the Warrants, such Warrants will be exercisable until the
close of business on the Business Day immediately preceding the date fixed for
redemption in such notice (the "Call Date"). If any Warrant called for
redemption is not exercised by such time, such Warrant shall cease to be
exercisable and the holder thereof shall be entitled to receive only the
redemption price specified in Subsection 9.1. Payment of the redemption price
will be made by the Company in cash upon presentation and surrender
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<PAGE>
of the Warrant Certificates representing such Warrants to the Company at its
address specified in Section 13 herein.
10. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained in this Agreement or in any of the Warrants
shall be construed as conferring upon the Warrantholder or its transferees any
rights whatsoever as a stockholder of the Company, including the right to vote,
to receive dividends, to consent or to receive notices as a stockholder in
respect of any meeting of stockholders for the election of directors of the
Company or any other matter. If, however, at any time prior to the expiration of
the Warrant and prior to its exercise, any of the following events shall occur:
(a) any action which would require an adjustment
pursuant to Subsection 7.1 or 7.3; or
(b) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation, merger
or sale of its property, assets and business, as an entirety)
shall be proposed;
then in any one or more of said events, the Company shall give notice in writing
of such event to the Warrantholder as provided in Section 13 hereof at least ten
(10) days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to any
relevant dividend, distribution, subscription rights or other rights or for the
determination of stockholders entitled to vote on such proposed dissolution,
liquidation or winding up, or otherwise make appropriate arrangements in
connection with the consummation of any such transaction to permit exercise of
the Warrant contemporaneously therewith. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. The
Warrantholder shall also have the right to receive any notices delivered to
holders of the Shares in their capacity as such.
11. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) The Warrantholder agrees that prior to making any
disposition of any of the Warrants or Shares, the
Warrantholder shall give written notice to the Company
describing briefly the manner in which any such proposed
disposition is to be made; and no such disposition shall be
made except pursuant to an effective registration statement or
in a transaction exempt from any registration requirements of
the Act, and no such disposition shall be made if the Company
has notified the Warrantholder that, in the reasonable opinion
of counsel to the Company or of counsel to the Warrantholder
reasonably acceptable to the Company, a registration statement
or other notification or post-effective amendment
-9-
<PAGE>
<PAGE>
thereto (hereinafter collectively a "Registration Statement")
under the Act is required with respect to such disposition and
no such Registration Statement has been filed by the Company
with, and declared effective, if necessary, by, the Securities
and Exchange Commission (the "Commission").
(b) During all periods on and after February 15, 1998
in which Shares issuable upon exercise of this Warrant are
convertible into shares of the Company's Common Stock, the
Company shall use its best efforts to ensure that shares of
the Company's Common Stock issued or issuable upon conversion
of the Shares issued or issuable upon exercise of this Warrant
(the "Registrable Securities") are registered for resale
pursuant to a shelf registration on Form S-3, unless (i) the
Company is not eligible to file such Form S-3, or (ii) such
Registrable Securities may be sold pursuant to an applicable
exemption from the registration requirements of the Act.
(c) Without limiting the Company's obligations
pursuant to paragraph (b) above, if, at any time after
February 15, 1998, (i) there is not in effect a shelf
registration on Form S-3 covering the resale of Registrable
Securities issued or issuable upon conversion of the Shares
issued or issuable upon exercise of the Warrants (each such
conversion or exercise being a "Registration Event"), and (ii)
the Registrable Securities may not be resold pursuant to an
applicable exemption from the registration requirements of the
Act, then upon the written request of those holders which own
or are entitled to purchase (either indirectly through
ownership of the Warrants or directly through ownership of the
Shares) a majority of such Registrable Securities
(collectively, the "Requesting Holders"), requesting that the
Company effect the registration under the Securities Act of
all or part of the Registrable Securities, the Company will
use its best efforts to effect the registration under the
Securities Act of such Registrable Securities which the
Company has been requested to register; provided, however,
that the Company shall be obligated to effect registration
pursuant to this paragraph (c) no more than one time. Without
limiting the foregoing, the Company will, as expeditiously as
possible:
(i) prepare and file with the Commission not
later than thirty (30) days after the Company's
receipt of the request therefor from the Requesting
Holders the requisite registration statement to
effect such registration and use its best efforts to
cause such registration statement to become
effective;
(ii) prepare and file with the Commission
such amendments and supplements to such registration
statement and
-10-
<PAGE>
<PAGE>
any prospectus used in connection therewith as may be
necessary to maintain the effectiveness of such
registration statement and to comply with the
provisions of the Act with respect to the disposition
of all Registrable Securities covered by such
registration statement, in accordance with the
intended methods of disposition thereof, until the
earlier of (A) such time as all of such securities
have been disposed of in accordance with the intended
methods of disposition by the seller or sellers
thereof set forth in such registration statement and
(B) 120 days after such registration statement has
become effective;
(iii) promptly notify each holder of
Registrable Securities: (A) when such registration
statement, or any amendment or supplement thereto,
has been filed and has become effective; (B) of any
written request by the Commission for amendments or
supplements to such registration statement; (C) of
the initiation of any proceeding with respect to, or
the issuance by the Commission of, any stop order
suspending the effectiveness of such registration
statement; and (D) of the receipt of notification
with respect to the suspension of the qualification
of any Registrable Securities for sale under the
applicable securities or Blue Sky laws of any
jurisdiction;
(iv) furnish to each seller of Registrable
Securities covered by such registration statement
such number of conformed copies of such registration
statement and of each amendment and supplement
thereto, such number of copies of the prospectus
contained in such registration statement and such
other documents as such seller may reasonably request
to facilitate the disposition of its Registrable
Securities;
(v) use its best efforts to register or
qualify all Registrable Securities covered by such
registration statement under such other securities or
Blue Sky laws of such jurisdictions as each holder
thereof shall reasonably request; and
(vi) use its best efforts to cause all
Registrable Securities covered by such registration
statement to be listed, upon official notice of
issuance, on any securities exchange on which any of
the securities of the same class as the Registrable
Securities are then listed.
(d) If, at any time after February 15, 1998, (i)
there is not in effect a shelf registration on Form S-3
covering the resale of Registrable
-11-
<PAGE>
<PAGE>
Securities issued or issuable upon conversion of the Shares
issued or issuable upon exercise of the Warrants (each such
conversion or exercise being a "Registration Event"), and (ii)
the Registrable Securities may not be resold pursuant to an
applicable exemption from the registration requirements of the
Act, and the Company proposes at any time after a Registration
Event has occurred and is continuing to effect a registration
of Common Stock of the Company under the Securities Act (other
than a registration on Form S-4 or Form S-8 promulgated by the
Commission, or any successor or similar forms thereto),
whether for sale for the account of the Company or for the
account of any holder of securities of the Company (other than
Registrable Securities) (each, a "Piggyback Registration"), it
will each such time give prompt written notice (a "Notice of
Piggyback Registration") to all holders of Registrable
Securities of its intention to do so and shall include a
description of the intended method of disposition of such
securities. Upon the written request of any such holder made
within fifteen (15) days after receipt of a Notice of
Piggyback Registration (which request shall specify the
Registrable Securities intended to be disposed of by such
holder and the intended method of disposition thereof), the
Company shall use its best efforts to include in the
registration statement relating to such Piggyback Registration
all Registrable Securities which the Company has been so
requested to register. No registration effected under this
paragraph (d) shall relieve the Company of its obligations to
effect a requested registration under paragraph (c) of this
Section.
(e) The Company shall not be obligated under this
Agreement to keep any registration statement effective beyond
the date that is one year after the date this Warrant is
exercised in full or has expired.
(f) All fees, disbursements and out-of-pocket
expenses in connection with the filing of any registration
statement under paragraphs (b), (c) or (d) of this Section and
in complying with applicable securities and Blue Sky laws
shall be borne by the Company, provided, however, that any
expenses of the Warrantholder or Holder, including but not
limited to attorneys' fees and underwriters or brokers'
discounts and commissions, shall be borne by the
Warrantholder. The Company at its expense will supply the
Warrantholder and any Holder with copies of such registration
statement and the prospectus or offering circular included
therein and other related documents in such quantities as may
be reasonably requested by the Warrantholder or Holder.
(g) In addition to any other restrictions on transfer
set forth herein, this Warrant shall be subject to any
restrictions on transfer applicable in accordance with its
terms to the security issuable upon its
-12-
<PAGE>
<PAGE>
exercise, to the same extent as such restriction applies to
such other security.
12. INDEMNIFICATION.
In connection with any registration statement filed pursuant
to Section 11 hereof, the Company on the one hand, and the Warrantholder and the
Holders of Shares, on the other hand, shall have the same indemnification
obligations to each other, including exceptions therefrom and notification
requirements with respect thereto, as are set forth in Section 1.5(e) of the
Preferred Stock Investment Agreement, dated as of October 23, 1996, between CD
Radio Inc. and the parties listed as Investors on Schedule I attached thereto,
as amended on March 7, 1997 and March 14, 1997.
13. NOTICES.
Any notice pursuant to this Agreement by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given if
delivered or mailed by certified mail, return receipt requested --
(a) If to the Warrantholder, at its address set forth
at the foot of this Agreement;
(b) If to the Company: CD Radio Inc., Sixth Floor,
1001 22nd Street, N.W., Washington, D.C. 20037.
Each party hereto may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by notice in
accordance herewith to the other party.
14. SUCCESSORS.
All the covenants and provisions of this Agreement by or for
the benefit of the Company or the Warrantholder shall bind and inure to the
benefit of their respective successors and assigns hereunder.
15. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company shall not merge or consolidate with or into any
other corporation or sell any or substantially all of its property to another
corporation, unless the provisions of Subsection 7.3 are complied with.
-13-
<PAGE>
<PAGE>
16. REPRESENTATIONS UPON EXERCISE.
Upon exercise of the Warrant, unless the exercise is a
cashless exercise, the Company shall be entitled, as a condition to acceptance
of the Warrant Price and the delivery of certificates representing the Shares,
to require the Warrantholder to elect to do one of the following: (i) to
represent that it is an Accredited Investor as defined under the Act and is
acquiring the Shares for investment, or (ii) to elect a simultaneous exercise of
the Warrant and conversion of the Shares acquired thereby, and if the Common
Stock issuable upon such conversion is not then registered under the Act, to
represent that it is acquiring such Common Stock for investment, or (iii) to
furnish to the Company an opinion of counsel, reasonably satisfactory to the
Company and its counsel, that exercise of the Warrant by the Warrantholder is a
transaction exempt from the registration requirements of the Act.
17. APPLICABLE LAW.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements and
made to be performed entirely within such state.
18. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give any
person or corporation other than the Company and the Warrantholder any legal or
equitable right, remedy or claim under this Agreement, and this Agreement shall
be for the sole and exclusive benefit of the Company and the Warrantholder.
-14-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first above written.
CD RADIO INC.
By:____________________________
Andrew J. Greenebaum
Chief Financial Officer
Warrantholder:
_____________________________________________
By:__________________________________________
Address:_____________________________________
_____________________________________
_____________________________________
-15-
<PAGE>
<PAGE>
APPENDIX 1
SCHEDULE OF ADJUSTMENTS TO WARRANT PRICE
The price per Share (the "Warrant Price") at which Shares
shall be purchasable upon exercise of the Warrant shall be as set forth below,
subject to further adjustment pursuant to Section 7 of the Agreement:
When the date of exercise is on or after Then the Warrant Price shall be
December 1, 1997 but before the $68.47
date immediately below
January 1, 1998 but before the $68.35
date immediately below
February 1, 1998 but before the $68.23
date immediately below
March 1, 1998 but before the date $68.12
immediately below
April 1, 1998 but before the date $68.00
immediately below
May 1, 1998 but before the date $67.88
immediately below
June 1, 1998 but before the date $67.76
immediately below
July 1, 1998 but before the date $67.65
immediately below
August 1, 1998 but before the date $67.53
immediately below
September 1, 1998 but before the $67.41
date immediately below
October 1, 1998 but before the $67.29
date immediately below
November 1, 1998 but before the $67.17
date immediately below
December 1, 1998 but before the $67.03
date immediately below
-16-
<PAGE>
<PAGE>
When the date of exercise is on or after Then the Warrant Price shall be
January 1, 1999 but before the $66.89
date immediately below
February 1, 1999 but before the $66.75
date immediately below
March 1, 1999 but before the date $66.61
immediately below
April 1, 1999 but before the date $66.47
immediately below
May 1, 1999 but before the date $66.33
immediately below
June 1, 1999 but before the date $66.19
immediately below
July 1, 1999 but before the date $66.05
immediately below
August 1, 1999 but before the date $65.90
immediately below
September 1, 1999 but before the $65.76
date immediately below
October 1, 1999 but before the $65.62
date immediately below
November 1, 1999 but before the $65.48
date immediately below
December 1, 1999 but before the $65.32
date immediately below
January 1, 2000 but before the $65.15
date immediately below
February 1, 2000 but before the $64.99
date immediately below
March 1, 2000 but before the date $64.82
immediately below
April 1, 2000 but before the date $64.66
immediately below
-17-
<PAGE>
<PAGE>
When the date of exercise is on or after Then the Warrant Price shall be
May 1, 2000 but before the date $64.49
immediately below
June 1, 2000 but before the date $64.33
immediately below
July 1, 2000 but before the date $64.16
immediately below
August 1, 2000 but before the date $64.00
immediately below
September 1, 2000 but before the $63.84
date immediately below
October 1, 2000 but before the $63.67
date immediately below
November 1, 2000 but before the $63.51
date immediately below
December 1, 2000 but before the $63.34
date immediately below
January 1, 2001 but before the $63.15
date immediately below
February 1, 2001 but before the $62.97
date immediately below
March 1, 2001 but before the date $62.78
immediately below
April 1, 2001 but before the date $62.59
immediately below
May 1, 2001 but before the date $62.40
immediately below
June 1, 2001 but before the date $62.21
immediately below
July 1, 2001 but before the date $62.02
immediately below
August 1, 2001 but before the date $61.84
immediately below
-18-
<PAGE>
<PAGE>
When the date of exercise is on or after Then the Warrant Price shall be
September 1, 2001 but before the $61.65
date immediately below
October 1, 2001 but before the $61.48
date immediately below
November 1, 2001 but before the $61.27
date immediately below
December 1, 2001 but before the $61.08
date immediately below
January 1, 2002 but before the $60.87
date immediately below
February 1, 2002 but before the $60.66
date immediately below
March 1, 2002 but before the date $60.45
immediately below
April 1, 2002 $60.24
-19-
<PAGE>
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND NEITHER THE SECURITIES NOR ANY
INTEREST THEREIN MAY BE SOLD, EXCHANGED, HYPOTHECATED,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE ACT.
WARRANT TO PURCHASE _________ SHARES
Of 10 1/2% Series C Delayed Convertible Preferred Stock
VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON APRIL 9, 2002.
CD RADIO INC.
This certifies that, for value received,
_________________________, the registered holder hereof or assigns (the
"Warrantholder") is entitled to purchase from CD Radio Inc., a Delaware
corporation (the "Company"), at any time before the expiration time and date
shown above, at an initial purchase price per share of $68.47 (the "Warrant
Price"), the number of shares shown above in accordance with the Warrant
Agreement referred to below. The number of shares purchasable upon exercise of
this Warrant and the Warrant Price shall be subject to adjustment from time to
time as set forth in the Warrant Agreement and Appendix 1 thereto.
This Warrant may be exercised in whole or in part by
presentation of this Warrant with the Purchase Form on the reverse side hereof
duly executed and simultaneous payment of the Warrant Price (subject to
adjustment) at the principal office of the Company. Payment of such price shall
be made at the option of the Warrantholder in cash or by certified or cashier's
check or as otherwise specified in the Warrant Agreement.
This Warrant is issued under and in accordance with a
Preferred Stock Warrant Agreement dated as of April 9, 1997 (the "Warrant
Agreement") between the Company and the Warrantholder and is subject to the
terms and provisions contained in the Warrant Agreement, to all of which the
Warrantholder and any transferee of this Warrant by acceptance hereof consents.
-20-
<PAGE>
<PAGE>
Upon any partial exercise of this Warrant, there shall be
signed and issued to the Warrantholder a new Warrant in respect of the shares as
to which this Warrant shall not have been exercised. This Warrant may be
endorsed at the office of the Company by surrender of this Warrant properly
endorsed for one or more new Warrants of the same aggregate number of Units as
were evidenced by the Warrant or Warrants exchanged. No fractional interests
will be issued upon the exercise of rights to purchase hereunder, but the
Company shall pay the cash value of any fraction upon the exercise of one or
more warrants, subject to the Warrant Agreement. This Warrant is transferable at
the office of the Company in the manner and subject to the limitations set forth
in the Warrant Agreement.
This Warrant does not entitle any Warrantholder hereof to any
of the rights of a stockholder of the Company.
DATED: _________________, 1997.
By:___________________________
Andrew J. Greenebaum
Chief Financial Officer
-21-
<PAGE>
<PAGE>
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant for, and to purchase
thereunder, ___________ shares (the "Shares") provided for therein, and requests
that certificates be issued in the name of:
- --------------------------------------------------------------------------------
(Please Print Name, Address and Taxpayer Identification Number)
- --------------------------------------------------------------------------------
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant certificate for the balance of the shares purchasable under
the within Warrant be registered in the name of the undersigned Warrantholder or
his Assignee as below indicated and delivered to the address stated below:
The undersigned:
|_| elects to pay the full Warrant Price in cash or by certified check or
wire funds transfer
|_| elects "cashless exercise" pursuant to Subsection 6.2 of the Warrant
Agreement
Dated:_____________ _____________________________
Signature of Warrantholder
or Assigns
Name of Warrantholder or Assigns:______________________________________________
(Please Print)
Address: ___________________________________________________________________
___________________________________________________________________
-22-
<PAGE>
<PAGE>
Signature Guaranteed: The above signature must correspond with the
name as written upon the face of the Warrant
in every particular, without alteration or
enlargement or any change whatever, unless this
Warrant has been assigned. Signature guarantee
is required if certificates are to be
registered in the name of any person other
than the name written upon the face of the
Warrant.
-23-
<PAGE>
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- --------------------------------------------------------------------------------
(Name and Address of Assignee Must Be Printed or Typewritten)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Taxpayer Identification Number of Assigns)
the within Warrant, hereby irrevocably consisting and appointing ____________
Attorney to transfer said Warrant on the books of the Company, with full power
of substitution in the premises.
Dated:____________________ ____________________________________
Signature of Registered Holder
Signature Guaranteed: The signature of this
assignment must correspond with the
name as it appears upon the face of
the within Warrant certificate in
every particular, without alteration
or enlargement or any change
whatever.
-24-
<PAGE>
<PAGE>
Exhibit 4.12
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND
SUCH LAWS.
-------------------------------------------
CD RADIO INC.
COMMON STOCK PURCHASE WARRANT
-------------------------------------------
This certifies that, for good and valuable consideration, CD
Radio Inc., a Delaware corporation (the "Company"), grants to
___________________or registered assigns (including ____________, the
"Warrantholder"), the right to subscribe for and purchase from the Company
60,000 validly issued, fully paid and nonassessable shares (the "Warrant
Shares") of the Company's Common Stock, par value $0.001 per share (the "Common
Stock"), at the purchase price per share of $50.00 (the "Exercise Price"), at
any time and from time to time, (i) following the occurrence of a Change in
Control (as hereinafter defined), or (ii) during the period from and including
9:00 AM, New York City time, on June 15, 1998 until 5:00 PM, New York City time,
on June 15, 2005 (the "Expiration Date"), all subject to the terms, conditions
and adjustments herein set forth. Certain capitalized terms used herein and not
otherwise defined are used with the meanings ascribed to them in Section 17.
Certificate No.
Number of Shares:
Name of Warrantholder:
<PAGE>
<PAGE>
2
1. Duration and Exercise of Warrant; Limitation on
Exercise; Payment of Taxes.
1.1 Duration and Exercise of Warrant. Subject to the
terms and conditions set forth herein, the Warrant may be exercised, in whole or
in part, by the Warrantholder by:
(a) the surrender of this Warrant to the
Company, with a duly executed Exercise Form specifying the number of Warrant
Shares to be purchased, during normal business hours on any Business Day prior
to the Expiration Date; and
(b) the delivery of payment to the Company,
for the account of the Company, by cash, by certified or bank cashier's check or
by wire transfer of immediately available funds in accordance with wire
instructions that shall be provided upon request, of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America. The Company agrees that such Warrant Shares shall be
deemed to be issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for the Warrant Shares as aforesaid.
1.2 Company's Option to Redeem. The Company may, at
its option, upon not less than 30 days' nor more than 60 days' notice given to
each Holder, call for redemption all of the outstanding Warrants at a call price
of $0.01 per warrant (the "Call Price") at any time after 9:00 AM, New York City
time, on June 15, 2000 (the "Callable Time"), provided that the closing market
price of the Company's Common Stock exceeds $75.00 per share (as adjusted for
stock splits, combinations, reclassifications and similar events) for at least
20 trading days in any period of 30 consecutive trading days beginning at any
time after the Callable Time, and provided further that any such call for
redemption shall be effective only if notice thereof is given to the
Warrantholder within 60 days following the most recent date on which a call for
redemption would have been permitted hereunder. In the event the Company
exercises its right to redeem the Warrants, such Warrants will be exercisable
until the close of business on the Business Day immediately preceding the date
fixed for redemption in such notice (the "Call Date"). If any Warrant called for
redemption is not exercised by such time, such Warrant shall cease to be
exercisable and the holder thereof shall be entitled only to receive the Call
Price. Payment of the Call Price will be made by the Company upon presentation
and surrender of the Warrant Certificates representing such Warrants to the
Company at its address specified in Section 18.6(a) herein (the "Company
Office").
1.3 Limitations on Exercise. Notwithstanding anything
to the contrary herein, this Warrant may be exercised only upon (i) the delivery
to the
<PAGE>
<PAGE>
3
Company of any certificates, legal opinions, or other documents reasonably
requested by the Company to satisfy the Company that the proposed exercise of
this Warrant may be effected without registration under the Securities Act, and
(ii) receipt by the Company of FCC approval of the proposed exercise, if such
approval is required (as determined by a written opinion of the Company's
special FCC counsel, delivered to the Warrantholder) to maintain any license
granted to the Company by the FCC, or to maintain the Company's eligibility for
any license for which it has applied to the FCC. The Warrantholder shall not be
entitled to exercise this Warrant, or any part thereof, unless and until such
approvals, certificates, legal opinions or other documents are reasonably
acceptable to the Company. Unless a registration statement covering the issuance
of the Warrant Shares upon exercise of the Warrant has been filed with the SEC
and declared effective and is then in effect, the cost of such approvals,
certificates, legal opinions and other documents, if required, shall be borne by
the Warrantholder; provided, however, that the Company shall bear such costs if
the foregoing condition is not fulfilled as a result of the Company's failure to
perform its obligations under Sections 7 and 8 hereof.
1.4 Warrant Shares Certificate. A stock certificate
or certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder within 5 Business Days after receipt of the
Exercise Form and receipt of payment of the purchase price. If this Warrant
shall have been exercised only in part, the Company shall, at the time of
delivery of the stock certificate or certificates, deliver to the Warrantholder
a new Warrant evidencing the rights to purchase the remaining Warrant Shares,
which new Warrant shall in all other respects be identical with this Warrant.
1.5 Payment of Taxes. The issuance of certificates
for Warrant Shares shall be made without charge to the Warrantholder for any
stock transfer or other issuance tax in respect thereto; provided, however, that
the Warrantholder shall be required to pay any and all taxes which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the then Warrantholder as reflected
upon the books of the Company.
1.6 Divisibility of Warrant; Transfer of Warrant.
(a) Subject to the provisions of this
Section 1.6, this Warrant may be divided into warrants of one thousand shares or
multiples thereof, upon surrender at the Company Office, without charge to any
Warrantholder. Upon such division, the Warrants may be transferred of record as
the then Warrantholder may specify without charge to such Warrantholder (other
than any applicable transfer taxes). In addition, subject to the provisions of
this Section 1.6, the Warrantholder shall also have the right to transfer this
Warrant in its entirety to any person or entity.
<PAGE>
<PAGE>
4
(b) Upon surrender of this Warrant to the
Company with a duly executed Assignment Form and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant or Warrants of like tenor in the name of the assignee named in such
Assignment Form, and this Warrant shall promptly be canceled. Each Warrantholder
agrees that no later than the fourth Business Day prior to any proposed transfer
(whether as the result of a division or otherwise) of this Warrant, such
Warrantholder shall give written notice to the Company of such Warrantholder's
intention to effect such transfer. Each such notice shall describe the manner
and circumstances of the proposed transfer in sufficient detail, and, if
requested by the Company, shall be accompanied by a written opinion of legal
counsel, which opinion shall be addressed to the Company and be reasonably
satisfactory in form and substance to the Company, to the effect that the
proposed transfer of this Warrant may be effected without registration under the
Securities Act. In addition, the Warrantholder and the transferee shall execute
any documentation reasonably required by the Company to ensure compliance with
the Securities Act or the applicable exemption from registration thereunder. The
Warrantholder shall not be entitled to transfer this Warrant, or any part
thereof, if such legal opinion is not acceptable to the Company or if such
documentation is not provided. The term "Warrant" as used in this Agreement
shall be deemed to include any Warrants issued in substitution or exchange for
this Warrant.
2. Restrictions on Transfer;
Restrictive Legends.
Except as otherwise permitted by this Section 2, each Warrant
shall (and each Warrant issued upon direct or indirect transfer or in
substitution for any Warrant pursuant to Section 1.6 or Section 4 shall) be
stamped or otherwise imprinted with a legend in substantially the following
form:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR
ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT AND SUCH LAWS.
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
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5
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY
BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH
LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS.
Notwithstanding the foregoing, the Warrantholder may require
the Company to issue a Warrant or a stock certificate for Warrant Shares, in
each case without a legend, if either (i) such Warrant or such Warrant Shares,
as the case may be, have been registered for resale under the Securities Act or
(ii) the Warrantholder has delivered to the Company an opinion of legal counsel,
which opinion shall be addressed to the Company and be reasonably satisfactory
in form and substance to the Company, to the effect that such registration is
not required with respect to such Warrant or such Warrant Shares, as the case
may be.
3. Reservation and Registration of Shares, Etc.
The Company covenants and agrees as follows:
(a) all Warrant Shares which are issued upon the
exercise of this Warrant will, upon issuance, be validly issued, fully paid, and
nonassessable, not subject to any preemptive rights, and free from all taxes,
liens, security interests, charges, and other encumbrances with respect to the
issue thereof, other than taxes with respect to any transfer occurring
contemporaneously with such issue;
(b) during the period within which this Warrant may
be exercised, the Company will at all times have authorized and reserved, and
keep available free from preemptive rights and any liens and encumbrances, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant; and
(c) the Company will, from time to time, take all
such action as may be required to assure that the par value per share of the
Warrant Shares is at all times equal to or less than the then effective Exercise
Price.
4. Loss or Destruction of Warrant.
Subject to the terms and conditions hereof, upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant and, in the case of loss, theft or
destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of such
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6
mutilation, upon surrender and cancellation of this Warrant, the Company will
execute and deliver a new Warrant of like tenor.
5. Ownership of Warrant.
The Company may deem and treat the person in whose name this
Warrant is registered as the holder and owner hereof (notwithstanding any
notations of ownership or writing hereon made by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
6. Certain Adjustments.
6.1 The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) Stock Dividends. If at any time after
the date of the issuance of this Warrant (i) the Company shall fix a record date
for the issuance of any stock dividend payable in shares of Common Stock or (ii)
the number of shares of Common Stock shall have been increased by a subdivision
or split-up of shares of Common Stock, then, on the record date fixed for the
determination of holders of Common Stock entitled to receive such dividend or
immediately after the effective date of subdivision or split-up, as the case may
be, the number of shares to be delivered upon exercise of this Warrant will be
increased so that the Warrantholder will be entitled to receive the number of
Shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (h).
(b) Combination of Stock. If the number of
shares of Common Stock outstanding at any time after the date of the issuance of
this Warrant shall have been decreased by a combination of the outstanding
shares of Common Stock, then, immediately after the effective date of such
combination, the number of shares of Common Stock to be delivered upon exercise
of this Warrant will be decreased so that the Warrantholder thereafter will be
entitled to receive the number of shares of Common Stock that such Warrantholder
would have owned immediately following such action had this Warrant been
exercised immediately prior thereto, and the Exercise Price will be adjusted as
provided below in paragraph (h).
(c) Reorganization, etc. If any capital
reorganization of the Company, any reclassification of the Common Stock, any
consolidation of the Company with or merger of the Company with or into any
other person, or any sale or lease or other transfer of all or substantially all
of the assets of the Company to
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7
any other person, shall be effected in such a way that the holders of Common
Stock shall be entitled to receive stock, other securities or assets (whether
such stock, other securities or assets are issued or distributed by the Company
or another person) with respect to or in exchange for Common Stock, then, upon
exercise of this Warrant, the Warrantholder shall have the right to receive the
kind and amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6. The Company shall not effect
any such consolidation, merger or sale, lease or other transfer, unless prior to
or simultaneously with the consummation thereof, the successor person (if other
than the Company) resulting from such consolidation or merger, or such person
purchasing, leasing or otherwise acquiring such assets, shall assume, by written
instrument, the obligation to deliver to the Warrantholder the shares of stock,
securities or assets to which, in accordance with the foregoing provisions, the
Warrantholder may be entitled and all other obligations of the Company under
this Warrant. The provisions of this paragraph (c) shall apply to successive
reorganizations, reclassifications, consolidations, mergers, sales, leasing
transactions and other transfers.
(d) Stock and Rights Offering at Less than
Fair Market Value. If at any time after the date of issuance of this Warrant,
the Company shall issue to all holders of its Common Stock or sell or fix a
record date for the issuance to all holders of its Common Stock of (A) Common
Stock or (B) rights, options or warrants entitling the holders thereof to
subscribe for or purchase Common Stock (or securities convertible or
exchangeable into or exercisable for Common Stock), in any such case, at a price
per share (or having a conversion, exchange or exercise price per share) that is
less than Fair Market Value (as defined in Section 17 hereof) on the date of
such issuance or such record date, and the Warrantholder does not elect to
participate pursuant to Section 6.2 hereof, then immediately after the date of
such issuance or sale or on such record date, the number of shares of Common
Stock to be delivered upon exercise of this Warrant shall be increased so that
the Warrantholder thereafter will be entitled to receive the number of shares of
Common Stock determined by multiplying the number of shares of Common Stock such
Warrantholder would have been entitled to receive immediately before the date of
such issuance or sale or such record date by a fraction, the denominator of
which will be the number of shares of Common Stock outstanding on such date plus
the number of shares of Common Stock that the aggregate offering price of the
total number of shares so offered for subscription or purchase (or the aggregate
initial conversion price, exchange price or exercise price of the convertible
securities or exchangeable securities or rights, options or warrants, as the
case may be, so offered) would purchase at such Fair Market Value, and the
numerator of which will be the
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8
number of shares of Common Stock outstanding on such date plus the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible or exchangeable securities or rights, options or warrants
so offered are initially convertible or exchangeable or exercisable, as the case
may be), and the Exercise Price shall be adjusted as provided below in paragraph
(h).
(e) Distributions to All Holders of Common
Stock. If the Company shall, at any time after the date of issuance of this
Warrant, fix a record date to distribute to all holders of its Common Stock, any
shares of capital stock of the Company (other than Common Stock) or evidences of
its indebtedness or assets (not including cash dividends and distributions paid
from retained earnings of the Company) or rights or warrants to subscribe for or
purchase any of its securities, then the Warrantholder shall be entitled to
receive, upon exercise of the Warrant, that portion of such distribution to
which it would have been entitled had the Warrantholder exercised its Warrant
immediately prior to the date of such distribution. At the time it fixes the
record date for such distribution, the Company shall allocate sufficient
reserves to ensure the timely and full performance of the provisions of this
Section 6.1(e). The Company shall promptly (but in any case no later than five
Business Days prior to the record date of such distribution) give notice to the
Warrantholder that such distribution will take place.
(f) Fractional Shares. No fractional shares
of Common Stock or scrip shall be issued to any Warrantholder in connection with
the exercise of this Warrant. Instead of any fractional shares of Common Stock
that would otherwise be issuable to such Warrantholder, the Company will pay to
such Warrantholder a cash adjustment in respect of such fractional interest in
an amount equal to that fractional interest of the then current Fair Market
Value per share of Common Stock.
(g) Carryover. Notwithstanding any other
provision of this Section 6, no adjustment shall be made to the number of shares
of Common Stock to be delivered to the Warrantholder (or to the Exercise Price)
if such adjustment represents less than 1% of the number of shares to be so
delivered, but any lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which together with
any adjustments so carried forward shall amount to 1% or more of the number of
shares to be so delivered.
(h) Exercise Price Adjustment. Whenever the
number of Warrant Shares purchasable upon the exercise of this Warrant is
adjusted, as herein provided, the Exercise Price payable upon the exercise of
this Warrant shall be adjusted by multiplying such Exercise Price immediately
prior to such adjustment by a fraction, of which the numerator shall be the
number of Warrant Shares purchasable upon the exercise of the Warrant
immediately prior to such adjustment,
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9
and of which the denominator shall be the number of Warrant Shares purchasable
immediately thereafter.
6.2 Rights Offering. In the event the Company shall
effect an offering of Common Stock pro rata among its stockholders, the
Warrantholder shall be entitled to elect to participate in each and every such
offering as if this Warrant had been exercised immediately prior to each such
offering. The Company shall promptly (but in any case no later than five
Business Days prior to such rights offering) give notice to the Warrantholder
that such rights offering will take place. The Company shall not be required to
make any adjustment with respect to the issuance of shares of Common Stock
pursuant to a rights offering in which the holder hereof elects to participate
under the provisions of this Section 6.2.
6.3 Notice of Adjustments. Whenever the number of
Warrant Shares or the Exercise Price of such Warrant Shares is adjusted, as
herein provided, the Company shall promptly give to the Warrantholder notice of
such adjustment or adjustments and a certificate of a firm of independent public
accountants of recognized national standing selected by the Board of Directors
of the Company (who shall be appointed at the Company's expense and who may be
the independent public accountants regularly employed by the Company) setting
forth the number of Warrant Shares and the Exercise Price of such Warrant Shares
after such adjustment, a brief statement of the facts requiring such adjustment,
and the computation by which such adjustment was made.
6.4 Notice of Extraordinary Corporate Events. In case
the Company after the date hereof shall propose to (i) distribute any dividend
(whether stock or cash or otherwise) to the holders of shares of Common Stock or
to make any other distribution to the holders of shares of Common Stock, (ii)
offer to the holders of shares of Common Stock rights to subscribe for or
purchase any additional shares of any class of stock or any other rights or
options, or (iii) effect any reclassification of the Common Stock (other than a
reclassification involving merely the subdivision or combination of outstanding
shares of Common Stock), any capital reorganization, any consolidation or merger
(other than a merger in which no distribution of securities or other property is
to be made to holders of shares of Common Stock), any sale or lease or transfer
or other disposition of all or substantially all of its property, assets and
business, or the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to each Warrantholder notice of such
proposed action, which notice shall specify the date on which (a) the books of
the Company shall close, or (b) a record shall be taken for determining the
holders of Common Stock entitled to receive such stock dividends or other
distribution or such rights or options, or (c) such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, dissolution or winding up shall take place or commence, as the case
may be, and the date, if any, as of which it is expected that holders of record
of Common Stock shall be entitled to receive securities or other
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10
property deliverable upon such action. Such notice shall be given in the case of
any action covered by clause (i) or (ii) above at least ten days prior to the
record date for determining holders of Common Stock for purposes of receiving
such payment or offer, or in the case of any action covered by clause (iii)
above at least 30 days prior to the date upon which such action takes place and
20 days prior to any record date to determine holders of Common Stock entitled
to receive such securities or other property.
6.5 Effect of Failure to Notify. Failure to file any
certificate or notice or to give any notice, or any defect in any certificate or
notice, pursuant to Sections 6.3 and 6.4 shall not affect the legality or
validity of the adjustment to the Exercise Price, the number of shares
purchasable upon exercise of this Warrant, or any transaction giving rise
thereto.
7. Registration Rights.
7.1 On or before the date that is 180 days after the
New Financing Date (including any extensions under Section 7.2 hereof), and in
no event later than May 15, 1998 (the earlier to occur of such dates, the
"Registration Deadline"), the Company shall use its best efforts to register for
resale the Registrable Securities with the SEC pursuant to a "shelf"
registration on Form S-3 (if available) or Form S-1 (if Form S-3 is not
available) and to obtain all other necessary approvals, including that of the
FCC (if required), for the resale of such Registrable Securities. If in the
opinion of counsel for the Company a post-effective amendment to an existing
registration statement would be legally sufficient for such resale, the Company
shall use its best efforts to register for resale the Registrable Securities
pursuant to such a post-effective amendment within 90 days after the
Registration Deadline.
7.2 Notwithstanding any provision of Section 7.1, the
Company may postpone the performance of its obligations under Section 7.1 for up
to 240 days after the New Financing Date if the performance of such obligations
at an earlier date would be seriously detrimental to the Company in the judgment
of the Board of Directors because the Company at the time is engaging or
planning to engage in an offering of securities or any other material
transaction.
7.3 If (A) the registration statement covering all
Registrable Securities is not effective by Registration Deadline, or (B) at any
time after the registration statement has been declared effective, the SEC
suspends the effectiveness of the registration statement or the Company suspends
the use of the prospectus used in connection with such registration statement
for an aggregate of more than 60 calendar days (the "Cumulative Suspension") in
any twelve-month period (taking into account all such suspensions), then the
Company shall (in addition to any other remedies available to such holders at
law or equity) pay to each Holder (other than, in
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11
the case of (A) above, any Holder all of whose shares of Registrable Securities
were included in a registration statement declared effective by the date therein
specified) a cash payment (the "Registration Payment Amount") in an amount equal
to 0.25% of the sum of (i) the fair market value of the Warrants held by such
Holder and (ii) the excess of (x) the Fair Market Value of all shares of Common
Stock issued to such Holder upon exercise of the Warrant and then owned by such
Holder over (y) $50.00. The Registration Payment Amount shall accrue at a rate
of 1/30th of the Registration Payment Amount for each day (A) in the period
following the Registration Deadline until the registration statement is declared
effective or (B) during the Cumulative Suspension. Any cash payment required to
be made pursuant to this Section 7.3 shall be due and payable within 10 days of
the end of any month in which (A) the registration statement has yet to become
effective following the Registration Deadline or (B) any such Cumulative
Suspension occurs. For the purposes of this Section 7.3, all determinations of
value shall be made as of the last day of the immediately preceding month.
8. Obligations of the Company. In connection with the
registration of the Registrable Securities as contemplated by Section 7.1, the
Company shall:
8.1 prepare and file with the SEC a registration
statement or statements or similar documents (the "Registration Statement") with
respect to all Registrable Securities, and thereafter use its best efforts to
cause the Registration Statement to become effective and keep the Registration
Statement effective pursuant to Rule 415 at all times until the date that is two
years after the date upon which this Warrant has been exercised in full, which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any 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, in light of the circumstances in which
they were made, not misleading;
8.2 prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement until such time as
the Company is no longer required hereunder to keep such Registration Statement
effective.
8.3 furnish to each Holder whose Registrable
Securities are included in the Registration Statement such number of copies of a
prospectus, including a preliminary prospectus and all amendments and
supplements thereto and such other documents, as such Holder may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Holder;
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12
8.4 (i) in the event Holders who hold a majority in
interest of the Registrable Securities select underwriters for the offering,
enter into and perform its obligations under an underwriting agreement with the
managing underwriter of such offering, in usual and customary form, including,
without limitation, customary indemnification and contribution obligations, (ii)
in the case of any non-underwritten offering, provide to broker-dealers
participating in any distribution of Registrable Securities reasonable
indemnification substantially similar to that provided by Section 11.1 and (iii)
in either case, make available one of its executive officers to respond to
questions relating to such offering from prospective purchasers of Registrable
Securities during normal business hours;
8.5 promptly notify each Holder of the happening of
any event of which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances then existing, not misleading, and use its best
efforts to prepare promptly, and in all cases within 30 days, a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Holder as such Holder may reasonably request;
8.6 promptly notify each Holder who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the SEC of any stop order or other
suspension of effectiveness of the Registration Statement, and make every
reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the Registration Statement at the earliest possible time;
8.7 permit counsel for Everest Capital Master Fund,
L.P. ("Everest") as well as a single firm of counsel designated as selling
stockholders' counsel by the Holders who hold a majority in interest of the
Registrable Securities (not including Registrable Securities held by Everest)
being sold to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing with the
SEC, and shall not file any document in a form to which either such counsel
reasonably objects;
8.8 make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement;
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13
8.9 at the request of the Holders who hold a majority
in interest of the Registrable Securities being sold, furnish on the date that
Registrable Securities are delivered to an underwriter for sale in connection
with the Registration Statement (i) a letter, dated such date, from the
Company's independent certified public accountants, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters;
8.10 make available for inspection by any Holder, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant, or other agent retained by any such
Holder or underwriter (collectively, the "Inspectors"), all pertinent financial
and other records, pertinent corporate documents and properties of the Company,
as shall be reasonably necessary to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Inspector
in connection with the Registration Statement;
8.11 use its best efforts to cause all the
Registrable Securities covered by the Registration Statement to be listed on
each national securities exchange on which similar securities issued by the
Company are then listed, if any, if the listing of such Registrable Securities
is then permitted under the rules of such exchange;
8.12 provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement; and
8.13 cooperate with the Holders who hold Registrable
Securities being sold and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be sold pursuant to
the Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, and registered in such names as
the managing underwriter or underwriters, if any, or the Holders may reasonably
request.
9. Obligations of the Holders.
9.1 It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to each Holder that such Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of such
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14
securities as shall be reasonably required to effect the registration of the
Registrable Securities and shall execute such documents and agreements in
connection with such registration as the Company may reasonably request. At
least twelve days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Holder of the information the Company
requires from each such Holder (the "Requested Information"). If within five
Business Days of the filing date the Company has not received the Requested
Information from a Holder (a "NonResponsive Holder"), then the Company may file
the Registration Statement without including Registrable Securities of such
Non-Responsive Holder and the Company shall have no further obligation to such
Non-Responsive Holder under Section 7 or Section 8 of this Warrant;
9.2 Each Holder, by his acceptance of the Registrable
Securities, agrees to cooperate with the Company in connection with the
preparation and filing of any registration statement hereunder, unless such
Holder has notified the Company in writing of his election to exclude all of his
Registrable Securities from the Registration Statement.
9.3 In the event Holders holding a majority in
interest of the Registrable Securities select underwriters for the offering,
each Holder agrees to enter into and perform his obligations under an
underwriting agreement, in usual and customary form, including without
limitation customary indemnification and contribution obligations (provided that
any such indemnification and contribution shall be expressly limited to losses
incurred relating to misstatements or omissions in information provided by such
Holder specifically for use in the Registration Statement, and then only to the
extent of net proceeds to such Holder as a result of the sale of Registrable
Securities pursuant to such Registration Statement), with the managing
underwriter of such offering and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of the Registrable
Securities, unless such Holder has notified the Company in writing of his
election to exclude all of his Registrable Securities from the Registration
Statement.
9.4 Each Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 8.5, such Holder will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 8.5 and, if so directed by the
Company, such Holder shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of such
destruction) all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice; and
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15
9.5 No Holder may participate in any underwritten
registration hereunder unless such Holder (i) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Holders entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and (iii) agrees to pay such Holder's pro rata
portion of all underwriting discounts and commissions.
10. Expenses of Registration. With respect to a registration
under Section 7, all expenses other than fees and disbursements of counsel for
the Holders and underwriting discounts and commissions incurred in connection
with registration, filings or qualifications pursuant to Section 8, including,
without limitation, all registration, listing, filing and qualification fees,
printers and accounting fees, and the fees and disbursements of counsel for the
Company shall be borne by the Company. Notwithstanding the preceding sentence,
the Company shall pay the reasonable fees and disbursements of counsel for
Everest and of a single firm of counsel designated as selling stockholders'
counsel by the Holders who hold a majority in interest of the Registrable
Securities being sold.
11. Indemnification. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
11.1 To the extent permitted by law, the Company will
indemnify and hold harmless each Holder who holds such Registrable Securities,
the directors, if any, of such Holder, the officers, if any, of such Holder, who
sign the Registration Statement, each person, if any, who controls such Holder,
any underwriter (as defined in the Securities Act) for the Holders, and each
person, if any, who controls any such underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (each, an "Indemnified Holder") against any losses, claims, damages,
expenses, liabilities (joint or several) (collectively, "Claims") to which any
of them may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such Claims (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively, a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented if the Company files any amendment thereof or supplement thereto
with the SEC), or the omission or alleged omission to state therein a material
fact required to be stated therein, or
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16
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, the Federal
Communications Act, any state securities law, or any rule or regulation
promulgated under the Securities Act, the Exchange Act, the Federal
Communications Act or any state securities law. Subject to the restrictions set
forth in Section 11.3 with respect to the number of legal counsel, the Company
shall reimburse each Indemnified Holder, promptly as such expenses are incurred
and are due and payable, for any legal fees and expenses or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim, whether or not such claim, investigation or proceeding is brought or
initiated by the Company or a third party. If multiple claims are brought
against an Indemnified Holder in an arbitration proceeding, and indemnification
is permitted under applicable law and is provided for under this Section 11 with
respect to at least one such claim, the Company agrees that any arbitration
award shall be conclusively deemed to be based on claims as to which
indemnification is permitted and provided for, except to the extent the
arbitration award expressly states that the award, or any portion thereof, is
based solely on a claim as to which indemnification is not available.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 11.1 (a) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Holder
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto; and (b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Holder
and shall survive the transfer of the Registrable Securities by the Holders
pursuant to Section 14.
1.2 In connection with any Registration Statement in
which a older is participating, each such Holder agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section 11.1,
the Company, each of its directors, each of its officers who sign the
Registration Statement, each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter (collectively and together with an Indemnified Holder, an
"Indemnified Party"), against any Claim to which any of them may become subject,
under the Securities Act, the Exchange Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Holder
expressly for use in connection with such Registration Statement; and such
Holder will reimburse any
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17
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 11.2 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Holder, which consent shall not be unreasonably withheld;
provided, further, that the Holder shall be liable under this Section 11.2 for
only that amount of a Claim as does not exceed the net proceeds to such Holder
as a result of the sale of Registrable Securities pursuant to such Registration
Statement.
11.3 Promptly after receipt by an Indemnified Party
under this Section 11 of notice of the commencement of any action (including any
governmental action), such Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 11,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
satisfactory to the Indemnified Parties; provided, however, that an Indemnified
Party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
for the Indemnified Party, representation of such Indemnified Party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such Indemnified Party and any other
party represented by such counsel in such proceeding. The Company shall pay for
only one legal counsel for the Holders; such legal counsel shall be selected by
the Holders holding a majority in interest of the Registrable Securities. The
failure to give written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Party under this Section 11, except to
the extent that such failure to notify results in the forfeiture by the
indemnifying party of valid rights or defenses. The indemnification required by
this Section 11 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
12. Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 11 to the fullest extent permitted by
law; provided, however, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 11, (ii) no seller of Registrable
Securities guilty of fraudulent misrepresenta tion (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (iii) contribution by any seller of Registrable
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18
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
13. Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Securities Act or any other similar rule or regulation of the SEC that may
at any time permit the Holders to sell securities of the Company to the public
without registration ("Rule 144"), the Company agrees to:
13.1 make and keep public information available, as
those terms are understood and defined in Rule 144, at all times;
13.2 file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act; and
13.3 furnish to each Holder so long as such Holder
owns Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule 144 (at
any time after 90 days after the effective date of the first registration
statement filed by the Company), the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested to permit the Holders to sell such securities without
registration.
14. Assignment of Registration Rights. The right to have the
Company register Registrable Securities pursuant to this Warrant shall be
automatically assigned by the Holders to transferees or assignees of this
Warrant or such Registrable Securities, provided that immediately following such
transfer or assignment, the further disposition of such securities by the
transferee or assignee would be subject to restrictions on resale under the
Securities Act. The term "Holders" as used herein shall include permitted
assignees and transferees.
15. Amendments. Any provision of this Warrant (including
registration rights) may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 15 shall be binding upon each
Holder and the Company.
16. Expiration of the Warrant. Except with respect to Sections
11, 12, and 13, the obligations of the Company pursuant to this Warrant shall
terminate on the Expiration Date.
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19
17. Definitions.
As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
Assignment Form: an Assignment Form in the form annexed hereto
as Exhibit B.
Board: the Board of Directors of the Company.
Business Day: any day other than a Saturday, Sunday or a day
on which national banks are authorized by law to close in The City of New York,
State of New York.
Bylaws: the bylaws of the Company, as the same may have been
amended and in effect as of June 15, 1997.
Certificate of Incorporation: the Certificate of Incorporation
of the Company, as the same may have been amended and in effect as of June 15,
1997.
Change in Control: a change in control over the Company
occurring prior to the Expiration Date of a nature that would be required to be
reported by the Company in response to either (a) Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act, or (b) Item 1(a) of Form 8-K,
each as in effect on the date hereof, whether or not the Company is then subject
to such reporting requirements; provided that, without limitation of the
foregoing, a Change in Control shall be deemed to have occurred if, prior to the
Expiration Date:
(i) there shall be consummated (A) any consolidation, merger
or recapitalization of the Company or any similar transaction involving the
Company pursuant to which shares of the Company's Common Stock would be
converted into cash, securities or other property, other than a merger of the
Company in which the holders of Common Stock immediately prior to the merger
have the same proportion and ownership of common stock of the surviving
corporation immediately after the merger, (B) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company or (C) the adoption of a plan of
complete liquidation of the Company (whether or not in connection with the sale
of all or substantially all of the Company's assets) or a series of partial
liquidations of the Company that is de jure or de facto part of a plan of
complete liquidation of the Company; provided, that the divestiture of less than
substantially all of the assets of the Company in one transaction or a series of
related transactions, whether effected by sale, lease, exchange, spin-off, sale
of the stock or merger of a subsidiary or otherwise, or a transaction solely for
the purpose of
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20
reincorporating the Company in another jurisdiction, shall not constitute a
Change in Control; or
(ii) during any period of not more than 24 consecutive months
(not including any period prior to June 15, 1997) there shall cease to be a
majority of the Board constituted as follows: individuals who at the beginning
of such period were members of the Board and any new director(s) whose election
by the Board or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved.
Call Date: the meaning specified in Section 1.2.
Call Price: the meaning specified in Section 1.2.
Callable Time: the meaning specified in Section 1.2.
Claims: the meaning specified in Section 11.1.
Common Stock: the meaning specified on the cover of this Warrant.
Company: the meaning specified on the cover of this Warrant.
Company Office: the meaning specified in Section 1.2.
Contractual Obligation: as to any Person, any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
Cumulative Suspension: the meaning specified in Section 7.3.
Everest: Everest Capital Master Fund, L.P.
Exchange Act: the meaning specified in Section 11.1 or any similar
Federal statute, and the rules and regulations of the SEC thereunder, all as the
same shall be in effect at the time. Reference to a particular section of the
Exchange Act shall include a reference to a comparable section, if any, of any
such similar Federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as
Exhibit A.
Exercise Price: the meaning specified on the cover of this
Warrant.
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21
Expiration Date: the meaning specified on the cover of this
Warrant.
Fair Market Value: With respect to a share of Common Stock as
of a particular date (the "Determination Date"):
(i) If the Common Stock is listed or admitted for trading on a
national securities exchange, then the Fair Market Value shall be the average of
the last 30 "daily sales prices" of the Common Stock on the principal national
securities exchange on which the Common Stock is listed or admitted for trading
on the last 30 Business Days prior to the Determination Date, or if not listed
or traded on any such exchange, then the Fair Market Value shall be the average
of the last 30 "daily sales prices" of the Common Stock on the Nasdaq National
Market or the Nasdaq SmallCap Market, as applicable, on the last 30 Business
Days prior to the Determination Date. The "daily sales price" shall be the
closing price of the Common Stock at the end of each day; or
(ii) If the Common Stock is not so listed or admitted to
unlisted trading privileges or if no such sale is made on at least 25 of such
days, then the Fair Market Value shall be as reasonably determined in good faith
by the Board or a duly appointed committee of the Board (which determination
shall be reasonably described in the written notice given to the Warrantholder
together with the Common Stock certificates).
FCC: the Federal Communications Commission.
Governmental Authority: the government of any nation, state,
city, locality or other political subdivision of any thereof, and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government or any International regulatory body
having or asserting jurisdiction over a Person, its business or its properties.
Holder(s): holder(s) of Registrable Securities.
Indemnified Holder: the meaning specified in Section 11.1.
Indemnified Party: the meaning specified in Section 11.2.
Inspectors: the meaning specified in Section 8.11.
Lien: any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other), restriction or other
security interest of any kind or nature whatsoever.
Nasdaq: the National Association of Securities Dealers
Automated Quotations System.
<PAGE>
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22
New Financing Date: the date on which the Company closes any
financing (including financing contemplated by the Summary Term Sheet/Commitment
dated June 15, 1997 between the Company and the Investors named therein, but
only to the extent "Gross Proceeds" (defined for the purposes of this paragraph
as the total amount received from the issuance and sale of securities of the
Company, without deduction for fees, commissions, underwriters' or similar
discounts, or expenses incurred in connection therewith) from such financing
exceed the product of 1.3865 and the Liquidation Preference of all 5% Delayed
Convertible Preferred Stock (as such Liquidation Preference is defined in the
Certificate of Designations for the 5% Delayed Convertible Preferred Stock)
outstanding as of the New Financing Date) that yields new money Gross Proceeds
of not less than $150,000,000 and is completed on or prior to November 15, 1997.
Non-Responsive Holder: the meaning specified in Section 9.2.
Person: any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind.
Ravich: The Ravich Revocable Trust of 1989.
Registrable Securities: (i) the Warrant Shares and other
securities issued or issuable upon exercise of this Warrant and (ii) any
securities issued or issuable with respect to any Common Stock or other
securities referred to in subdivision (i) by way of stock dividend or stock
split or in connection with a combination or other reorganization or otherwise.
Registration Deadline: the meaning specified in Section 7.1.
Registration Payment Amount: the meaning specified in Section 7.3.
Registration Statement: the meaning specified in Section 8.1.
Requested Information: the meaning specified in Section 9.1.
Requirement of Law: as to any Person, the Certificate of
Incorporation and Bylaws or other organizational or governing documents of such
Person, and any law, treaty, rule, regulation, qualification, license or
franchise or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable or binding upon such Person or any of its
property or to which such Person or any of its property is subject or pertaining
to any or all of the transactions contemplated hereby.
Rule 144: the meaning specified in Section 13.
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23
Rule 415: Rule 415 under the Securities Act or any successor
rule providing for offering securities on a continuous basis.
SCDR: Satellite CD Radio, Inc.
SEC: the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act or the Exchange Act,
whichever is the relevant statute for the particular purpose.
Securities Act: the meaning specified on the cover of this
Warrant, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Act, shall include a reference to the
comparable section, if any, of any such similar Federal statute.
Subsidiary: in respect of any Person, any other Person of
which, at the time as of which any determination is made, such Person or one or
more of its Subsidiaries has, directly or indirectly, voting control.
Violation: the meaning specified in Section 11.1.
Warrantholder: the meaning specified on the cover of this
Warrant.
Warrant Shares: the meaning specified on the cover of this
Warrant.
18. Miscellaneous.
18.1 Entire Agreement. This Warrant constitutes the entire
agreement between the Company and the Warrantholder with respect to the
Warrants.
18.2 Binding Effects; Benefits. This Warrant shall inure to
the benefit of and shall be binding upon the Company and the Warrantholder and
their respective heirs, legal representatives, successors and assigns. Nothing
in this Warrant, expressed or implied, is intended to or shall confer on any
person other than the Company and the Warrantholder, or their respective heirs,
legal representatives, successors or assigns, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
18.3 Section and Other Headings. The section and other
headings contained in this Warrant are for reference purposes only and shall not
be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
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24
18.4 Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
context may require.
18.5 Further Assurances. Each of the Company and the
Warrantholder shall do and perform all such further acts and things and execute
and deliver all such other certificates, instruments and documents as the
Company or the Warrantholder may, at any time and from time to time, reasonably
request in connection with the performance of any of the provisions of this
Agreement.
18.6 Notices. All notices and other communications
required or permitted to be given under this Warrant shall be in writing and
shall be deemed to have been duly given if (i) delivered personally or (ii) sent
by facsimile or overnight courier as well as by United States first class
certified mail, postage prepaid, to the parties hereto at the following
addresses or to such other address as any party hereto shall hereafter specify
by notice to the other party hereto:
(a) if to the Company, addressed to:
CD Radio Inc.
1001 22nd St., NW
Washington, DC 20037
Attention: Chief Executive Officer
-and-
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Leonard V. Quigley
(b) if to the Warrantholder, addressed to:
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally or sent by facsimile, on the second Business Day following delivery
into the custody of an overnight courier service, if sent by overnight courier,
provided that such
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<PAGE>
25
delivery is made before such courier's deadline for next-day delivery, or on the
third Business Day after the mailing thereof.
18.7 Separability. Any term or provision of this
Warrant which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the terms and
provisions of this Warrant or affecting the validity or enforceability of any of
the terms or provisions of this Warrant in any other jurisdiction.
18.8 Governing Law. This Warrant shall be deemed to
be a contract made under the laws of New York and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to such agreements made and to be performed entirely within such State.
18.9 No Rights or Liabilities as Stockholder. Nothing
contained in this Warrant shall be determined as conferring upon the
Warrantholder any rights as a stockholder of the Company or as imposing any
liabilities on the Warrantholder to purchase any securities whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
18.10 Representations of the Company. The Company
hereby represents and warrants, as of the date hereof, to the Warrantholder as
follows:
(a) Corporate Existence and Power. The
Company (i) is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware; (ii) has all requisite
corporate power and authority to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
engaged; and (iii) has the corporate power and authority to execute, deliver and
perform its obligations under this Warrant. The Company is duly qualified to do
business as a foreign corporation in, and is in good standing under the laws of,
each jurisdiction in which the conduct of its business or the nature of the
property owned requires such qualification.
(b) Subsidiaries. Except for SCDR, the
Company has no Subsidiaries. SCDR has been duly organized, is validly existing
and in good standing under the laws of the jurisdiction of its organization, has
the power and authority (corporate or otherwise) to own its properties and to
conduct its business and is duly registered, qualified and authorized to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or the nature of its properties requires such
registration, qualification or authorization. All of the issued and outstanding
capital stock (or equivalent interests) of SCDR has been duly authorized and
validly issued, is fully paid and non-assessable and is owned by the Company
free and clear of any Liens and there are no rights, options or warrants
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<PAGE>
26
outstanding or other agreements to acquire shares of capital stock (or
equivalent interests) of SCDR.
(c) Corporate Authorization; No
Contravention. The execution, delivery and performance by the Company of this
Warrant and the transactions contemplated hereby, including, without limitation,
the sale, issuance and delivery of the Warrant Shares, (i) have been duly
authorized by all necessary corporate action of the Company; (ii) do not
contravene the terms of the Certificate of Incorporation or Bylaws or the
organizational documents of SCDR; and (iii) do not violate, conflict with or
result in any breach or contravention of, or the creation of any Lien under, any
Contractual Obligation of the Company or any Requirement of Law applicable to
the Company or SCDR. No event has occurred and no condition exists which, upon
notice or the passage of time (or both), would constitute a default under any
indenture, mortgage, deed of trust, credit agreement, note or other evidence of
indebtedness or other material agreement of the Company or SCDR or the
Certificate of Incorporation or Bylaws or the organizational documents of SCDR.
(d) Issuance of Warrant Shares. The Warrant
Shares have been duly authorized and reserved for issuance. When issued, such
shares will be validly issued, fully paid and non-assessable, and free and clear
of all liens, claims, encumbrances and preemptive rights, and the holders
thereof shall be entitled to all rights and preferences accorded to a holder of
Common Stock.
(e) Binding Effect. This Warrant has been
duly executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance or transfer, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity.
18.11 FCC Approval.
(a) The Company hereby covenants that it
will use reasonable best efforts to secure FCC approval of any proposed exercise
of this Warrant if receipt of such approval is a condition of such exercise
pursuant to Section 1.3 hereof. Such reasonable best efforts shall include,
without limitation, the filing with the FCC of necessary submissions seeking
such FCC approval.
(b) Provided that on or before the
Expiration Date the Company has received notice from the Warrantholder of its
intention to exercise the Warrant, if such exercise on or before the Expiration
Date is prevented solely by reason of the non-receipt of FCC approval as set
forth in Section 1.3 hereof, then the Warrant shall remain exercisable until the
earlier of (x) 5:00 PM, New York City time, on the date that is ten Business
Days after the Warrantholder has received notice
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27
from the Company that FCC approval of such exercise has been received or is not
required and (y) 5:00 PM, New York City time, on June 15, 2007, provided that if
FCC approval of such exercise is denied on a date that is after the Expiration
Date, the Warrant shall in no case remain exercisable beyond the expiration of
any period in which the Company or the Warrantholder may appeal such denial if
no such appeal is brought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.
CD RADIO INC.
By: _______________________
Name:
Title:
Dated: __________, 1997
Attest:
By:_______________________
Name:
Title: Secretary
<PAGE>
<PAGE>
Exhibit A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant, to purchase __________ of the Warrant Shares
and herewith tenders payment for such Warrant Shares to the order of CD Radio
Inc. in the amount of $__________, which amount includes payment of the par
value for _________ of the Warrant Shares, in accordance with the terms of this
Warrant. The undersigned requests that a certificate for such Warrant Shares or
shares of Common Stock, as applicable, be registered in the name of
__________________ and that such certificates be delivered to __________________
whose address is______________________________________________________________.
Dated:______________
Signature_____________________________
-----------------------------
(Print Name)
-----------------------------
(Street Address)
-----------------------------
(City) (State) (Zip Code)
Signed in the Presence of:
- -------------------------
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<PAGE>
Exhibit B
FORM OF ASSIGNMENT
(To be executed only upon transfer of this Warrant)
For value received, the undersigned registered holder of the
within Warrant hereby sells, assigns and transfers unto ______________________
the right represented by such Warrant to purchase ________________ shares of
Common Stock of CD Radio Inc. to which such Warrant relates and all other rights
of the Warrantholder under the within Warrant, and appoints
______________________ Attorney to make such transfer on the books of CD Radio
Inc. maintained for such purpose, with full power of substitution in the
premises.
Dated: ___________________
Signature_____________________________
-----------------------------
(Print Name)
-----------------------------
(Street Address)
-----------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- -------------------------
<PAGE>
<PAGE>
Exhibit 10.2.2.
BATCHELDER & PARTNERS, INC.
4330 LA JOLLA VILLAGE DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92122
David H. Batchelder Telephone: (619) 456-6655
Chairman and Chief Executive Officer Telecopier: (619) 456-7969
December 4, 1997
David Margolese
CD Radio
2175 K Street, NW, 6th Floor
Washington, DC 20037
Dear David:
As we discussed by phone, this confirms our understanding that
(i) you have elected to terminate our services pursuant to the third-to-the-last
paragraph of our letter dated October 21, 1992 and the related indemnification
agreement (collectively, the "Letter Agreement"), effective November 30, 1997
(the "Termination Date"); and (ii) you have agreed to pay us, and we have agreed
to accept from you, the sum of $500,000 in cash, in full accord and satisfaction
of any fees payable to us under the Letter Agreement in respect of services
rendered and transactions occurring prior to the Termination Date for which we
have previously not received compensation under the Letter Agreement, including
without limitation your recent offer to exchange shares of 10 1/2% Series C
Convertible Preferred Stock for all outstanding shares of 5% Delayed Convertible
Preferred Stock.
Other than as set forth above, this agreement shall not affect any
obligations or rights under the Letter Agreement which survive the termination
thereof including the indemnification agreement and the third-to-the-last
paragraph of the Letter Agreement relating to additional compensation during the
24 month period after termination of the Letter Agreement.
David, this has been a very positive and mutually beneficial
relationship over the course of the past five years. I have received a
tremendous amount of personal satisfaction working with you. As we discussed, we
will continue to provide advice
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2
and assistance to you as you work to bring your vision for the company to
fruition, and you should feel free to call on us at any time.
Please indicate that this is in accordance with our understanding by
signing and returning to us the duplicate copy of this letter attached hereto,
which thereupon shall constitute a binding agreement.
Very truly yours,
BATCHELDER & PARTNERS, INC.
/s/ David H. Batchelder
--------------------------------------
David H. Batchelder
Chairman and Chief Executive Officer
Confirmed:
CD RADIO
By: /s/ David Margolese
----------------------------
David Margolese
Chairman and Chief Executive Officer
<PAGE>
<PAGE>
EXHIBIT 10.6.2
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HAVE NOT BEEN REGISTERED UNDER STATE OR FEDERAL SECURITIES LAWS. THIS
OPTION MAY NOT BE TRANSFERRED EXCEPT BY WILL OR UNDER THE LAWS OF DESCENT AND
DISTRIBUTION. THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT
BE OFFERED OR SOLD, PLEDGED (EXCEPT A PLEDGE PURSUANT TO THE TERMS OF WHICH ANY
OFFER OR SALE UPON FORECLOSURE WOULD BE MADE IN A MANNER THAT WOULD NOT VIOLATE
THE REGISTRATION PROVISIONS OF FEDERAL OR STATE SECURITIES LAWS) OR OTHERWISE
DISTRIBUTED FOR VALUE, NOR MAY THE SHARES OF COMMON STOCK ISSUED UPON EXERCISE
HEREOF BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT AN OPINION OF
COUNSEL, CONCURRED IN BY COUNSEL FOR THE COMPANY, THAT NO VIOLATION OF SAID
REGISTRATION PROVISIONS WOULD RESULT THEREFROM.
CD RADIO INC.
1994 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into
as of the 15th day of October, 1997 ("Date of Grant"), by and between CD Radio
Inc., a Delaware corporation (the "Company"), and Robert D. Briskman (the
"Optionee").
Grant of Option. Subject to the terms and conditions
hereof and the Company's 1994 Stock Option Plan (the "Plan"), the Company hereby
grants to the Optionee the right and option (the "Option") to purchase up to
thirty thousand (30,000) shares (the "Shares") of the common stock, $0.001 par
value, of the Company, at a price per share of $8.5625 (the "Exercise Price").
This Option is not intended to qualify as an Incentive Stock Option for purposes
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). In
the case of any stock split, stock dividend or like change in the nature of
shares granted by this Agreement occurring after the date hereof, the number of
shares and option price shall be proportionately adjusted as set forth in
Section 5(m) of the Plan. The Option shall vest and be exercisable as of the
Date of Grant.
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Termination of Option. The Option shall terminate, to
the extent not previously exercised, ten (10) years from the Date of Grant or
earlier upon the expiration of (i) eighteen (18) months from the date of
termination of the Optionee's employment or contractual relationship with the
Company for any reason whatsoever other than death or Disability (as defined
below) or (ii) the expiration of one (1) year from (A) the date of death of the
Optionee or (B) cessation of the Optionee's employment or contractual
relationship by reason of Disability (as defined below). If the Optionee's
employment or contractual relationship is terminated by death, the Option shall
be exercisable only by the person or persons to whom the Optionee's rights under
such Option shall pass by the Optionee's will or by the laws of descent and
distribution of the state or county of the Optionee's domicile at the time of
death. "Disability" shall mean any physical, mental or other health condition
which substantially impairs the Optionee's ability to perform her assigned
duties for one hundred twenty (120) days or more in any two hundred forty (240)
day period or that can be expected to result in death. The Company shall
determine whether the Optionee has incurred a Disability on the basis of medical
evidence acceptable to the Company. Upon making a determination of Disability,
the Company shall determine the date of the Optionee's termination of employment
or contractual relationship.
For purposes of this Agreement, transfer of
employment between or among the Company and/or any Related Company shall not be
deemed to constitute a termination of employment with the Company or the Related
Company. "Related Company", when referring to a subsidiary corporation, shall
mean any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if, at the time of the granting of the
Option, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock of one of the other corporations in such
chain. When referring to a parent corporation, the term "Related Company" shall
mean any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company if, at the time of granting of the option,
each of the corporations other than the Company owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
of one of the other corporations in such chain.
Non-transferable. This Option may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by the applicable laws of descent and
distribution, and shall not be subject to execution, attachment or similar
process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of this Option or of any right or privilege conferred hereby, contrary
to the provisions hereof, or upon the sale or levy or any attachment or similar
process upon the rights and privileges conferred hereby, this Option shall
thereupon terminate and become null and void.
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Investment Intent. By accepting the Option, the
Optionee represents and agrees for herself and all persons who acquire rights in
the Option through the Optionee, that none of the Shares purchased upon exercise
of the Option will be distributed in violation of applicable federal and state
laws and regulations. If requested by the Company, the Optionee shall furnish
evidence satisfactory to the Company (including a written and signed
representation letter and a consent to be bound by all transfer restrictions
imposed by applicable law, legend condition or otherwise) to that effect, prior
to delivery of the purchased Shares.
Exercise. Subject to Sections 1 and 2 hereof and the
Plan, this Option may be exercised in whole or in part by means of a written
notice of exercise signed and delivered by the Optionee (or, in the case of
exercise after death of the Optionee by the executor, administrator, heir or
legatee of the Optionee, as the case may be) to the Company at the address set
forth herein for notices to the Company. Such notice (a) shall state the number
of Shares to be purchased and the date of exercise, and (b) shall be accompanied
by payment of the full exercise price in cash, by certified or cashier's check
or by delivery of such other consideration as the administrator of the Plan may
approve.
Withholding. Prior to delivery of any Shares
purchased upon exercise of this Option, the Company shall determine the amount
of any United States federal and state income tax, if any, which is required to
be withheld under applicable law and shall, as a condition of exercise of this
Option and delivery of certificates representing the Shares purchased upon
exercise of the Option, collect from the Optionee the amount of any such tax to
the extent not previously withheld.
Rights of the Optionee. Neither this Option, the
execution of this Agreement nor the exercise of any portion of this Option shall
confer upon the Optionee any right to, or guarantee of, continued employment by
the Company, or in any way limit the right of the Company to terminate
employment of the Optionee at any time, subject to the terms of any employment
agreements between the Company and the Optionee.
Professional Advice. The acceptance and exercise of
the Option may have consequences under federal and state tax and securities laws
which may vary depending upon the individual circumstances of the Optionee.
Accordingly, the Optionee acknowledges that she has been advised to consult her
personal legal and tax advisor in connection with this Agreement and her
dealings with respect to the Option. Without limiting other matters to be
considered, the Optionee should consider whether upon exercise of the Option,
the Optionee will file an election with the Internal Revenue Service pursuant to
Section 83(b) of the Code.
Agreement Subject to Plan. The Option and this
Agreement are subject to the terms and conditions set forth in the Plan and in
any amendments to the
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Plan existing now or in the future, which terms and conditions are incorporated
herein by reference. A copy of the Plan previously has been delivered to the
Optionee. Should any conflict exist between the provisions of the Plan and those
of this Agree ment, those of the Plan shall govern and control. This Agreement
and the Plan comprise the entire understanding between the Company and the
Optionee with respect to the Option.
Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the District of Columbia without
regard to its conflict of laws principles to the contrary, and shall bind and
inure to the benefit of the heirs, executors, personal representatives,
successors and assigns of the parties hereto.
Notices. Any notice required or permitted to be made
or given hereunder shall be mailed via certified or registered mail or delivered
personally to the addresses set forth below, or as changed from time to time by
written notice to the other:
Company: CD Radio Inc.
Sixth Floor, 1001 22nd Street, N.W.
Washington, D.C. 20037
Attention: Chairman and Chief
Executive Officer
Optionee: Robert D. Briskman
1001 22nd Street, N.W.
Washington, D.C. 20037
Notices and other communications shall be deemed received and effective upon the
earlier of (i) hand delivery to the recipient, or (ii) five (5) days after being
mailed by certified or registered mail, postage prepaid, return receipt
requested. Either party may, by notice in writing, direct that future notices or
demands be sent to a different address.
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IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
CD RADIO INC. OPTIONEE:
By:/s/ David Margolese /s/ Robert D. Briskman
--------------------- ----------------------
Its Chairman and Robert D. Briskman
Chief Executive Officer
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Exhibit 10.16.2
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER STATE OR FEDERAL SECURITIES LAWS.
THIS OPTION MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO THE TERMS HEREOF. THE
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD,
PLEDGED (EXCEPT A PLEDGE PURSUANT TO THE TERMS OF WHICH ANY OFFER OR SALE UPON
FORECLOSURE WOULD BE MADE IN A MANNER THAT WOULD NOT VIOLATE THE REGISTRATION
PROVISIONS OF FEDERAL OR STATE SECURITIES LAWS) OR OTHERWISE DISTRIBUTED FOR
VALUE, NOR MAY THE SHARES OF COMMON STOCK ISSUED UPON EXERCISE HEREOF BE
TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT AN OPINION OF COUNSEL,
CONCURRED IN BY COUNSEL FOR THE COMPANY, THAT NO VIOLATION OF SAID REGISTRATION
PROVISIONS WOULD RESULT THEREFROM.
OTHER AGREEMENT
THIS OPTION AGREEMENT (this "Agreement"), dated as of December
29, 1997, is entered into by and between CD Radio Inc., a Delaware corporation
(the "Company"), and ___________________ (the "Optionee").
RECITALS
A. Pursuant to an agreement between the Company and the
Optionee, dated October 21, 1992 (the "Advisory Agreement"), the Company granted
Batchelder & Partners, Inc. ("B&P") an option (the "Original Option") to
purchase 13,000 shares of the Company's common stock, $0.01 par value per share
("Common Stock") at an exercise price of $125.00 per share, in consideration of
the B&P's providing financial advisory services to the Company; and
B. The Original Option now represents the right to purchase an
aggregate of 200,000 shares of Common Stock at an exercise price of $6.25 per
share.
C. Effective the date hereof, B&P has distributed the Option
to six employees of B&P and has requested that the Company cancel the Original
Option and issue new options (the "New Options") to effect such distribution.
This Agreement represents one of the New Options.
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions
hereof, the Company hereby confirms the grant to the Optionee of the right and
option (the "Option") to purchase up to seventy-eight thousand seven hundred
fifty-five (78,755)
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shares (the "Shares") of Common Stock at a price per share of $6.25 (the
"Exercise Price").
2. Vesting. The Option shall be exercisable immediately and be
exercisable until the Termination Date.
3. Termination of Option. Optionee shall be entitled to
exercise this Option to purchase any vested Shares through the close of business
on April 9, 2000. Upon expiration of such three-year period, the right of
Optionee to purchase such vested Shares shall terminate, to the extent that this
Option shall not have been previously exercised to purchase such vested Shares.
4. Restrictions on Transfer and Exercise. This Option and the
Shares issuable upon exercise thereof have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"), or the securities laws of
any state of the United States. This Option may not be exercised and neither
this Option or any portion thereof nor the Shares issuable upon exercise thereof
may be offered or sold or otherwise distributed for value, nor may such
securities be transferred on the books of the Company, without registration of
the Shares issuable upon exercise of this Option under the 1933 Act and all
applicable state securities laws or compliance with an exemption from such
registration requirements, such compliance, at the option of the Company, to be
evidenced by an opinion of counsel, concurred in by counsel for the Company,
that no violation of said registration provisions would result therefrom.
Subject to compliance with the preceding sentence, this Option or any portion
thereof may be transferred, assigned, pledged or hypothecated (whether by
operation of law or otherwise) only to employees of B&P who are accredited
investors within the meaning of Rule 501 of Regulation D under the 1933 Act (a
"Permitted Transferee") and shall not be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of this Option or of any right or privilege conferred hereby,
contrary to the provisions hereof, or upon the sale or levy or any attachment of
similar process upon the rights and privileges conferred hereby, this Option
shall thereupon terminate and become null and void.
5. Investment Intent. By accepting the Option, the Optionee
and each Permitted Transferee represents and agrees that none of the Shares
purchased upon exercise of the Option will be distributed in violation of
applicable federal and state laws and regulations. If requested by the Company,
the Optionee and any Permitted Transferee shall furnish evidence satisfactory to
the Company (including a written and signed representation letter and a consent
to be bound by all transfer restrictions imposed by applicable law, legend
condition or otherwise) to that effect, prior to delivery of the purchased
Shares.
6. Exercise. This Option may be exercised in whole or in part
by means of a written notice of exercise signed and delivered by the Optionee or
any Permitted Transferee to the Company at the address set forth herein for
notices to the
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Company. Such notice (a) shall state the number of Shares to be purchased and
the date of exercise, and (b) shall be accompanied by payment of the full
exercise price in cash, by certified or cashier's check.
7. Stock Dividend, Reorganization or Liquidation. If at any
time after the date hereof (i) the Company shall be involved in a transaction
described in Section 424(a) of the Internal Revenue Code of 1986, as amended (or
any successor provision) or any "corporate transaction" described in the
regulations thereunder; (ii) the Company shall declare a dividend payable in, or
shall subdivide or combine, its Common Stock or (iii) any other event with
substantially the same effect shall occur, the Company shall proportionately
adjust the number of shares of Common Stock subject to the Option and/or the
exercise price per share so as to preserve the rights of the Optionee
substantially proportionate to the rights of the Optionee prior to such event.
The foregoing adjustments in the shares subject to the Option
shall be made by the Company, or by the applicable terms of any assumption or
substitution document. The grant of the Option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge,
consolidate or dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.
8. "Market Stand-Off" Agreement. The Optionee and each
Permitted Transferee agree that during the 90-day period following the effective
date of a registration statement of the Company filed under the 1933 Act for a
Public Offering other than the Company's first Public Offering, the Optionee and
each Permitted Transferee shall not, unless otherwise approved by the Company in
writing, sell or otherwise transfer or dispose of any Shares held by such person
at any time during such period. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Shares until
the end of such period. The Optionee and each Permitted Transferee shall execute
and deliver any agreement requested by the Company confirming this Agreement
with respect to any particular Public Offering by the Company. For purposes of
this Agreement, "Public Offering" shall mean an offering pursuant to an
effective registration statement under the 1933 Act covering the sale by the
Company to the public of Common Stock or securities convertible into or
exchangeable for Common Stock in which the aggregate offering proceeds received
by the Company (including proceeds held in escrow) equal or exceed ten million
dollars ($10,000,000).
9. Professional Advice. The acceptance and exercise of the
Option may have consequences under federal and state tax and securities laws
which may vary depending upon the individual circumstances of the Optionee.
Accordingly, the Optionee acknowledges that it has been advised to consult the
Optionee's legal and tax advisor in connection with this Agreement and
Optionee's dealings with respect to the Option.
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10. Amendments. This Agreement may be amended only by a
written instrument signed by the Company and the Optionee. In the event of
any conflict between this Agreement and the Advisory Agreement, the terms,
conditions and agreements contained in this Agreement shall control.
11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the District of Columbia without
regarding to its conflict of laws principles to the contrary, and shall bind and
inure to the benefit of the heirs, executors, personal representatives,
successors and assigns of the parties hereto.
12. Counterparts. This Agreement may be signed by the parties
in as many counterparts as may be necessary, each of which so signed shall be
deemed to be an original, and such counterparts together shall constitute one
and the same instrument notwithstanding the date of execution shall be deemed to
bear the date as set forth above.
13. Notices. Any notice required or permitted to be made or
given hereunder shall be mailed via certified or registered mail or delivered
personally to the Company at its principal executive offices or to the Optionee
at the address set forth below, or as changed from time to time by written
notice to the other:
Optionee: David H. Batchelder
c/o Batchelder & Partners, Inc.
4330 La Jolla Village Drive
Suite 200
San Diego, CA 92122
Notices and other communications shall be deemed received and effective upon the
earlier of (i) hand delivery to the recipient, or (ii) five (5) days after being
mailed by certified or registered mail, postage prepaid, return receipt
requested. Either party
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may, by notice in writing, direct that future notices or demands be sent to a
different address.
IN WITNESS WHEREOF, the undersigned have executed or caused to
be executed this Agreement as of the date first above written.
CD RADIO INC. OPTIONEE
By: /s/ Andrew J. Greenebaum By:
-------------------------------- -------------------------------
Name: Andrew J. Greenebaum
Title: Executive Vice President
and Chief Finanical Officer
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Exhibit 10.26.1
[Letterhead of Libra Investments, Inc.]
11766 Wilshire Boulevard, Suite 870
Los Angeles, California 90025
Tel: (310) 312-5600
Fax: (310) 312-5666
June 14, 1997
Strictly Confidential
CD Radio Inc.
Sixth Floor
1001 22nd Street, N.W.
Washington, D.C. 20037
Attn: David Margolese
Dear Mr. Margolese:
This letter will confirm our understanding that CD Radio Inc.,
a Delaware corporation, (the "Issuer") has engaged Libra Investments, Inc. (the
"Advisor") to act as the Issuer's exclusive financial advisor and placement
agent in connection with the issuance and sale by the Issuer (the "Private
Placement") of Convertible Preferred Stock (the "Securities"). It is currently
contemplated that the Securities will be authorized by the Issuer as soon as
practicable and will reflect the terms contained in Appendix A. Capitalized
terms not defined herein shall have the meaning specified in Appendix A.
Section 1. Services to Rendered. In connection with this
engagement, the Advisor shall act as financial advisor to and agent for the
Issuer in connection with the Private Placement, which duties will include:
(a) advising as to the specific terms of the
Securities and the Private Placement;
(b) developing a list of potential purchasers of the
Securities;
(c) consulting with the Issuer from time to time as
to such potential purchasers;
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David Margolese
CD Radio, Inc.
June 14, 1997
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(d) if requested by the Issuer, assisting the Issuer
and its counsel in the preparation and distribution of appropriate
offering materials; and
(e) attempting to arrange the Private Placement of
the Securities at a price and on terms acceptable to the Issuer, it
being understood and agreed that the aggregate offering price for the
Securities is currently expected to be up to a maximum of approximately
$150 million, and that such consideration may take the form of cash
and/or exchanges of the Issuer's 5% Delayed Convertible Preferred
Stock.
Nothing contained herein constitutes a commitment on the part of the Advisor to
purchase any of the Securities or an assurance that the Private Placement will
be completed, and the Advisor shall not have the power or authority to bind the
Issuer to any sale of the Securities.
Section 2. Compensation. In consideration of the Advisor's
agreements hereunder, the Advisor shall be paid an advisory fee of 3.0% of the
aggregate gross proceeds from the Securities sold, payable in immediately
available funds upon closing of the Private Placement; provided, that such fee
shall be reduced to 1.875% of gross proceeds with respect to the first
$50,000,000 of Securities purchased by Everest Capital International, Ltd.,
Everest Capital Fund L.P. and other entities managed by Everest Capital Limited
(i.e. such fee shall be reduced by $562,500). In the event that the Private
Placement is completed in multiple closings, a pro rata portion of such advisory
fee shall be paid to the Advisor at each closing.
No fee payable to any other financial advisor either by the
Issuer or any other entity shall reduce or otherwise affect the fees payable
hereunder to the Advisor.
Section 3. The Advisor's Expenses. In addition to the
compensation payable pursuant to Section 2 of this Agreement, the Issuer shall
reimburse the Advisor for all reasonable costs and expenses (including without
limitation reasonable fees and disbursements of its legal counsel) incurred in
connection with this engagement, whether or not the Private Placement is
consummated.
Section 4. Term of Engagement. Either party to this Agreement
may terminate this Agreement, with or without cause, by giving 10 day's prior
written notice to the other party at any time after December 15, 1997; provided,
however, that Section 3, the second paragraph of this Section 4 and Sections 5,
6 and 9 hereof shall survive any termination of this Agreement.
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David Margolese
CD Radio, Inc.
June 14, 1997
Page 3
The Advisor shall be entitled to receive its full compensation
under Section 2 hereof if at any time prior to the date twelve months after the
termination of this Agreement a transaction is agreed to or consummated by the
Issuer involving the sale or issuance of securities of the type contemplated
hereby in a private placement to investors contacted by Advisor regarding
purchase of Securities in connection with this engagement (the "Libra
Investors"). Promptly following termination of this engagement, Advisor shall
provide Issuer with a list of Libra Investors.
Section 5. Indemnification. The Company agrees to the
indemnification, contribution, limitation of liability and expense reimbursement
obligations set forth in Exhibit A hereto, the provisions of which are
incorporated herein in their entirety.
Section 6. Work Product. The Advisor's advice shall be the
proprietary work product and intellectual property of the Advisor and such
advice may not be disclosed to other parties by the Issuer without the prior
written permission of the Advisor unless such disclosure is required by law. Any
document or information prepared by the Advisor in connection with this
engagement shall not be duplicated by the Issuer and shall be returned by the
Issuer to the Advisor upon termination of this Agreement.
Section 7. Cooperation. The Issuer shall furnish the Advisor
with all information, data or documents that the Advisor shall reasonably deem
appropriate in connection with its activities hereunder and shall provide the
Advisor full access to the Issuer's officers, employees and professional
advisors. Issuer represents and warrants that all such information, data and
documents, taken in their entirety, shall not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements herein not misleading. The Issuer agrees to advise the Advisor if any
such information, data or documents becomes materially inaccurate, misleading or
incomplete during the term of this Agreement. The Advisor shall be entitled to
rely on the accuracy and completeness of such information, data and documents,
and the Advisor shall not be required to make an independent verification
thereof. If requested by the Advisor, the Issuer shall provide to the Advisor a
certificate signed by two of its executive officers as to the accuracy of the
second sentence of this paragraph at each closing of a sale of the Securities.
It is further understood that the Issuer shall involve the
Advisor in all discussions between the Issuer and potential purchasers and shall
make available to the Advisor all information regarding potential purchasers
that it shall receive from any source whatsoever. The Issuer recognizes and
confirms that the Advisor in acting pursuant to this authorization will be using
information provided by the Issuer and
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David Margolese
CD Radio, Inc.
June 14, 1997
Page 4
that the Advisor does not assume responsibility for the accuracy or completeness
of any such information.
Section 8. Confidentiality. Advisor agrees that all
confidential information which it may now possess or may obtain relating to the
financial condition, results of operations, business properties, assets,
liabilities, or future prospects of the Issuer shall not be published, disclosed
or made accessible by it to any other person or any entity at any time or used
by it without the written consent of the Issuer; provided, however, that the
restrictions of this sentence shall not apply (a) as may otherwise be required
by law, (b) as may be necessary or appropriate in connection with this
Agreement, or (c) to the extent such information shall be or shall have
otherwise become publicly available, including without limitation all
information contained in the Issuer's publicly-available reports and filings
with the Securities and Exchange Commission, if any.
Section 9. Outside Advisors and Conflicts. The Issuer
acknowledges that the Advisor and its affiliates may have and may continue to
have investment banking, broker-dealer and other relationships with parties
other than the Issuer pursuant to which the Advisor may acquire information of
interest to the Issuer. The Advisor shall have no obligation to disclose such
information to the Issuer (except to the extent such information relates
directly to the Issuer or the Securities), or to use such information in
connection with its efforts hereunder.
Section 10. Exclusivity. No other financial advisor or other
entity is or will be authorized by the Issuer during the term of this Agreement
to perform services on its behalf of the type which the Advisor is authorized to
perform hereunder.
Section 11. Notices. All notices and other communications
provided for in this Agreement shall be made by first class mail or telecopier.
All notices to the Issuer shall be delivered at the address shown on the first
page of this agreement or to telecopier number (202) 296-6265. All notices to
the Advisor shall be delivered as follows:
Libra Investments, Inc.
11766 Wilshire Boulevard
Suite 870
Los Angeles, CA 90025
Attn: Jess M. Ravich
Telecopier: (310) 996-9590
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David Margolese
CD Radio, Inc.
June 14, 1997
Page 5
Either party hereto may amend such address or telecopier
information by written notice to the other party delivered as provided in this
Section 11.
Section 12. Third Party Beneficiaries. This Agreement is
intended solely for the benefit of the parties hereto and, with the exception of
the rights and benefits conferred upon the Indemnified Persons by Section 5 of
this Agreement, shall not be deemed or interpreted to confer any rights upon any
third parties.
Section 13. Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of New York without
giving effect to the choice of law or conflict of law principles hereof.
Section 14. Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
Agreement.
Section 15. Complete Agreement; Amendments; Assignment. This
Agreement sets forth the entire understanding of the parties relating to the
subject matter hereof and supersedes and cancels any prior communications,
understandings and agreements between the parties. This Agreement may not be
amended or modified except in writing. The rights of the Advisor hereunder shall
be freely assignable, and this Agreement shall apply to, inure to the benefit of
and be binding upon and enforceable against the Advisor and its successors and
assigns; provided, however, that the Advisor shall not assign this Agreement to
any party that is not an affiliate of the Advisor.
If the foregoing terms meet with your approval, please
indicate your acceptance by signing and returning the attached copy of this
letter to us.
Very truly yours,
LIBRA INVESTMENTS, INC.
By: /s/ Jess M. Ravich
------------------------
Jess M. Ravich
Chairman
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David Margolese
CD Radio, Inc.
June 14, 1997
Page 6
AGREED TO AND ACCEPTED:
CD RADIO INC.
By: /s/ David Margolese
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David Margolese
Chairman and CEO
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EXHIBIT A
The Issuer agrees to indemnify and hold harmless the Advisor,
its affiliates, and each person, if any, who controls the Advisor, or any of its
affiliates, within the meaning of either the Securities Act of 1933, as amended
(the "Act") or the Securities Exchange Act of 1934, as amended (a "Controlling
Person"), and the respective agents, employees, officers and directors of the
Advisor, its affiliates, and any such Controlling Person (each an "Indemnified
Party" and collectively, the "Indemnified Parties"), from and against any and
all losses, claims, damages, liabilities and expenses (including, without
limitation and as incurred, reasonable costs of investigating, preparing or
defending any such claim or action) arising out of, or in connection with any
activities contemplated by the letter to which this Exhibit A is attached or any
other services rendered in connection therewith, including, but not limited to,
losses, claims, damages, liabilities or expenses arising out of or based upon
(i) any untrue statement or any alleged untrue statement of a material fact or
any omission or any alleged omission to state a material fact in any disclosure,
offering, consent solicitation or confidential information documents prepared or
approved by the Issuer (the "Disclosure Documents") pertaining to any of the
transactions or proposed transactions contemplated by such letter (collectively,
the "Transaction"), or (ii) any engagement or retention by the Issuer of any
other person, corporation or entity that has acted or is acting as a finder,
agent, broker, dealer, consultant or advisor to or on behalf of the Issuer with
respect to the activities contemplated by the letter to which this Exhibit A is
attached. The Issuer will not, however, be responsible for any claims,
liabilities, losses, damages or expenses based on statements or omissions made
by an Indemnified Party (or in reliance on information provided by an
Indemnified Party) concerning such Indemnified Party or that have resulted from
such Indemnified Party's willful misconduct or gross negligence. The Issuer also
agrees that (i) no Indemnified Party shall have liability to the Issuer or any
other person in connection with the services rendered pursuant to the agreement
except for claims, liabilities, damages, losses or expenses, including
reasonable legal fees, incurred by the Issuer based on statements or omissions
made by an Indemnified Party (or in reliance on information provided by an
Indemnified Person) concerning such Indemnified Party or that have resulted from
such Indemnified Party's willful misconduct or gross negligence and (ii) in no
event shall the Indemnified Parties be liable, in the aggregate, to the Issuer
or any other person for an amount grater than the fee actually received by the
Advisor pursuant to the letter to which this Exhibit A is attached.
In case any action shall be brought against an Indemnified
Person with respect to which indemnity may be sought against the Issuer under
this agreement, the Indemnified Party shall promptly notify the Issuer in
writing and the Issuer shall, if requested by the Indemnified Party, assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Issuer shall not affect any obligations the Issuer may
have to the Indemnified Parties under this letter
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2
agreement or otherwise unless the Issuer is materially adversely affected by
such failure.
If for any reason the foregoing indemnity is unavailable to an
Indemnified Party or insufficient to hold an Indemnified Party harmless, then in
lieu of indemnifying such Indemnified Party, the Issuer shall contribute to the
amount paid or payable by such Indemnified Party as a result of such claims,
liabilities, losses, damages, or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Issuer on the one
hand and by the Advisor on the other from the Transaction or (ii) if the
allocation provided by clause (i) is not permitted under applicable law, in such
proportion as is appropriate to reflect not only the relative benefits received
by the Issuer on the one hand and the Advisor on the other, but also the
relative fault of the Issuer and the Advisor as well as any other relevant
equitable considerations. It is hereby further agreed that the relative benefits
to the Issuer on the one hand and the Advisor on the other with respect to any
Transaction shall be deemed to be in the same proportion as (i) the principal
amount of the Securities sold in the Transaction bears to (ii) the fees paid to
the Advisor with respect to such Transaction. The relative fault of the Issuer
on the one hand and the Advisor on the other with respect to the Transaction
shall be determined by reference to, among other things, whether any untrue or
alleged untrue statement of material fact or the omission or alleged omission to
state a material fact related to information supplied by the Issuer or by the
Advisor and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Notwithstanding
anything to the contrary in the provisions of this Exhibit A, the aggregate
contribution of all Indemnified Parties shall not exceed the amount of fees
actually received by the Advisor pursuant to the letter to which this Exhibit A
is attached. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent representation.
The indemnity, contribution and expense reimbursement
obligations set forth herein (i) shall be in addition to any liability the
Issuer may have to any Indemnified Party at common law or otherwise, (ii) shall
survive the conclusion of the Advisor's services in connection with the
Transaction and (iii) shall remain operative and in full force and effect
regardless or any investigation made by or on behalf of the Advisor or any other
Indemnified Party.
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APPENDIX A
SUMMARY TERM SHEET/COMMITMENT
ISSUER: CD Radio Inc. (the "Company")
ISSUE: Convertible Preferred Stock (the "Preferred")
PRINCIPAL AMOUNT: Up to a Maximum of $150 million
MATURITY: 10 years
CONVERTIBLE: Any time after closing, at a price of
$21.00; provided, however, that the conversion price
will reset to market price if on the 4th anniversary of
the issuance of the Preferred the market price of the
common stock of the Company (as so defined) is below
$21.00; provided further that in no event shall the
reset be below $10.00. (For the purpose hereof, the
term "market price" shall mean the average of the
closing prices of the Company's common stock for the 20
trading days ending 5 days prior to the 4th
anniversary.)
OPTIONAL REDEMPTION: Non-call for first three years.
During years four and five, callable at par plus
accrued but unpaid dividends if the closing market
price of the Company's Common Stock exceeds $31 1/2per
share for 20 trading days out of any 30 consecutive
trading days. Thereafter, callable at anytime at par
plus accrued but unpaid dividends.
DIVIDEND RATE: 5% PIK or cash, at the Company's option.
RANKING: The Preferred will be junior to all debt (bank
debt, high- yield offering), but senior to the common
equity. (The foregoing ranking is not intended to
constitute a restriction on other financings by the
Company.)
COVENANTS: None
PLACEMENT FEE: 3% of the gross proceeds payable to
Libra Investments, Inc. upon closing; provided, that
such fee shall be 1.875% of gross proceeds with respect
to the first
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$50,000,000 of Preferred purchased by the Everest
Funds.
COMMITMENT: Everest Capital International, Ltd.,
Everest Capital Fund L.P. and other entities managed by
Everest Capital Limited (collectively the "Everest
Funds") and The Ravich Revocable Trust of 1989
("Ravich" together with the Everest Funds, the "Buyer")
will commit to buy $50 million and $2 million (the
committed amounts), respectively, of the Preferred (by
either exchanging shares of the Company's 5% Delayed
Convertible Preferred Stock (the "Delayed Preferred
Stock") having an Exchange Value (see below) equal to
the foregoing amount or by paying in cash) and the
Company will commit to sell such amounts simultaneous
with the closing of any financing (not including this
financing up to an amount equal to the Liquidation
Preference of all outstanding Delayed Preferred Stock
divided by 72.125%) yielding "new money" gross proceeds
equal to or in excess of $150 million completed on or
prior to November 15, 1997 (the "New Financing" and
such date shall be referred to as the "New Financing
Date"); provided, that it shall be a condition of the
Buyers' obligation that (a) all Delayed Preferred Stock
is redeemed or converted on or prior to the New
Financing Date, and (b) a mutually agreeable (it being
understood that an expert chosen by any of Morgan,
Stanley & Co., Donaldson Lufkind & Jenrette, Lehman
Brothers, Inc., Merrill, Lynch, Pierce, Fenner & Smith
or Bear Stearns & Co. shall be deemed to be mutually
agreeable) third party expert verify to Buyers that the
system (e.g. only two satellites and limited
terrestrial repeaters) of delivering digital audio to
automobiles, as described in its business plan
(including, but not limited to, being able to reach at
least 90% of the United States population), is
technically feasible; and provided further, that, if in
connection with the New Financing, any common stock,
securities convertible or exchangeable into common
stock or warrants (each an "Equity Equivalent") is sold
or given in conjunction with such New Financing where
the lowest of the (i) sale price, (ii) conversion
price, (iii) "market price" (as defined above) of the
common stock measured over the 20 trading days prior to
the date of such sale or (iv) exercise price (the
"Equity Equivalent Price") is less than $21.00 per
share of common stock,
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then the conversion price of the Preferred shall be
reset (but never above $21.00) to the Equity Equivalent
Price; and provided further that in lieu of purchasing
the Preferred the Buyers, at their option, may purchase
a like amount of the Equity Equivalent.
EVEREST OPTION: The Everest Funds shall have the option
to increase its commitment (on the same terms as herein
provided) to $98 million provided it gives written
notice to the Company on or before July 3, 1997 (the
"Everest Option"). The Everest Option shall not be
transferable.
LISTING: The Company undertakes to list the Preferred
on the same exchange on which the Company's common
stock trades.
COMMITMENT FEE: Upon execution of this Commitment Term
Sheet (or as soon thereafter as practical), the Company
will issue to the Everest Funds and Ravich 1,560,000
(or, if the Everest Option is exercised 1,560,000 times
the total amount committed by the Everest Funds and
Ravich divided by $52 million) eight-year warrants to
purchase common stock at a price of $50.00 per share,
allocable pro rata between the Everest Funds and
Ravich based on amounts purchased. The Warrants shall
not be exercisable until the date one year after
execution of this Commitment Term Sheet, at which date
they shall become exercisable for the remainder of
their term. The Warrants shall contain customary terms
and conditions, and shall be callable by the Company
after three years at a price of $0.01 per warrant if
the closing market price of the Company's Common Stock
exceeds $75.00 per share for at least 20 trading days
in any 30 consecutive trading day period after three
years from the date of issuance. In addition to the
Warrants, the Company shall pay the Everest Funds a
cash commitment fee equal to $562,500, payable upon
closing of Everest's purchase of at least $50,000,000
of Preferred (whether through purchase for cash or by
exchanging Delayed Preferred Stock).
STANDSTILL AGREEMENT OF
EVEREST FUNDS: The following limitations (the "Standstill Agreement")
apply to the Everest Funds and their affiliates, and to
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certain transferees. Until the date one year after
execution of this Commitment Term Sheet, the Everest
Funds and their affiliates (i) shall not acquire common
stock, including by means of conversion of the
Preferred or Delayed 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 outstanding class of 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, Preferred or Delayed 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
outstanding class of stock, except for a sale or
disposition of Warrants, Preferred and/or Delayed
Preferred Stock to a purchaser who, for itself and its
affiliates, agrees to be bound by the limitations set
forth in this Standstill Agreement. Except as provided
otherwise in the parenthetical language in clause (i)
above, terms and concepts used in this Standstill
Agreement shall have the meanings set forth in Section
13(d) of the Securities Act of 1934 and the rules and
regulations thereunder.
EXCHANGE VALUE: "Exchange Value" shall be defined as 1.3865 times the
Liquidation Preference of the Delayed Preferred Stock
being exchanged (including accrued but unpaid dividends
and fees, if any).
EXCHANGE OFFER/
REGISTRATION RIGHTS: Within 180 days after the New Financing Date,
the Company shall use its best efforts to file
with the SEC, if permitted by then applicable
interpretations of the SEC staff, a
registration statement with respect to an
offer to exchange the Preferred (the "Exchange
Offer") for preferred stock of the Company
with identical terms to the Preferred (other
than restrictions on transfer) and convertible
into registered shares of Common Stock. The
Company shall also use its best efforts to
cause such registration statement to
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become effective, and to obtain all other
necessary approvals, including the FCC (if
applicable), within 90 days of such filing
with the SEC. The Everest Funds and Ravich
understand that such SEC Staff interpretations
currently would not permit the Company to
undertake the Exchange Offer as contemplated
above. In the event applicable interpretations
of the staff of the SEC do not permit the
Company to effect the Exchange Offer, or if
for any other reason the Exchange Offer is not
consummated, the Company will use its best
efforts to a) within 180 days after the New
Financing Date, file a shelf registration
statement with respect to resales of the
Preferred and the shares issuable upon
conversion of the Preferred, and (b) within 90
days of such filing with the SEC, cause such
registration to become effective and to obtain
all other necessary approvals, including the
FCC (if applicable). The parties shall enter
into a registration rights agreement with
respect to the foregoing containing customary
terms, conditions and indemnities, including
without limitation provision for reasonable
cash penalties for failure to timely comply
with the foregoing obligations.
WARRANT
REGISTRATION RIGHTS: Within 180 days after the New Financing Date,
the Company shall use its best efforts to
register for resale the shares of common stock
issuable upon exercise of the Warrants with
the SEC pursuant to a shelf registration on
Form S-3 (if available) or Form S-1 (if Form
S-3 is not available) and to obtain all other
necessary approvals, including the FCC (if
applicable), for the resale of such shares.
The parties shall enter into a registration
rights agreement with respect to such
registration containing customary terms,
conditions and indemnities, including without
limitation provision for reasonable cash
penalties for failure to timely register the
shares.
CONDITIONAL OPTION
TO EXCHANGE FOR
5
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CONVERTIBLE DEBT: If at any time within six months after the New
Financing Date, the Company raises not less than $75
million in gross proceeds from the sale of common stock
(and/or convertible preferred stock provided that such
convertible preferred stock shall not have a reset and
provided further that in either instance no additional
equity securities are granted along with such common
stock or convertible preferred stock) (the "Equity
Sale"), the Company shall have the option, exercisable
not earlier than 187 days nor later than 200 days after
the New Financing Date, to require the conversion of
all or any portion of the Preferred into convertible
subordinated debt (the "Convertible Debt".) The
Convertible Debt shall have the same terms and
conditions as the Preferred (e.g. 10 year term
(commencing from the New Financing Date), same
conversion privileges, etc.) except that (i) interest
must either be paid in cash at 8% or PIKed at 10% (with
such PIK option being available for only the first 3
years), (ii) the conversion price shall reset (but
never above $21.00) to the price at which the stock is
sold in the Equity Sale (or, if the sale is of
convertible preferred stock, the conversion price shall
reset (but never above $21.00) to the "market price"
(as defined above) of the common stock measured over
the 20 trading days prior to the date of such sale),
and (iii) the conversion price shall not be reset to
market on the 4th anniversary.
STOCK SPLITS/
COMBINATIONS: All share amounts and share prices set
forth herein shall be appropriately adjusted for any
stock splits, stock dividends, stock combinations and
the like occurring after the date hereof.
CONDITIONS: The Company's obligations hereunder are subject to the
following conditions:
a) shareholder approval of the issuance of
the Preferred, if required to list the
Preferred, or to maintain the listing of
the Common, on the Nasdaq Small Cap
Market, and
b) FCC approval, if required to issue the
Preferred or Common Stock upon
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conversion of Preferred or exercise of
Warrants
; provided that (i) the Company shall use
its best efforts to cause the foregoing
conditions to be fulfilled as promptly as
reasonably practicable, and (ii) David
Margolese and Darlene Friedland agree to
cause all shares of Company stock held by
them or over which they exercise voting
control to approve the matter described in
subpagraph (a) above and to require any
transferees of their stock to so vote such
stock, it being understood that Friedland
and Margolese, taken together, currently
hold approximately 43% of the outstanding
common stock of the Company.
AMENDMENT TO
DELAYED PREFERRED
STOCK AGREEMENT: Each of the Everest Funds and Ravich will
cause all shares of Delayed Preferred Stock
held by them or over which they exercise
voting power to consent to the following
amendments to the terms of the Delayed
Preferred Stock if so requested by
the Company:
a) amend the definition of Qualifying
Offering in Section 3(e)(i) of the
Certificate of Designations of the
Delayed Preferred Stock to include the
offering of any securities of the
Company in an offering which is either
registered under the Securities Act of
1933 or exempt from registration
thereunder for net proceeds of not
less than $100 million; and
b) change the date "October 15, 1997"
in such Section 3(e)(i) to "November
15, 1997."
BINDING COMMITMENT: The obligations of the signatories hereto
shall not be subject to any conditions or
exceptions other than those expressly set
forth herein. As soon as practicable after
the signing of this Commitment Term Sheet,
the number of shares of Delayed Preferred
Stock to be exchanged by the Everest Funds
and Ravich shall be deposited with an escrow
agent acceptable to the parties pursuant
to a stock exchange agreement reflecting
the terms and
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<PAGE>
conditions of this Commitment Term Sheet and
other customary terms and conditions, or, in
the absence of such an agreement, this
Commitment Term Sheet shall constitute a
binding agreement for the transactions
contemplated hereby. This Commitment Term
Sheet may be executed in any number of
counterparts, all of which taken together
constitute a single agreement.
Date: June 15, 1997 Everest Capital International, Ltd.
Everest Capital Fund, L.P.
By: /s/ M. Dimitrijevic
--------------------------
Marko Dimitrijevic
Ravich Revocable Trust of 1989
By: /s/ Jess M. Ravich
--------------------------
Jess M. Ravich, Trustee
CD Radio Inc
By: /s/ David Margolese
--------------------------
David Margolese, Chairman
and Chief Executive Officer
8
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Agreement of Stockholders
The undersigned stockholders of CD Radio Inc. hereby agree to
be bound by the provisions set forth in clause (ii) of the proviso in the
section captioned "Conditions" in the above Summary Term Sheet.
/s/ David Margolese
- ----------------------
David Margolese
/s/ Darlene Friedland
- ----------------------
Darlene Friedland
9
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Exhibit 10.26.2
LIBRA INVESTMENTS, INC.
11766 Wilshire Boulevard
Suite 870
Los Angeles, CA 90025
August 6, 1997
CD RADIO, INC.
Sixth Floor
1001 22nd Street, N.W.
Washington, D.C. 20037
Attn: Mr. David Margolese
Dear David:
I understand from David Batchelder and John Sullivan that
Merrill Lynch has been selected to act as CD Radio's dealer manager in
connection with the proposed exchange of new preferred stock for the 5% Delayed
Convertible Preferred Stock placed by Libra.
As you may recall, Libra was previously engaged by CD Radio on
an exclusive basis pursuant to an agreement dated June 14, 1997 in respect of a
contemplated private placement of preferred stock of CD Radio. In order for CD
Radio to avoid any problems resulting from these potentially conflicting
engagements, we would be willing to terminate the June 14, 1997 engagement
agreement as explained below.
In view of the foregoing, we hereby confirm our agreement with
CD Radio that (i) the June 14, 1997 engagement agreement be terminated,
effective as of the date hereof, (ii) Sections 3, 5, 6 and 9 of the engagement
agreement shall survive such termination, and (iii) CD Radio shall be obligated
to pay Libra a fee of $1,237,500 (x) upon closing of any purchases of new
preferred stock (or other security proposed by CD Radio, such as convertible
debt) and/or exchanges of 5% Preferred Stock by Everest Capital International,
Ltd., Everest Capital Fund, L.P., other entities managed by Everest Capital
Limited and the Ravich Revocable Trust of 1989, whether on the terms described
in the Summary Term Sheet/Commitment pursuant to some modification thereof that
may be agreed to by CD Radio and such
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2
purchasers, or on some other basis, or (y) upon a negotiated termination of the
commitments of such purchasers under the June 15, 1997 Summary Term
Sheet/Commitment on terms agreed upon by the Company and the purchasers, and
(iv) CD Radio shall not be obligated to pay Libra any fees with respect to
purchases of new preferred stock by any other purchasers, whether or not such
other purchasers were contacted by Libra during the term of its engagement.
Please confirm your agreement to the foregoing by signing this
letter in the place indicated below.
Very truly yours,
LIBRA INVESTMENTS, INC.
By: /s/ Jess M. Ravich
--------------------------
Jess M. Ravich, Chairman
and Chief Executive Officer
Accepted and agreed:
CD RADIO, INC.
By: /s/ David Margolese
-------------------------------
David Margolese, Chairman
and Chief Executive Officer
cc: David Batchelder
John Sullivan
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Exhibit 10.27
Investment Banking Group
World Financial Center
North Tower
New York, New York 10281-1329
212 449-1000
[LOGO] Merrill Lynch
October 8, 1997
CD Radio Inc.
1001 22nd Street N.W., Sixth Floor
Washington, D.C. 20037
Attention: Andrew Greenebaum
Ladies and Gentlemen:
You have advised Merrill Lynch & Co. ("Merrill Lynch") that CD Radio
Inc. (the "Company") plans to raise capital to finance the construction of
satellites, for working capital and for other uses in connection with its
digital radio broadcasting business (the "Financing"). Merrill Lynch has been
asked by you to (i) act as financial advisor to the Company in connection with
the Financing, (ii) act as lead underwriter in a proposed public offering or
lead manager in a private placement of senior notes and, if required by market
conditions, warrants (the "Debt Offering"), with estimated gross proceeds of
$150 million, (iii) act as lead underwriter in a proposed public offering of
equity securities (the "Equity Offering"), with estimated gross proceeds of $75
million, and (iv) advise on the terms of, and act as dealer-manager with respect
to, a proposed offer to exchange for common stock and/or new preferred stock
and/or to redeem for cash (the "Exchange Offer") the Company's outstanding 5%
Delayed Convertible Preferred Stock (the "Preferred Stock"). In addition to the
Debt Offering and the Equity Offering, you have advised us that you may wish to
conduct other financings consisting of either debt or equity securities (but
excluding securities issued to a strategic investor in connection with an equity
investment) (together with the Debt Offering and the Equity Offering, the
"Offerings"), with Merrill Lynch acting as lead underwriter or placement agent
in connection therewith. This letter agreement is to confirm our understanding
with respect to our engagement.
You agree to give Merrill Lynch the right to act as the lead
underwriter or placement agent for the Company in connection with the Offerings
and exclusive dealer-manager with respect to the Exchange Offer.
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2
You agree to pay, or cause to be paid, to the underwriters, including
Merrill Lynch, (i) a fee of 3.50% of the gross proceeds from the issuance and
sale of securities in the Debt Offering lead managed by Merrill Lynch and (ii) a
fee of 6.50% of the gross proceeds from the issuance and sale of securities in
the Equity Offering lead managed by Merrill Lynch. In addition, you agree to
pay, or cause to be paid, to Merrill Lynch (i) fees as described in the
preceding sentence and in the second following paragraph in connection with any
other Offering that occurs prior to December 31, 1997 and (ii) fees to be
mutually agreed to by Merrill Lynch and the Company in connection with any other
Offering (other than an offering in which Merrill Lynch declines to participate)
that occurs thereafter and prior to the termination of this letter agreement.
The fees referred to in this paragraph are payable in cash in U.S. dollars upon
the closing of the issuance and sale of securities in connection with the
applicable Offering.
You also agree to pay, or cause to be paid, to Merrill Lynch a fee
equal to 2.0% of (a) the per share liquidation preference of any 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.
In addition, you agree that in connection with the Debt Offering and
any future debt offerings contemplated by this agreement ("Future Debt
Offerings"), the underwriting syndicate or private placement arrangement, as the
case may be, will be structured so that the portion of all underwriting
discounts and commissions or placement agency fees and commissions relating to
the Debt Offering and any Future Debt Offerings allocable to Merrill Lynch shall
be no less than 70% and 50%, respectively.
This letter agreement is not intended to constitute, and should not be
construed as an agreement or commitment between the Company and Merrill Lynch to
act as underwriter or agent in any Offering, to purchase or place any debt or
equity securities of the Company, or to act as dealer-manager with respect to
the Exchange Offer. If the Company determines to undertake an Offering or the
Exchange Offer, the contractual arrangements will be reflected in one or more
mutually satisfactory underwriting, purchase, dealer-manager or other agreements
between the Company and Merrill Lynch. The Company acknowledges that it will
have no obligation to sell, and Merrill Lynch will have no obligation to buy or
place, any debt or equity securities of the Company, except upon signing of a
definitive underwriting, purchase or other agreement by the Company and Merrill
Lynch. Merrill Lynch's execution of any such agreement or any dealer-manager
agreement will be subject in its complete discretion to, among other things,
satisfactory completion of a due diligence review, the receipt of all necessary
approvals (including Merrill Lynch's internal commitment committee approval),
market conditions which, in Merrill Lynch's sole judgment are satisfactory, no
material adverse change in the condition, financial or otherwise, of
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3
the Company and upon compliance by the Company with the terms contained in this
letter agreement and such definitive underwriting, purchase or other agreement.
Such underwriting, purchase or other agreement will include the final terms of
any Offering, including the transaction size and pricing terms, as well as other
customary terms and conditions, including provisions relating to indemnity,
conditions precedent for the agreement to become effective, and certain
termination events.
You will furnish or cause to be furnished to Merrill Lynch such
information as Merrill Lynch believes appropriate to its assignment (all such
information so furnished being the "Information"). You recognize and confirm
that Merrill Lynch (a) will use and rely primarily on the Information and on
information available from generally recognized public sources in performing the
services contemplated by this letter agreement without having independently
verified the same, (b) does not assume responsibility for the accuracy or
completeness of the Information and such other information and (c) will not make
an appraisal of any assets or liabilities of the Company. You will promptly
advise Merrill Lynch in writing if you become aware that any Information
previously provided has become inaccurate in any material respect or is required
to be updated.
You agree to indemnify Merrill Lynch and its affiliates, directors,
officers, employees, agents and controlling persons (each such person being an
"Indemnified Party") from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under any applicable law, domestic or foreign, or otherwise, and related
to or arising out of (i) any untrue statement or alleged untrue statement of a
material fact contained in any information (whether oral or written) or
documents, including, without limitation, any Information, furnished or made
available by the Company, directly or through Merrill Lynch, to any offeree of
securities included in any Offering or in the Exchange Offer or any of their
representatives or the omission or the alleged omission to state therein 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 (ii) any
matters contemplated hereby or the appointment of Merrill Lynch pursuant to, and
the performance by Merrill Lynch of the services contemplated by, this letter
agreement and will promptly reimburse any Indemnified Party for all expenses
(including reasonable counsel fees and expenses) as they are incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party and whether or not such claim, action or
proceeding is initiated or brought by or on behalf of the Company except as
otherwise provided in the immediately following sentence. The Company will not
be liable under clause (ii) of the foregoing indemnification provision to any
Indemnified Party to the extent that any loss, claim, damage, liability or
expense is found in a final, non-appealable judgment by a court to have resulted
from the bad faith or gross negligence of such Indemnified Party. You also agree
that no Indemnified Party shall have any liability (whether direct or indirect,
in contract or tort or otherwise) to you or your respective affiliates or
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4
security holders or creditors 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 letter agreement except to the extent that any loss,
claim, damage, liability or expense is found in a final, non-appealable judgment
by a court to have resulted from the bad faith or gross negligence of such
Indemnified Party.
If the indemnification of an Indemnified Party provided for in this
letter agreement is for any reason held unenforceable, you agree to contribute
to the losses, claims, damages and liabilities for which such indemnification is
held unenforceable (i) in such proportion as is appropriate to reflect the
relative benefits to the Company, on the one hand, and Merrill Lynch, on the
other hand, from the Offerings and the Exchange Offer (whether or not such
Offerings or the Exchange Offer are consummated) or (ii) if (but only if) the
allocation provided for in clause (i) is for any reason held unenforceable, 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 hand, as well as any other relevant
equitable considerations. You also agree that for the purposes of this paragraph
the relative benefits to the Company, on the one hand, and to Merrill Lynch, on
the other hand, shall be deemed to be in the same proportion as the anticipated
or actual total proceeds from the proposed sale or placement of the securities
received or to be received by the Company in connection with the Offerings and
the Exchange Offer bears to the fees paid or to be paid to Merrill Lynch under
this letter agreement; provided, however, that, to the extent permitted by
applicable law, in no event shall the Indemnified Parties be required to
contribute an aggregate amount in excess of the aggregate fees actually paid to
Merrill Lynch under this letter agreement. The foregoing contribution agreement
shall be in addition to any rights that any Indemnified Party may have at common
law or otherwise. No investigation or failure to investigate by any Indemnified
Party shall impair the foregoing indemnification and contribution agreement or
any right an Indemnified Party may have.
You agree to notify Merrill Lynch promptly of the assertion against the
Company, Merrill Lynch or any other person of any claim or the commencement of
any action or proceeding relating to a transaction contemplated by this letter
agreement or Merrill Lynch's engagement hereunder, and Merrill Lynch agrees to
notify you promptly after receipt of notice of any claim or the commencement of
any action or proceeding with respect to which an Indemnified Party may be
entitled to indemnification hereunder. The failure of Merrill Lynch to so notify
the Company shall not affect any liability of the Company to Merrill Lynch or
any other Indemnified Party.
You agree that, without Merrill Lynch's prior written consent, you will
not settle, compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding in respect of which indemnification could
be sought under the indemnification provision of this letter agreement (whether
or not Merrill Lynch or any other Indemnified Party is an actual or potential
party to such
<PAGE>
<PAGE>
5
claim, action or proceeding), unless such settlement, compromise or consent
includes an unconditional release of each Indemnified Party from all liability
arising out of such claim, action or proceeding.
In the event that an Indemnified Party is requested or required to
appear as a witness in any action brought by or against the Company or any of
its affiliates in which such Indemnified Party is not named as a defendant, you
agree to reimburse Merrill Lynch for all expenses incurred in connection with
such Indemnified Party's appearing and preparing to appear as a witness,
including, without limitation, the reasonable fees and disbursements of legal
counsel, and to compensate Merrill Lynch in an amount to be mutually agreed
upon.
You agree that the indemnification and contribution provisions
contained herein are in addition to any indemnification or contribution
contained in any private placement agency agreement or any purchase or
underwriting agreement between you and Merrill Lynch.
You acknowledge and agree that Merrill Lynch has been retained solely
to act as financial advisor to the Company as provided herein and potentially to
act as lead placement agent or underwriter in connection with the Offerings and
as exclusive dealer-manager with respect to the Exchange Offer. 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 letter agreement
shall be owed solely to the Company.
Merrill Lynch's engagement hereunder will terminate on January 31,
1998; provided, however, that if, by or on such date, an Offering or the
Exchange Offer has been consummated, then such engagement shall remain in effect
for 18 months from the date of this letter agreement; further provided that
Merrill Lynch may terminate this letter agreement at any time upon written
notice thereof to that effect and the Company may terminate this letter
agreement at any time if an officer of Merrill Lynch who (i) works in Merrill
Lynch's Investment Banking division and (ii) has material responsibilities in
connection with the relationship between the Company and Merrill Lynch ceases to
be an employee of, or otherwise affiliated with, Merrill Lynch. The Company may
also terminate this letter agreement prior to January 31, 1998 if Merrill Lynch
is not proceeding in good faith with the completion of the Offerings. In
addition, if at any time following consummation of any Offerings or the Exchange
Offer, Merrill Lynch declines any proposal of the Company to proceed with a
transaction contemplated by this letter agreement, the Company may pursue the
completion of such transaction without the participation of Merrill Lynch.
Notwithstanding the foregoing, the provisions contained herein relating to the
right of Merrill Lynch to the payment of fees, to indemnification and
contribution and to the waiver of right to trial by jury will survive any such
termination. The provisions of this letter agreement shall be superseded by any
private placement agency agreement or any purchase or underwriting agreement, as
the case may be, relating to an Offering to the extent provided therein.
<PAGE>
<PAGE>
6
Each of Merrill Lynch and you (on your own behalf and, to the extent
permitted by applicable law, on behalf of your affiliates and your and their
respective security holders) waives 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 letter
agreement.
You acknowledge that Merrill Lynch may, at its option, place an
announcement in such newspapers and periodicals as it may choose, stating that
Merrill Lynch has acted as the placement agent or underwriter for the Company in
connection with any Offering or the financial advisor to the Company in
connection with the Exchange Offer.
You agree that, except as required by applicable law in the opinion of
your counsel or unless Merrill Lynch has otherwise consented in writing, you
will not disclose, provide a copy of or circulate this letter to any person or
entity or reference Merrill Lynch or the fees payable to Merrill Lynch in any
offering circular, registration statement or other disclosure document, or in
any press release or other document or communication.
No waiver, amendment or other modification of this letter agreement
shall be effective unless in writing and signed by each party to be bound
thereby.
This letter agreement shall be governed by, and construed in accordance
with, the law of the State of New York.
<PAGE>
<PAGE>
7
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Merrill Lynch the duplicate copy of this letter
agreement enclosed herewith. We look forward to the successful conclusion of
this assignment.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Robert Kramer
-----------------------------
Name: Robert Kramer
Title: Managing Director
Investment Banking Group
Accepted and Agreed:
CD RADIO INC.
By: /s/ Andrew J. Greenebaum
--------------------------------------
Name: Andrew J. Greenebaum
Title: Executive Vice President
and Chief Financial Officer
<PAGE>
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Net Loss.......................................................................... $ (4,737)
Deemed dividend on 5% delayed convertible preferred stock......................... (51,975)
Dividend on 10.5% convertible preferred stock..................................... (2,338)
--------
Coverage deficiency............................................................... $(59,050)
--------
--------
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 21.1
LIST OF THE COMPANY'S SUBSIDIARIES
Satellite CD Radio, Inc.
Jurisdiction of incorporation: Delaware
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of CD Radio Inc. and Subsidiary on Form S-8 (File No. 33-92588, File No.
33-95118, and File No. 333-15085) of our report dated March 3, 1998, on our
audits of the consolidated financial statements of CD Radio Inc. and Subsidiary
as of December 31, 1996 and 1997, for the years ended December 31, 1995, 1996
and 1997, and for the period May 17, 1990 (date of inception) to December 31,
1997, which report is included in this Annual Report on Form 10-K.
/S/ COOPERS & LYBRAND
.......................
COOPERS & LYBRAND L.L.P.
McLean, Virginia
March 18, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 170,381,220
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 171,309,288
<PP&E> 60,674,013
<DEPRECIATION> 243,031
<TOTAL-ASSETS> 323,807,461
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 16,049
110,237,336
0
<OTHER-SE> 102,687,033
<TOTAL-LIABILITY-AND-EQUITY> 323,807,461
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,864,648
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,945,963
<INCOME-PRETAX> (4,736,802)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,736,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,736,802)
<EPS-PRIMARY> (5.08)
<EPS-DILUTED> (5.08)
</TABLE>
