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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1999
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CD RADIO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4899 52-1700207
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
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1221 AVENUE OF THE AMERICAS
36TH FLOOR
NEW YORK, NEW YORK 10020
212-584-5100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PATRICK L. DONNELLY
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CD RADIO INC.
1221 AVENUE OF THE AMERICAS
36TH FLOOR
NEW YORK, NEW YORK 10020
212-584-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
MITCHELL S. FISHMAN
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
212-373-3000
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE(2)
14 1/2% Senior Secured Notes due 2009....... $200,000,000 $843.09 $168,618,000 $46,875.80
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457 of the Securities Act of 1933.
(2) The registration fee has been calculated in accordance with Rule 457(f)(2)
under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE AMENDED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 2, 1999
PRELIMINARY PROSPECTUS
CD RADIO
EXCHANGE OFFER FOR $200,000,000 OF ITS
14 1/2% SENIOR SECURED NOTES DUE 2009
TERMS OF THE EXCHANGE OFFER
It will expire at 5:00 p.m., New York City time, on 1999,
unless we extend it.
If all the conditions to this exchange offer are satisfied, we will
exchange all old notes that are validly tendered and not withdrawn.
You may withdraw your tender of old notes at any time before the
expiration of this exchange offer.
The exchange notes that we will issue you in exchange for your old notes
will be substantially identical to your old notes except that, unlike your
old notes, the exchange notes will have no transfer restrictions or
registration rights.
The exchange notes that we will issue you in exchange for your old notes
are new securities with no established market for trading.
BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, PLEASE REFER TO THE SECTION IN
THIS PROSPECTUS ENTITLED 'RISK FACTORS' COMMENCING ON PAGE 12.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
The date of this prospectus is , 1999.
------------------------
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TABLE OF CONTENTS
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PAGE
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Summary..................................................... 3
Risk Factors................................................ 12
Use of Proceeds............................................. 24
Capitalization.............................................. 26
Selected Historical Financial Data.......................... 27
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
Business.................................................... 35
Management.................................................. 53
Certain Relationships and Related Transactions.............. 55
Security Ownership of Certain Beneficial Owners and
Management................................................ 55
The Exchange Offer.......................................... 59
Description of the Notes.................................... 66
Description of Other Indebtedness........................... 103
Certain United States Federal Income Tax Considerations..... 105
Plan of Distribution........................................ 109
Legal Matters............................................... 109
Experts..................................................... 109
Where You Can Obtain Additional Available Information....... 109
Incorporation by Reference.................................. 110
Index to Consolidated Financial Statements.................. F-1
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SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before you participate in this exchange offer. You should read
this entire prospectus carefully, including the 'Risk Factors' section. The term
'initial notes' refers to the 14 1/2% Senior Secured Notes due 2009 that were
issued on May 18, 1999. The term 'exchange notes' refers to the 14 1/2% Senior
Secured Notes due 2009 offered by this prospectus. The term 'notes' refers to
the initial notes and the exchange notes, collectively.
ABOUT OUR BUSINESS
We are building a digital quality radio service with up to 100 channels to
be broadcast directly from satellites to vehicles. CD Radio will be broadcast
throughout the continental United States, over a frequency band, the 'S-band,'
that will augment traditional AM and FM radio bands. We hold one of only two
licenses issued by the Federal Communications Commission (the 'FCC') to build,
launch and operate a national satellite radio broadcast system. Under our FCC
license, we have the exclusive use of a 12.5 megahertz ('MHz') portion of the
S-band for this purpose. Our service, which will be primarily for motorists,
will offer 50 channels of commercial-free, digital quality music programming and
up to 50 channels of news, sports, talk and entertainment programming. We
currently expect to commence CD Radio broadcasts at the end of the fourth
quarter of 2000, at a subscription price of $9.95 per month.
As an entertainment company, we intend to design and originate programming
on each of our 50 commercial-free music channels. Each channel will be operated
as a separate radio station with a distinct format. These formats will include a
variety of classical, popular, rock, jazz, soul, contemporary, Latin, country,
alternative and children's music. The actual formats will be determined before
the launch of the service and may be varied from time to time to optimize
customer satisfaction. Some of the music channels will offer continuous music
while others will have program hosts, depending on the type of music
programming.
Programming on our non-music channels will be provided by third parties,
and to date we have entered into programming agreements with content providers
for 25 of these channels, including Bloomberg News Radio, C-SPAN, Sports Byline
USA, National Public Radio, Public Radio International, Classic Radio, Hispanic
Radio Network, World Radio Network, Speedvision Radio and Outdoor Life Radio. A
majority of our non-music channels will contain advertising, which will augment
our subscription revenue. These channels will include news and talk shows and
special interest programming directed to a diverse range of groups, including
sports enthusiasts, Hispanic listeners and truck drivers.
On June 11, 1999, we entered into an agreement with Ford Motor Company
which anticipates Ford manufacturing, marketing and selling vehicles that
include receivers capable of receiving the CD Radio broadcasts.
We have also established relationships with major industry suppliers to
design and/or develop the most important elements of our system:
SPACE SYSTEMS/LORAL, INC. ('Loral') is constructing and will launch and
deliver our satellites in-orbit and checked-out. Loral is a leading full-service
provider of commercial satellite systems and services. Loral has scheduled the
launch of our satellites for January, March and May of 2000 on Proton launch
vehicles.
LUCENT TECHNOLOGIES, INC. is developing and will manufacture a custom
designed chip set, the essential element of CD Radio receivers, to perform all
of the digital signal processing of CD Radio's broadcasts. Lucent has agreed to
use commercially reasonable efforts to deliver commercial quantities of the chip
set by June 2000.
DELCO ELECTRONICS CORPORATION is designing and developing and has agreed to
manufacture three-band receivers and satellite antennas for sale to major
automotive manufacturers. Delco is
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the world's largest producer of audio systems for original automotive equipment
manufacturers and is a leader in mobile communications technology. Delco has
agreed to complete the design and development work and have three-band receivers
and antennas available for sale to automobile manufacturers by March 2001.
RECOTON CORPORATION is designing and developing FM modulated receivers,
radio cards and hard-wired and wireless satellite antennas. Recoton, the owner
of the Jensen, Advent, AR/Acoustic Research and InterAct brands, is the third
largest producer of aftermarket car stereos sold in the U.S. and has one of the
largest distribution systems for automotive consumer electronics, with over
30,000 points of presence. Recoton has agreed to deliver prototypes of these
receivers and antennas shortly after Lucent delivers a prototype of the chip
set, which is expected to be in the second quarter of 2000.
THE CD RADIO DELIVERY SYSTEM
The CD Radio delivery system will consist of three principal components:
THE SATELLITES. To provide CD Radio, we have contracted with Loral to build
four satellites, to arrange for launch service providers to launch three of
these satellites and to deliver the three launched satellites, in-orbit, by June
30, 2000. We intend to hold the fourth satellite as a ground spare.
Our satellites will incorporate a design which will act as a 'bent pipe,'
relaying received signals directly to the ground. Our satellites will not
contain on-board processors. All of our processing operations will be on the
ground where they are accessible for maintenance and continuing technological
upgrade without the need to launch replacement satellites.
In May 1998, we announced our plan to change the orbital location of our
satellites from geostationary orbits over the equator to inclined elliptical
orbits. This modification will allow our satellites to maximize the time spent
over the continental United States, which will permit us to fully utilize the
bandwidth allocated to us by the FCC. This modification must be approved by the
FCC, which we have requested.
THE RECEIVERS. We expect consumers will receive CD Radio either by
purchasing specially designed radio receivers for their existing vehicles or
through a new generation of three-band radios which will come fully installed in
new vehicles by automobile manufacturers. In the automotive aftermarket, we
expect that CD Radio subscribers will have the choice of one of three different
receiving devices for their cars -- an FM modulated receiver, a three-band
receiver and a radio card.
FM Modulated Receivers. The CD Radio FM modulated receiver will be usable
in all vehicles that have an FM radio, which represent approximately 95%
of all U.S. vehicles. Each FM modulated receiver (which we call the
Satellite Audio System) will operate with a device that will be
approximately the size of a 35mm camera, and will be mounted either in the
vehicle's trunk, behind the dashboard, in the glove compartment or under a
seat. We expect the retail price of this FM modulated receiver, with a
hard-wired satellite antenna and professional installation, will be
approximately $299.
Three-Band Receivers. To address consumers who replace their vehicle's
sound system, we expect there will be available a receiver capable of
receiving AM, FM and CD Radio broadcasts. We expect the retail price of
these CD Radio-ready receivers, including the antenna and professional
installation, will be approximately $150 more than similar receivers which
are not capable of receiving CD Radio broadcasts.
Radio Cards. CD Radio's wireless adapter, or radio card, will not require
professional installation and will be usable by all vehicles in the United
States equipped with a cassette player, which represent approximately 65%
of all vehicles on the road. We expect the retail price of the radio card,
including the wireless satellite antenna, will be approximately $199.
4
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All CD Radio receivers will have a visual display that will indicate the
channel and format selected, as well as the title, recording artist and album
title of the musical selection being played.
THE NATIONAL BROADCAST STUDIO. We will originate our 100 channels of
programming from our National Broadcast Studio in Rockefeller Center in New York
City. The National Broadcast Studio will house our music library, facilities for
programming origination, programming personnel and program hosts, as well as
facilities to transmit programming to our orbiting satellites, to activate or
deactivate service to subscribers and to perform the tracking, telemetry and
control of our satellites.
RISK FACTORS
Please refer to the section of this prospectus entitled 'Risk Factors'
beginning on page 12, for a discussion of some of the risks you should consider
before participating in the exchange offer.
------------------------
Our principal executive offices are located at 1221 Avenue of the
Americas, New York, New York, 10020. Our telephone number is (212) 584-5100.
Our internet address is cdradio.com. The information on our website is not
incorporated in this prospectus.
5
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SUMMARY OF THE EXCHANGE OFFER
We are offering to exchange $200,000,000 aggregate principal amount of our
exchange notes for a like aggregate principal amount of our initial notes. In
order to exchange your initial notes, you must properly tender them and we must
accept your tender. We will exchange all outstanding initial notes that are
validly tendered and not validly withdrawn.
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Exchange Offer............................ We will exchange our exchange notes for a like aggregate
principal amount of our initial notes.
Expiration Date........................... This exchange offer will expire at 5:00 p.m., New York
City time, on , 1999, unless we decide to
extend it.
Conditions to the Exchange Offer.......... We will complete this exchange offer only if:
there is no litigation or threatened litigation which
would impair our ability to proceed with this exchange
offer,
there is no change in the laws and regulations which
would impair our ability to proceed with this exchange
offer,
there is no change in the current interpretation of the
staff of the Securities and Exchange Commission which
permits resales of the exchange notes,
there is no stop order issued by the Commission which
would suspend the effectiveness of the registration
statement which includes this prospectus or the
qualification of the exchange notes under the Trust
Indenture Act of 1939, and
we obtain all the governmental approvals we deem
necessary to complete this exchange offer.
Please refer to the section in this prospectus entitled
'The Exchange Offer -- Conditions to the Exchange
Offer.'
Procedures for Tendering Initial Notes.... To participate in this exchange offer, you must
complete, sign and date the letter of transmittal or its
facsimile and transmit it, together with your initial
notes to be exchanged and all other documents required
by the letter of transmittal, to United States Trust
Company of New York, as exchange agent, at its address
indicated under 'The Exchange Offer -- Exchange Agent.'
In the alternative, you can tender your initial notes by
book-entry delivery following the procedures described
in this prospectus. If your initial notes are registered
in the name of a broker, dealer, commercial bank, trust
company or other nominee, you should contact that person
promptly to tender your initial notes in this exchange
offer. For more information on tendering your notes,
please refer to the section in this prospectus entitled
'The Exchange Offer -- Procedures for Tendering Initial
Notes.'
Guaranteed Delivery Procedures............ If you wish to tender your initial notes and you cannot
get the required documents to the exchange agent on
time, you may tender your notes by using the guaranteed
delivery procedures described under the section of this
prospectus
6
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entitled 'The Exchange Offer -- Procedures for Tendering
Initial Notes -- Guaranteed Delivery Procedure.'
Withdrawal Rights......................... You may withdraw the tender of your initial notes at any
time before 5:00 p.m., New York City time, on the
expiration date of the exchange offer. To withdraw, you
must send a written or facsimile transmission notice of
withdrawal to the exchange agent at its address
indicated under the 'The Exchange Offer -- Exchange
Agent' before 5:00 p.m., New York City time, on the
expiration date of the exchange offer.
Acceptance of Initial Notes and Delivery
of Exchange Notes....................... If all the conditions to the completion of this exchange
offer are satisfied, we will accept any and all initial
notes that are properly tendered in this exchange offer
on or before 5:00 p.m., New York City time, on the
expiration date. We will return any initial note that we
do not accept for exchange to you without expense as
promptly as practicable after the expiration date. We
will deliver the exchange notes to you as promptly as
practicable after the expiration date and acceptance of
your initial notes for exchange. Please refer to the
section in this prospectus entitled 'The Exchange
Offer -- Acceptance of Initial Notes for Exchange;
Delivery of Exchange Notes.'
Federal Income Tax Considerations Relating
to the Exchange Offer................... Exchanging your initial notes for exchange notes will
not be a taxable event to you for United States federal
income tax purposes. Please refer to the section of this
prospectus entitled 'Certain United States Federal
Income Tax Considerations.'
Exchange Agent............................ United States Trust Company of New York is serving as
exchange agent in the exchange offer.
Fees and Expenses......................... We will pay all expenses related to this exchange offer.
Please refer to the section of this prospectus entitled
'The Exchange Offer -- Fees and Expenses.'
Use of Proceeds........................... We will not receive any proceeds from the issuance of
the exchange notes. We are making this exchange offer
solely to satisfy certain of our obligations under our
registration rights agreement.
Consequences to Holders who
do not Participate in the
Exchange Offer.......................... If you do not participate in this exchange offer:
you will not necessarily be able to require us to
register your initial notes under the Securities Act,
you will not be able to resell, offer to resell or
otherwise transfer your initial notes unless they are
registered under the Securities Act or unless you
resell, offer to resell or otherwise transfer them
under an exemption from the registration requirements
of, or in a transaction not subject to, the Securities
Act, and
7
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the trading market for your initial notes will become
more limited to the extent other holders of initial
notes participate in the exchange offer.
Please refer to the section in this exchange offer
entitled 'Risk Factors -- Your failure to participate in
the exchange offer will have adverse consequences.'
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Issuer.................................... CD Radio Inc.
Notes Offered............................. $200 million aggregate principal amount of 14 1/2%
Senior Secured Notes due 2009. The form and terms of the
exchange notes are the same as the form and terms of the
initial notes except that the exchange notes are
registered under the Securities Act, will not bear
legends restricting their transfer and will not be
entitled to registration rights under our notes
registration rights agreement. The exchange notes will
evidence the same debt as the initial notes and both the
initial notes and the exchange notes will be governed by
the same indenture.
Maturity.................................. May 15, 2009.
Interest Payment Dates.................... We will pay interest on the exchange notes on May 15 and
November 15 of each year, commencing November 15, 1999.
We used approximately $79.3 million of the proceeds of
the offering of units consisting of initial notes and
warrants to purchase common stock to purchase a
portfolio of U.S. government securities in an amount
sufficient to pay the first six payments of interest on
the notes.
Ranking................................... The exchange notes will be senior secured obligations
and will rank senior in right of payment to all existing
and future subordinated indebtedness and will rank
equally with all existing and future senior
indebtedness, including our 15% Senior Secured Discount
Notes due 2007 (the 'Senior Discount Notes'). The
indenture permits some kinds of subsidiary indebtedness
and permits us to secure some kinds of indebtedness,
which will rank equally with the exchange notes and the
Senior Discount Notes. Please refer to the section of
this prospectus entitled 'Description of the
Notes -- Certain Covenants -- Limitation on
Indebtedness.' After giving effect to the offering of
units consisting of initial notes and warrants to
purchase common stock, as of March 31, 1999, we would
have had $474 million in aggregate principal amount of
indebtedness outstanding which ranked equal in right of
payment with the exchange notes, all of which was
secured. As of December 31, 1998, our subsidiaries had
no liabilities outstanding.
Security.................................. The exchange notes will be secured by a first priority
perfected security interest in all of the issued and
outstanding common stock of our subsidiary, Satellite CD
Radio, Inc. (the 'Pledged Stock'). The security interest
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benefitting the exchange notes will rank equally with
the security interest benefitting our Senior Discount
Notes, which are also secured by a first priority
perfected security interest in the Pledged Stock.
Satellite CD Radio, Inc. conducts no business activities
and its only asset is an FCC license. In addition, we
used approximately $79.3 million of the proceeds from
the offering of the units consisting of initial notes
and warrants to purchase a portfolio of U.S. government
securities in an amount sufficient to pay the first six
payments of interest on the notes. We pledged this
portfolio of securities for the benefit of the holders
of the initial notes and the exchange notes. See
'Description of the Notes -- Security.' Under the
indenture, we and our subsidiaries are entitled to
incur, subject to significant conditions and
limitations, additional indebtedness. This additional
indebtedness could also be secured by the issued and
outstanding stock of Satellite CD Radio, Inc. Please
refer to the section of this prospectus entitled
'Description of Certain Indebtedness.'
Optional Redemption....................... We may redeem the exchange notes, in whole or in part,
at any time after May 15, 2004, at the redemption prices
described in this prospectus.
Redemption Upon Sale of Equity............ Before May 15, 2002, we may redeem exchange notes
representing up to 35% of the principal amount of the
exchange notes with the net proceeds of one or more
offerings of our equity securities. Please refer to the
section of this prospectus entitled 'Description of the
Notes -- Redemption.'
Change of Control......................... Upon specific change of control events, each holder of
the exchange notes may require us to purchase all or a
portion of its exchange notes at a purchase price equal
to 101% of the principal amount of the exchange notes,
together with any accrued and unpaid interest owed on
the exchange notes to the date of purchase. Please refer
to the section of this prospectus entitled 'Description
of the Notes -- Certain Covenants -- Purchase of Notes
Upon a Change of Control.'
Certain Covenants......................... The indenture contains covenants that require us to
provide financial statements, obtain insurance and limit
our ability to:
incur additional indebtedness,
pay dividends on, redeem or repurchase shares of our
Common Stock or other classes of shares,
engage in transactions with affiliates,
create certain liens,
sell assets,
enter into sale and leaseback transactions,
restrict dividend or other payments to us,
issue and sell shares of restricted subsidiaries, and
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merge or consolidate.
There are important exceptions and qualifications to
these covenants which are described in the section of
this prospectus entitled 'Description of the Notes.'
Original Issue Discount................... Each exchange note will have original issue discount for
United States federal income tax purposes. The original
issue discount will accrue from the issue date of the
exchange note and will be includable as interest income
periodically in a holder's gross income for United
States federal income tax purposes in advance of receipt
of the cash payments to which the income is
attributable. Please refer to the section of this
prospectus entitled 'Certain United States Federal
Income Tax Considerations.'
Absence of a Public Market for the
Exchange Notes.......................... The exchange notes are new securities with no
established market for them. We cannot assure you that a
market for these notes will develop or that this market
will be liquid.
Form of the Exchange Notes................ Except as described below, the exchange notes will be
represented by one or more permanent global securities
in bearer form deposited on behalf of The Depository
Trust Company with United States Trust Company of New
York, as custodian. You will not receive exchange notes
in registered form unless one of the events described in
the section of this prospectus entitled 'Description of
the Notes -- Book Entry; Delivery and Form' occurs.
Instead, beneficial interests in the exchange notes will
be shown on, and transfers of these notes will be
effected only through, records maintained in book-entry
form by The Depository Trust Company with respect to its
participants. Initial notes issued in certificated form
may be exchanged for beneficial interests in the global
securities.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data for CD Radio shown below as of and
for the years ended December 31, 1994, 1995, 1996, 1997 and 1998, are derived
from CD Radio's respective audited consolidated financial statements. The
financial information as of and for the three months ended March 31, 1998 and
1999 is derived from unaudited consolidated financial statements incorporated by
reference into this prospectus. In the opinion of management, the unaudited
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, that are necessary for a fair presentation of the financial
position and results of operations for these periods. The summary consolidated
financial data should be read together with the Consolidated Financial
Statements, the related notes and the information contained in this prospectus
under the heading 'Management's Discussion and Analysis of Financial Condition
and Results of Operations.'
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THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Operating revenues............................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss(1)...................................... (4,065) (2,107) (2,831) (4,737) (48,396) (5,838) (10,444)
Preferred stock dividends........................ -- -- -- (2,338) (19,380) (4,781) (7,330)
Preferred stock deemed dividends(2).............. -- -- -- (51,975) (11,676) -- (2,256)
Accretion of dividends in connection with the
issuance of warrants on preferred stock........ -- -- -- -- (6,501) (4,275) (74)
Net loss applicable to common stockholders....... (4,065) (2,107) (2,831) (59,050) (85,953) (14,894) (20,104)
Per common share:
Net loss applicable to common stockholders... (0.48) (0.23) (0.29) (5.08) (4.79) (0.93) (0.87)
Weighted average common shares outstanding
(basic and diluted)........................ 8,398 9,224 9,642 11,626 17,932 16,049 23,220
Ratio of earnings to fixed charges(3)............ -- -- -- -- -- -- --
Deficiency of earnings to fixed charges.......... $ 4,065 $ 2,107 $ 2,831 $ 4,760 $ 62,334 $ 6,115 $ 20,571
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents........................ $ 3,400 $ 1,800 $ 4,584 $ 900 $204,753 $160,794 $162,057
Marketable securities, at market(4).............. -- -- -- 169,482 60,870 -- 46,170
Working capital.................................. 2,908 1,741 4,442 170,894 180,966 161,429 104,489
Total assets..................................... 3,971 2,334 5,065 323,808 643,880 336,855 662,846
Short-term notes payable......................... -- -- -- -- 70,863 -- 79,814
Deferred satellite payments...................... -- -- -- -- 31,324 -- 32,132
Long-term debt................................... -- -- -- 131,387 153,033 150,508 161,707
10 1/2% Series C Preferred Stock................. -- -- -- 176,025 156,755 115,323 161,169
9.2% Series A Junior Preferred Stock............. -- -- -- -- 137,755 -- 140,788
Deficit accumulated during the development
stage.......................................... (13,598) (15,705) (18,536) (23,273) (71,669) (29,110) (82,113)
Stockholders' equity............................. 3,431 1,991 4,898 15,980 77,953 70,845 60,343
</TABLE>
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(1) Included in the 1998 net loss of ($48,396) is ($25,682) of special charges
related primarily to the termination of some launch and orbit related
contracts required when we decided to enhance our satellite delivery system
to include a third in-orbit satellite.
(2) The deemed dividend in 1997 relates to the discount feature associated with
our 5% Delayed Convertible Preferred Stock and the deemed dividend in 1998
relates primarily to the conversion feature associated with our 9.2%
Series A Junior Cumulative Convertible Preferred Stock. We computed these
deemed dividends in accordance with the Commission's position on accounting
for preferred stock which is convertible at a discount to the market price.
(3) For purposes of this computation, earnings are defined as losses plus fixed
charges. Fixed charges are the sum of (i) interest expensed and capitalized,
(ii) amortization of deferred financing costs, premium and debt discounts
and (iii) the portion of operating lease rental expense that is
representative of the interest factor (deemed to be one-third). Our ratio
of earnings to fixed charges was less than 1.00 for the years ended
December 31, 1994, 1995, 1996, 1997 and 1998 and for the three months ended
March 31, 1998 and 1999; thus earnings available for fixed charges were
inadequate to cover fixed charges for these periods.
(4) Marketable securities consist of fixed income securities with a maturity at
the time of purchase of greater than three months.
11
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RISK FACTORS
In addition to the other information in this prospectus, the following
factors should be considered carefully in evaluating us and our business. This
prospectus contains some forward-looking statements. Actual results and the
timing of some events could differ materially from those projected in the
forward looking statements due to a number of factors, including those described
below and elsewhere in this prospectus. See 'Managment's Discussion and Analysis
of Financial Condition and Results of Operations -- Special Note Regarding
Forward Looking Statements.'
OUR BUSINESS IS STILL IN THE DEVELOPMENT STAGE
Historically, we have only generated losses. We are a development stage
company. The service we propose to offer, CD Radio, is in a relatively early
stage of development and we have never recognized any operating revenues or
conducted any operations. Since our inception, we have concentrated on raising
capital, obtaining required licenses, developing technology, strategic planning,
market research and building our infrastructure. Our financial results from our
inception on May 17, 1990 through March 31, 1999, are as follows:
no revenues;
net losses of approximately $82 million (including net losses of
approximately $5 million during the year ended December 31, 1997 and $48
million during the year ended December 31, 1998); and
net losses applicable to common stock of approximately $184 million, which
includes a deemed dividend on our former 5% Delayed Convertible Preferred
Stock (the '5% Preferred Stock') of $52 million. In November 1997, we
exchanged 1,846,799 shares of our 10 1/2% Series C Convertible Preferred
Stock for all of the issued and outstanding shares of 5% Preferred Stock.
We do not expect any revenues before 2001, and still have a variety of
hurdles to surmount before commencing operations. We have not started to
broadcast CD Radio and do not expect to generate any revenues from operations
until the first quarter of 2001 or to generate positive cash flow from
operations until the third quarter of 2001, at the earliest. Our ability to
generate revenues, generate positive cash flow and achieve profitability will
depend upon a number of factors, including:
raising additional financing;
the timely receipt of all necessary regulatory authorizations;
the successful and timely construction and deployment of our satellite
system;
the development and manufacture by one or more consumer electronics
manufacturers of devices capable of receiving CD Radio; and
the successful marketing and consumer acceptance of CD Radio.
We cannot assure you that we will accomplish any of the above, that CD Radio
will ever commence operations, that we will attain any particular level of
revenues, that we will generate positive cash flow or that we will achieve
profitability.
WE NEED ADDITIONAL FINANCING TO BUILD AND LAUNCH OUR SERVICE
We need more money to continue implementing our business plan. We require
near-term funding to continue building our CD Radio system. We believe we can
fund our planned operations and the construction of our satellite and
terrestrial system into the first quarter of 2000 from the proceeds of this
offering and from our working capital at December 31, 1998, which includes the
proceeds from our sale of 5,000,000 shares of Common Stock to Prime 66 Partners,
L.P. for $100 million on November 2, 1998 and our sale of a new class of 9.2%
Series A Junior Cumulative Convertible Preferred Stock to Apollo Investment Fund
IV, L.P. and Apollo Overseas Partners IV, L.P., which we refer to as the 'Apollo
Investors,' for $135 million on December 23, 1998.
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The Apollo Investors have also granted us an option to sell them 650,000
shares of our 9.2% Series B Junior Cumulative Convertible Preferred Stock, par
value $.001 per share, for $65 million. Subject to customary conditions and
there not having occurred a material adverse change, we may exercise this option
at any time before September 30, 1999. We refer to our 9.2% Series A Junior
Preferred Stock and our 9.2% Series B Junior Preferred Stock together as the
'Junior Preferred Stock.'
We currently do not have sufficient financing commitments to completely
fund our preoperational capital requirements. We expect to satisfy the remainder
of our funding requirements through the issuance of debt or equity securities or
a combination of debt and equity securities. We cannot assure you that we will
obtain additional financing on favorable terms or that we will do so on a timely
basis.
We estimate that we will need the following amounts for the following
purposes:
<TABLE>
<S> <C>
to develop and commence commercial operation of CD Radio by $1,138 million
the end of the fourth quarter of 2000
to fund operations through the first full year of operations $ 100 million
ending with the fourth quarter of 2001
Total through the first year of operations $1,238 million
</TABLE>
We have or expect that we may have use of the following funds to develop
and operate CD Radio:
<TABLE>
<S> <C>
net funds raised through December 31, 1998 (including $115 $ 721 million
million of debt which we must refinance or repay by the
earlier of February 29, 2000 and ten days prior to the
launch of our second satellite)
funds from the sale of 9.2% Series B Junior Preferred Stock $ 63 million
to the Apollo Investors, if we exercise our option, net of
fees and expenses
funds which Bank of America may, but is not required to, $ 106 million
arrange for us ($225 million less $115 million to repay
our existing bank credit facility, net of estimated fees and
expenses)
net proceeds from the sale of the units consisting of $ 110 million
initial notes and warrants
Total funds we may, or expect to be able to, access $1,000 million
</TABLE>
After we give effect to the funds we have and the funds we expect to raise,
we estimate that we will need an additional approximately $138 million to
develop and commence commercial operation of CD Radio by the end of the fourth
quarter of 2000 and an additional $100 million to fund our business through the
first full year of operations. If Bank of America is unable to arrange a new
credit facility, we will need to raise an additional $221 million to fund our
operations through the end of the fourth quarter of 2000. We will require more
money if there are delays, cost overruns, launch failure or other adverse
developments.
WE FACE MANY FINANCING CHALLENGES AND CONSTRAINTS
We face many challenges and constraints in financing our development and
operations, including those listed below.
Our debt instruments limit our ability to incur indebtedness. The indenture
governing the Senior Discount Notes (the 'Senior Discount Notes Indenture')
limits, and the indenture for the notes we are offering will limit, our ability
to incur additional indebtedness. In addition, we expect any future indebtedness
will contain similar limits on our ability to incur additional indebtedness.
We will have to satisfy a variety of conditions before we can obtain any
syndicated bank borrowings. We entered into a credit agreement with Bank of
America and other lenders in July 1998 under which Bank of America and the other
lenders agreed to provide us a term loan facility of up to $115 million maturing
on the earlier of February 29, 2000 and ten days prior to
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the launch of our second satellite (the 'Tranche A Facility'). Bank of America
has also agreed to attempt to arrange a syndicate of lenders to provide us with
a second term loan facility of $225 million. To borrow the funds under the
second term loan facility, we must first satisfy specified conditions, and
negotiate, execute and deliver definitive loan documents. We intend to use a
portion of the proceeds from this second term loan facility to repay the
existing term loan facility and for other general corporate purposes. The second
term loan facility would provide us with approximately $106 million of net
additional funds after repayment of the existing term loan facility and the
payment of fees and expenses.
We have substantial near-term requirements for additional funds. We require
substantial funds to construct and launch the satellites that will be part of
our broadcast system. We are committed to pay a total of approximately $718
million under our Amended and Restated Contract with Loral (the 'Loral Satellite
Contract') for the construction, launch and in-orbit delivery of three
satellites and construction of our spare fourth satellite. Of this total, we
must pay $438 million for the construction of satellites and $280 million for
launch services. As of March 31, 1999, we had satisfied $261 million of the
amount due to Loral. We have also entered into an amendment to the Loral
Satellite Contract pursuant to which we will purchase $15 million of long-lead
time parts for a fifth satellite. We started paying for the construction of the
satellites in April 1997 and we must make further installments through December
2003.
If we fail to secure the financing required to pay Loral on a timely basis,
we risk:
delays in launching our satellites and starting broadcasting operations;
increases in the cost of building or launching our satellites or other
activities necessary to put CD Radio into operation;
a default on our commitments to Loral, our creditors or others;
our inability to commence CD Radio service; and
the forced discontinuance of our operations or the sale of our business.
A delay in introducing our service could hinder our ability to raise
additional financing. Any delay in implementing our business plan would hurt our
ability to obtain the financing we need by adversely affecting our expected
results of operations and increasing our cost of capital. Our ability to begin
offering our CD Radio service at the end of the fourth quarter of 2000 depends
on Loral delivering completed satellites before the launch dates and providing
or obtaining launch services on a timely basis. A significant delay in the
development, construction, launch or commencement of operation of our satellites
would adversely affect our results of operations in a material way.
Other delays in implementing our business plan could also materially
adversely affect our results of operations. Several factors could delay us,
including the following:
obtaining additional authorizations from the FCC;
coordinating the use of S-band radio frequency spectrum with Mexico;
delays in or modifications to the design, development, technical
specifications, construction or testing of our satellites, receivers or
other aspects of the CD Radio system;
delay in commercial availability of devices capable of receiving
CD Radio;
failure of our vendors to perform as anticipated; and
a delayed or unsuccessful satellite launch or deployment.
We have previously incurred some delays in implementing our business plan.
During any period of delay, we would continue to need significant amounts of
cash to fund capital expenditures, administrative and overhead costs,
contractual obligations and debt service. Accordingly, any delay could
materially increase the aggregate amount of funds we need to commence
operations. Additional financing may not be available on favorable terms or at
all during periods of delay.
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<PAGE>
WE ARE DEPENDENT UPON LORAL TO BUILD AND LAUNCH OUR SATELLITES
Our business depends upon Loral successfully constructing and launching the
satellites to transmit CD Radio. We are relying upon Loral to construct and to
deliver these satellites in orbit on a timely basis. We cannot assure you that
Loral will deliver the satellites or provide these launch services on a timely
basis, if at all. If Loral fails to deliver functioning satellites in a timely
manner, our business could be materially adversely affected. Although our
agreement with Loral requires Loral to pay us penalties for late delivery, based
on the length of the delay, these remedies may not adequately mitigate the
damage any launch delays cause to our business. In addition, if Loral fails to
deliver the designated launch services due to causes beyond its control, Loral
will not be liable for the delay or the damages caused by the delay. While the
satellites are under construction, Loral is at risk should anything happen to
the satellites. In addition, Loral is responsible for making sure the satellites
meet specific performance specifications at the time of launch (in the case of
our first three satellites) or at the time of delivery to our ground storage
location (in the case of our fourth satellite). However, we, and not Loral, will
be at risk for anything that happens to the satellites at the time of launch and
thereafter (in the case of our first three satellites) or at any time after
delivery to our ground storage location (in the case of our fourth satellite).
This means that if any satellite is destroyed during or after launch or if the
fourth satellite is damaged or destroyed while in storage, Loral will not be
responsible to us for the cost of replacing it.
We depend on Loral to obtain access to available slots on launch vehicles
and to contract with third-party launch service providers for the launch of our
satellites. A launch service provider may postpone one or more of our launches
for a variety of reasons, including:
technical problems;
a launch of a scientific satellite whose mission may be degraded by delay;
the need to conduct a replacement launch for another customer; or
a launch of another customer's satellite whose launch was postponed.
Generally, Loral is not liable to us for a satellite or launch failure. However,
if the first Proton launch vehicle used to launch our satellites fails, Loral
will provide us with a free replacement launch. The timing of this replacement
launch cannot be predicted, but in any event would not be before delivery of the
fourth satellite.
We also depend on Loral to ensure that the software to test the satellites
before launch, to run the satellites and to track and control the satellites,
will be capable of handling the potential problems that may arise beginning on
January 1, 2000. These potential problems are known as 'The Year 2000 Issue.'
The Year 2000 Issue is the result of computer programs being written using two
digits (rather than four) to define a year, which could result in
miscalculations or system failures resulting from recognition of a date
occurring after December 31, 1999 as falling in the year 1900 (or another year
in the 1900s) rather than the year 2000 or thereafter. While currently the above
mentioned systems are not fully prepared to handle The Year 2000 Issue, Loral is
aware of this condition and has assured us that all Loral systems will be year
2000 compliant before the critical date of January 1, 2000.
WE ARE DEPENDENT ON LUCENT TO DESIGN AND DEVELOP CHIP SETS
Our business depends upon Lucent successfully designing, developing and
manufacturing commercial quantities of integrated circuits (or chip sets), which
will be used in consumer electronic devices capable of receiving CD Radio's
broadcasts. If Lucent fails to deliver commercial quantities of the chip sets in
a timely manner, the costs of the chip set development work increases
significantly or the price of the chip set is not low enough to support the
introduction of consumer devices capable of receiving CD Radio, our business
will be materially adversely affected. Lucent has agreed to use commercially
reasonable efforts to deliver commercial quantities of the chip sets by June
2000. We have agreed to pay Lucent the cost of the development work
15
<PAGE>
related to the chip sets, currently estimated to be approximately $27,000,000,
which is approximately $18,000,000 more than originally estimated.
We cannot assure you that:
Lucent will be able to deliver commercial quantities of chip sets by June
2000;
the cost to us of the chip set development work will not exceed
$27,000,000; or
Lucent will be able to establish a price for the chip sets which will be
low enough to encourage and support the widespread introduction of
consumer devices capable of receiving CD Radio.
WE ARE NOT SURE THERE WILL BE A MARKET FOR CD RADIO
Currently no one offers a commercial satellite radio service such as
CD Radio in the United States. As a result, our proposed market is new and
untested and we cannot reliably estimate the potential demand for this service
or the degree to which our proposed service will meet that demand. We cannot
assure you that there will be sufficient demand for CD Radio to enable us to
achieve significant revenues or cash flow or profitable operations. CD Radio
will achieve or fail to gain market acceptance depending upon factors beyond our
control, including:
the willingness of consumers to pay subscription fees to obtain satellite
radio broadcasts;
the cost, availability and consumer acceptance of devices capable of
receiving CD Radio;
our marketing and pricing strategies and those of our competitors;
the development of alternative technologies or services; and
general economic conditions.
OUR PLANNED SYSTEM RELIES ON UNPROVEN APPLICATIONS OF TECHNOLOGY
Our satellite system applies technology in new and unproven ways. CD Radio
is designed to be broadcast from three satellites orbiting the Earth. Two of the
three satellites will transmit the same signal at any given time to receivers
that will receive signals through antennas. This design applies technology in
new and unproven ways. Accordingly, we cannot assure you that the CD Radio
system will work as planned.
Some obstructions will adversely affect CD Radio reception. High
concentrations of tall buildings and other obstructions, such as those found in
large urban areas, and tunnels will block the signals from both transmitting
satellites. We plan to install terrestrial repeating transmitters to rebroadcast
CD Radio in some urban areas to mitigate this problem. However, some areas with
impediments to satellite line-of-sight may still experience 'dead zones.' We
cannot assure you that the CD Radio system will operate as planned with the
technology we have developed.
Our system has never been tested with orbiting satellites. We cannot assure
you that the CD Radio system will function as intended until we test it with
orbiting satellites and antennas and receivers suitable for commercial
production. We have never done this kind of test because there are no commercial
satellites in orbit capable of transmitting radio signals on S-band frequencies
to the United States. In support of our application for our FCC license, we
conducted a terrestrial simulation of our proposed radio service from November
1993 through November 1994. For the demonstration, we transmitted S-band signals
to a prototype S-band radio and satellite dish antenna installed in a car to
simulate specific transmission characteristics of our planned system. As part of
the demonstration, the prototype radio received 30 channels of compact disc
quality stereo music while the car was driven throughout the range. We have also
successfully tested our system in San Francisco, where our terrestrial repeater
network has been completed.
SATELLITE LAUNCHES HAVE SIGNIFICANT RISKS
We cannot assure you that the launches of our satellites will be
successful. Satellite launches have significant risks, including launch failure,
damage or destruction of the satellite during launch
16
<PAGE>
and failure to achieve a proper orbit or operate as planned. The Loral Satellite
Contract does not protect us against the risks inherent in satellite launches or
in-orbit operations. Our three satellites are scheduled to be launched on Proton
launch vehicles, which are built by Russian entities. The Proton family of
launch vehicles has a 92% launch success rate based on its last 50 launches.
Past experience, however, is not necessarily indicative of future performance.
As part of our risk management program, we contracted with Loral for the
construction of a fourth satellite that we will use as a ground spare. We also
plan to obtain insurance covering a replacement launch to the extent required to
cover risks Loral does not assume. If we need to launch our spare satellite, the
start of our commercial operations would be delayed for a period of up to six
months, which could materially adversely affect the demand for our services, our
revenues and our results of operations.
SATELLITES HAVE A LIMITED LIFE AND MAY FAIL IN ORBIT
We expect that our satellites will last approximately 15 years, and that
after this period their performance in delivering CD Radio will deteriorate. We
cannot assure you, however, of the useful life of any particular satellite. Our
operating results would be adversely affected if the useful life of our initial
satellites is significantly shorter than 15 years.
The useful lives of our satellites will vary and will depend on a number of
factors, including:
quality of construction;
amount of fuel on board;
durability of component parts;
expected gradual environmental degradation of solar panels;
random failure of satellite components, which could result in damage to or
loss of a satellite; and
in rare cases, damage or destruction by electrostatic storms or collisions
with other objects in space.
If one of our satellites fails on launch or in orbit and if we are required to
launch our spare satellite, our operational timetable will be delayed for up to
six months. If two or more of our satellites fail on launch or in orbit, our
operational timetable could be delayed by at least 16 months.
INSURANCE MAY NOT COVER ALL RISKS OF LAUNCHING AND OPERATING SATELLITES
There are many potential risks to insure. Because our agreement with Loral
does not protect us against launch vehicle failure, failure of a satellite to
deploy correctly or failure of a satellite to operate as planned, we must
purchase insurance to protect adequately against these risks. We cannot assure
you that we will be able to purchase launch insurance or in-orbit insurance. The
insurance premiums we pay may increase substantially upon any adverse change in
insurance market conditions.
Many risks we face may not be covered by insurance. Our insurance may not
cover all of our losses, and may not fully reimburse us for the following:
expenditures for a satellite which fails, totally or in part, upon launch;
expenditures for a satellite which fails to perform to specifications
after launch;
damages from business interruption, loss of business and similar losses
arising from satellite failures or launch delays; and
losses for which there are deductibles, exclusions and conditions.
17
<PAGE>
OUR TECHNOLOGY MAY BECOME OBSOLETE
We will depend on technologies being developed by third parties to
implement key aspects of our proposed system. These technologies may become
obsolete. We may be unable to obtain more advanced technologies on a timely
basis or on reasonable terms, or our competitors may obtain more advanced
technologies and we may not have access to these technologies.
RECEIVERS AND ANTENNAS ARE NOT YET AVAILABLE
To receive the CD Radio service, a subscriber will need to purchase a
device capable of receiving our broadcasts as well as an appropriate antenna.
Although we have entered into agreements with Lucent to develop and manufacture
chip sets that represent the essential element of the CD Radio receivers and our
miniature satellite dish antennas, we cannot assure you that Lucent will succeed
in this development effort. We have also entered into agreements with Delco and
Recoton to design and develop devices capable of receiving CD Radio broadcasts
and antennas for use with these devices. We cannot assure you that Delco and
Recoton will succeed in their development efforts.
No one currently manufactures devices capable of receiving CD Radio
broadcasts and suitable antennas, and neither Delco nor Recoton has agreed to
manufacture commercial quantities of these devices. We do not intend to
manufacture or distribute CD Radio receivers and antennas ourselves. We have
discussed the manufacture of CD Radio receivers and antennas for retail sale in
the United States with several manufacturers, including Delco and Recoton. These
discussions may not result in a binding commitment on the part of any
manufacturer to produce, market and sell devices capable of receiving CD Radio
broadcasts and suitable antennas in a timely manner and at a price that would
permit the widespread introduction of CD Radio in accordance with our business
plan. In addition, any manufacturers of devices capable of receiving CD Radio
broadcasts and antennas may not produce them in sufficient quantities to meet
anticipated consumer demand. Our business would be materially adversely affected
if we cannot arrange for the timely development of these products for commercial
sale at an affordable price and with sufficient retail distribution.
Our FCC license requires that we design a receiver that is interoperable
with the national satellite radio system being developed by the other existing
licensee, XM Satellite Radio, Inc. ('XM'). Although we have made progress
towards designing a receiver that is interoperable with the system XM is
constructing, we cannot predict whether we will be able to satisfy this
interoperability requirement because of the various technological challenges
involved. Complying with this interoperability requirement also could make the
devices capable of receiving CD Radio broadcasts and the related antenna more
difficult and costly to manufacture. Accordingly, this interoperability
requirement could delay the commercial introduction of these products or require
that they be sold at higher prices. We may also be bound by this
interoperability requirement for any person licensed by the FCC to provide a
satellite-based digital audio radio service in the future.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST CONVENTIONAL RADIO STATIONS,
THE OTHER HOLDER OF AN FCC LICENSE TO PROVIDE THIS SERVICE OR OTHER POTENTIAL
PROVIDERS OF THIS SERVICE
We will be competing with established conventional (over the air) radio
stations, which, unlike CD Radio:
do not charge subscription fees;
do not require users to purchase a separate receiver and antenna;
often offer local information programming such as local news and traffic
reports; and
in the case of some FM stations, may begin to broadcast digital, compact
disc quality signals before we start operations.
In addition to direct competition from XM, we face the possibility of
additional satellite broadcast radio competition:
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<PAGE>
if the FCC grants additional licenses for satellite-delivered radio
services;
if holders of licenses for other portions of the electromagnetic spectrum
(currently licensed for other uses) obtain changes to their licenses; or
if holders of licenses without FCC restrictions for other portions of the
spectrum devise a method of broadcasting satellite radio.
Finally, one or more competitors may design a satellite radio broadcast
system that is superior to our system. The competitive factors listed above
could materially adversely affect our results of operations. In addition, any
delays in introducing our service also could place us at a competitive
disadvantage relative to any competitor that begins operations before us.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE RAPID GROWTH
We expect to experience significant and rapid growth in the scope and
complexity of our business as we proceed with the development of our satellite
radio system. We do not employ sufficient staff to program our broadcast
service, manage operations, control the operation of our satellites or handle
sales and marketing efforts. Although we have hired experienced executives in
these areas, we must hire many additional employees before we begin commercial
operations of our service. This growth is likely to place a substantial strain
on our management and operational resources. Our results of operations could be
materially adversely affected if we fail to do any of the following:
develop and implement effective management systems;
hire and train sufficient personnel to perform all of the functions
necessary to effectively provide our service;
manage our subscriber base and business; or
manage our growth effectively.
WE ARE SUBJECT TO CONTINUING AND DETAILED REGULATION BY THE FCC
Our FCC license is being challenged. On October 10, 1997, the FCC's
International Bureau granted us an FCC license after we submitted a winning bid
in an FCC auction. One of the low-bidders in the FCC auction applied to have the
full FCC review the grant of our FCC license. The application requests that the
FCC adopt restrictions on foreign ownership and overrule the granting of our FCC
license on the basis of our ownership. If the FCC denies this application, the
complaining party may appeal to the U.S. Court of Appeals. Because less than 25%
of our voting stock is owned by non-U.S. persons, we believe the FCC will uphold
the grant of our FCC license. We cannot predict the ultimate outcome of any
proceedings relating to this application or any other proceedings that
interested parties may file. Since December 29, 1997, there have been no
developments in this matter.
We need a modification to our FCC license before we can begin operation. In
May 1998, we decided to increase the number of satellites in our system from two
to three and to change the orbit of those satellites. To implement these
changes, the FCC must approve changes to our FCC license. If the FCC were to
deny our application to modify our license, we would be required to redesign our
proposed system and modify our satellites, at a significant cost, and our
commercial operations would be delayed. On December 11, 1998, we filed an
application with the FCC for these changes. Although we believe that the FCC
will approve our application for this necessary change, we cannot assure you
that this will occur. XM and WCS Radio, Inc. have filed comments objecting to
this modification of our FCC license. We cannot predict the time it will take
the FCC to act on our application or any of these objections and we cannot be
sure that the modification we have requested will be granted.
We will need to renew our FCC license after eight years. The term of our
FCC license with respect to each satellite is eight years, beginning on the date
it is declared operational after it is inserted into orbit. When the term of our
FCC license for each satellite expires, we must apply for
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<PAGE>
a renewal of the relevant license. If the FCC does not renew our FCC license, we
would be forced to cease broadcasting CD Radio. We cannot assure you that we
will obtain these renewals.
We need FCC approval to operate our terrestrial repeating transmitters.
Although we plan to install terrestrial repeating transmitters to rebroadcast
CD Radio in some urban areas, the FCC has not yet established rules governing
the application procedure for obtaining authorizations to construct and operate
terrestrial repeating transmitters on a commercial basis. The FCC initiated a
rulemaking on the subject in March 1997 and received several comments urging the
FCC to consider placing restrictions on the ability to deploy terrestrial
repeating transmitters. We cannot predict the outcome of this process.
To install and operate our terrestrial repeating transmitters, we will also
need to obtain the rights to use towers or the roofs of some structures. Our
inability to install terrestrial repeaters in areas where we think we need them
could adversely affect the quality of reception of CD Radio service. We cannot
assure you that we can obtain these tower or roof rights on acceptable terms or
in appropriate locations for the operation of CD Radio.
The United States needs to complete frequency coordination with Mexico. To
use our assigned spectrum, the United States government must complete a process
of frequency coordination with Mexico. We cannot assure you that the United
States government will be able to coordinate use of this spectrum with Mexico or
do so in a timely manner. The United States and Canadian governments were
required to complete a similar process and have done so.
New devices may interfere with CD Radio broadcasts. The FCC has proposed
regulations to allow a new type of lighting device that may generate radio
energy in the part of the spectrum we intend to use. We believe the current
proposed regulations for these devices do not contain adequate safeguards to
prevent interference with services such as CD Radio. If the FCC fails to adopt
adequate technical standards specifically applicable to these devices and if the
use of these devices becomes commonplace, we could experience difficulties
enforcing our rights. If the FCC fails to adopt adequate standards, the new
devices could materially adversely affect reception of our broadcasts. Although
we believe that the FCC will set adequate standards to prevent harmful
interference, we cannot assure you that it will do so.
We may be adversely affected by changing regulations. To provide CD Radio,
we must retain our FCC license and obtain or retain other requisite approvals.
Our ability to do so could be affected by changes in laws, FCC regulations,
international agreements governing communications policy generally or
international agreements relating specifically to CD Radio. In addition, the
manner in which CD Radio would be offered or regulated could be affected by
these changes.
We may be adversely affected by foreign ownership restrictions. The
Communications Act of 1934 restricts ownership in some broadcasters by
foreigners. If these foreign ownership restrictions were applied to us, we would
need further authorization from the FCC if our foreign ownership were to exceed
25%. The order granting our FCC license determined that, as a private carrier,
those restrictions do not apply to us. However, the order granting our FCC
license stated that our foreign ownership status under the Communications Act
could be raised in a future proceeding. The pending appeal of the grant of our
FCC license may bring the question of foreign ownership restrictions before the
full FCC.
We could be required to comply with public service regulations. The FCC has
indicated that it may impose public service obligations on satellite radio
broadcasters in the future, which could add to our costs or reduce our revenues.
For example, the FCC could require broadcasters to set aside channels for
educational programming. We cannot predict whether the FCC will impose public
service obligations or the impact that any of these obligations would have on
our results of operations.
CONSUMERS MAY STEAL OUR SERVICE
Consumers may steal the CD Radio signal. Although we plan to use encryption
technology to mitigate signal piracy, we do not believe that this technology is
infallible. Accordingly, we cannot assure you that we can eliminate theft of the
CD Radio signal. Widespread signal theft could
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<PAGE>
reduce the number of motorists willing to pay us subscription fees and
materially adversely affect our results of operations.
OUR PATENTS MAY NOT BE SUFFICIENT TO PREVENT OTHERS FROM COPYING ELEMENTS OF OUR
SYSTEM
Although our U.S. patents cover various features of satellite radio
technology, our patents may not cover all aspects of our system. Others may
duplicate aspects of our system which are not covered by our patents without
liability to us. In addition, competitors may challenge, invalidate or
circumvent our patents. We may be forced to enforce our patents or determine the
scope and validity of other parties' proprietary rights through litigation. In
this event, we may incur substantial costs and we cannot assure you of success
in this litigation. In addition, others may block us from operating our system
if our system infringes their patents, their pending patent applications which
mature into patents or their inventions developed earlier which mature into
patents. Should we desire to license our technology, we cannot assure you that
we can do so. Assuming we pay all necessary fees on time, the earliest
expiration date on any of our patents is April 10, 2012.
WE MAY NOT BE ABLE TO SATISFY A CHANGE OF CONTROL OFFER
The indentures governing the notes and our Senior Discount Notes and the
certificates of designations for our 10 1/2% Series C Preferred Stock, 9.2%
Series A Junior Preferred Stock and 9.2% Series B Junior Preferred Stock contain
provisions that apply to a change of control of our company. If someone triggers
a change of control as defined in those instruments, we must offer to purchase
those securities. If we have to make such an offer, we cannot be sure that we
will have enough funds to pay for all the securities that holders could tender.
If we fail to pay for the notes and the Senior Discount Notes in a change of
control offer, we will be in default under the indentures for these notes and
the holders of these notes and their trustees may demand that we prepay all
amounts outstanding under these notes. If we fail to pay for the 10 1/2%
Series C Preferred Stock in a change of control offer, the holders of a majority
of this class of stock will be able to elect directors constituting at least 25%
of our board of directors, up to a maximum of two directors. If we fail to pay
for the 9.2% Series A Junior Preferred Stock and the 9.2% Series B Junior
Preferred Stock in a change of control offer because of our obligations to other
holders of our debt securities or preferred stock, we must use our best efforts
to satisfy these obligations or to obtain permission to repurchase these classes
of preferred stock.
THE SECURITY FOR THE NOTES MAY NOT BE SUFFICIENT TO MAKE PAYMENTS ON THE NOTES
Our obligations under the Senior Discount Notes Indenture and the Senior
Discount Notes are, and our obligations under the indenture and the notes are
secured by a pledge of the Pledged Stock. We cannot assure you that proceeds
from the sale of the Pledged Stock will be sufficient to satisfy amounts due on
the notes. Satellite CD Radio, Inc. conducts no business activities and its only
asset is our FCC license. The notes are not secured by any lien on, or other
security interest in, any of our other properties or assets or any properties or
assets of Satellite CD Radio, Inc., except that during the first three years
after the date the notes are issued, the notes are secured by a portfolio of
U.S. government securities in an amount sufficient to pay the first six payments
of interest on the notes. In addition, the indenture permits us to incur other
secured indebtedness which may, in the future, be secured on an equal basis with
the notes with respect to the Pledged Stock.
If, upon a foreclosure on the Pledged Stock, the proceeds from the Pledged
Stock are insufficient to satisfy the entire amount due on the notes and on the
Senior Discount Notes, the claim by the holders of the notes against us for this
deficiency would rank equally with the claims of the other general,
unsubordinated creditors of CD Radio. We cannot assure you that the remaining
assets of CD Radio would be sufficient to satisfy this deficiency.
The trustee under the indenture may not exercise any rights with respect to
the Pledged Stock upon the occurrence of an Event of Default (as defined in the
indenture) if this action would
21
<PAGE>
constitute, or result in any, assignment of our FCC license or any change of our
control unless the prior approval of the FCC is first obtained. We cannot assure
you that any required FCC approval can be obtained on a timely basis, or at all.
CONTROL BY EXISTING STOCKHOLDERS
As of May 31, 1999, our executive officers and directors beneficially owned
or could vote approximately 19% of our outstanding common stock. In addition, as
of that date, our executive officers and directors together with Prime 66 and
the Apollo Investors beneficially owned or could vote approximately 47% of our
outstanding common stock (assuming conversion of the Junior Preferred Stock). As
a result of this concentration of ownership, these stockholders, if they choose
to act in concert, may exert considerable influence over our management and
policies. Similarly, some or all of these stockholders could delay, defer or
prevent a change of control.
THERE IS NO PUBLIC MARKET FOR THE NOTES
Before the offering of the notes, there has been no public market for the
notes and we do not intend to apply for the listing of the notes on any
securities exchange or for quotation of the notes on The Nasdaq Stock Market,
Inc. We have been advised by the initial purchasers that they presently intend
to make a market in the exchange notes, as permitted by applicable laws and
regulations. The initial purchasers are not obligated, however, to make a market
in the exchange notes and any market making activity may be discontinued at any
time without notice at the sole discretion of each initial purchaser. This
market-making activity will be restricted by limitations imposed by the
Securities Act and the Exchange Act, and may be limited during our exchange
offer for the notes. We cannot assure you as to the liquidity of the public
market for the exchange notes or that an active public market for the exchange
notes will develop. If an active public market does not develop, the market
price and liquidity of the exchange notes may be adversely affected. Please
refer to the section in this prospectus entitled 'Plan of Distribution.'
Historically, the market for non-investment grade debt has been affected by
disruptions that have caused substantial volatility in the prices of securities
similar to the exchange notes. We cannot assure you that any market for the
exchange notes will not be affected by similar disruptions.
THE ISSUANCE OF THE EXCHANGE NOTES MAY ADVERSELY AFFECT THE MARKET FOR THE
INITIAL NOTES
If initial notes are tendered for exchange and accepted in the exchange
offer, the trading market for the untendered and tendered but unaccepted initial
notes could be adversely affected. Please refer to the section in this
prospectus entitled ' -- Your failure to participate in the exchange offer will
have adverse consequences.'
YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
The initial notes were not registered under the Securities Act or under the
securities laws of any state and you may not resell them, offer them for resale
or otherwise transfer them unless they are subsequently registered or resold
under an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your initial notes for
exchange notes pursuant to this exchange offer, or if you do not properly tender
your initial notes in this exchange offer, you will not be able to resell, offer
to resell or otherwise transfer the initial notes unless they are registered
under the Securities Act or unless you resell them, offer to resell or otherwise
transfer them under an exemption from the registration requirements of, or in a
transaction not subject to, the Securities Act. In addition, you may no longer
be able to obligate us to register the initial notes under the Securities Act.
22
<PAGE>
SOME PERSONS WHO PARTICIPATE IN THE EXCHANGE OFFER MUST DELIVER A PROSPECTUS IN
CONNECTION WITH RESALES OF THE EXCHANGE NOTES
Based on certain no-action letters issued by the staff of the Commission,
we believe that you may offer for resale, resell or otherwise transfer the
exchange notes without compliance with the registration and prospectus delivery
requirements of the Securities Act. However, in some instances described in this
prospectus under 'The Exchange Offer,' you will remain obligated to comply with
the registration and prospectus delivery requirements of the Securities Act to
transfer your exchange notes. In these cases, if you transfer any exchange note
without delivering a prospectus meeting the requirements of the Securities Act
or without an exemption from registration of your exchange notes under the
Securities Act, you may incur liability under this act. We do not and will not
assume, or indemnify you against, this liability.
HOLDERS OF EXCHANGE NOTES WILL BE TAXED ON ORIGINAL ISSUE DISCOUNT
The exchange notes will be deemed to be issued at a substantial discount
from their principal amount. Consequently, holders of exchange notes generally
will be required to include amounts in gross income for United States federal
income tax purposes in advance of receipt of the cash payments to which this
income is attributable. If the exchange notes are treated as 'applicable high
yield discount obligations,' our deductions with respect to the original issue
discount on the exchange notes will be either deferred until we make the
related payments or possibly, in part, disallowed. Please refer to the section
in this prospectus entitled 'Certain United States Federal Income Tax
Considerations' for a more detailed discussion of the United States federal
income tax consequences to holders of the purchase, ownership and disposition of
the exchange notes and of the possible deferral or disallowance (in part) of
original issue discount deductions to us.
If a bankruptcy case is commenced by or against us under the United States
Bankruptcy Code after the issuance of the exchange notes, the claim of a holder
of exchange notes may be limited to an amount equal to the sum of (1) the
initial public offering price for the notes and (2) that portion of the original
issue discount that is not deemed to constitute 'unmatured interest' for
purposes of the United States Bankruptcy Code. Any original issue discount that
was not amortized as of the date of the commencement of this bankruptcy filing
would constitute 'unmatured interest.'
23
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes in exchange for the initial notes. We are making this exchange solely to
satisfy our obligations under our registration rights agreement. In
consideration for issuing the exchange notes, we will receive initial notes in
aggregate value equal to the value of the exchange notes.
SOURCES AND USES OF FUNDS BY CD RADIO
The following table describes the estimated sources and uses of funds by CD
Radio from its inception through the end of the fourth quarter of 2000, when CD
Radio is expected to commence commercial operations. Assuming the availability
of the funds committed or identified to date, we anticipate that we will require
approximately an additional $138 million to finance additional expenses before
the commencement of operations. We anticipate additional funding requirements of
$100 million to fund our operations through the first full year of operations.
The projection of total sources and total uses of funds is forward looking and
could vary, perhaps substantially, from actual results, due to events outside
our control, including unexpected costs and unforeseen delays. Please refer to
the section in this prospectus entitled 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Special Note Regarding Forward
Looking Statements.'
PRE-OPERATIONAL PERIOD
SOURCES OF FUNDS
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Net Funds Committed or Identified to Date:
Vendor and bank financing(1)....................... $ 269
Senior Discount Notes.............................. 117
Preferred Stock(2)................................. 250
Common Stock and Warrants(3)....................... 191
Option for sale of Preferred Stock(4).............. 63
Proceeds of the initial notes offering............. 110
------
Funds to date................................. 1,000
Future funds(5)......................................... 138
------
Total pre-operational sources................. $1,138
------
------
</TABLE>
USES OF FUNDS
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
FCC License............................................. $ 83
Loral Satellite Contract(6):
Satellites......................................... 453
Launch services.................................... 280
Insurance............................................... 30
Ground segment(7)....................................... 113
Operating and other cash expenses(8).................... 179
------
Total pre-operational uses.................... $1,138
------
------
</TABLE>
(footnotes on next page)
24
<PAGE>
(footnotes from previous page)
(1) Consists of (a) our existing credit facility provided by Bank of America and
other lenders in an aggregate principal amount of up to $115 million,
(b) $50 million of vendor financing provided by Loral and (c) an additional
credit facility Bank of America may (but is not obligated to) arrange for
us, net of approximately $6 million of expenses. Our existing credit
facility matures on the earlier of February 29, 2000 and ten days prior to
the launch of our second satellite. We have also entered into an agreement
with Bank of America under which Bank of America has agreed to attempt to
arrange a syndicate of lenders to provide a second term loan facility in the
aggregate principal amount of $225 million. Bank of America has not
committed to provide these loans and we cannot assure you that these loans
will be arranged or the terms of these loans will be acceptable to us. See
'Description of Certain Indebtedness -- Vendor Financing' and 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources.'
(2) Includes (a) net proceeds of approximately $121 million from the issuance of
5,400,000 shares of 5% Preferred Stock in a private placement and (b) net
proceeds of approximately $129 million from the issuance of 1,350,000 shares
of our 9.2% Series A Junior Preferred Stock to the Apollo Investors.
(3) Includes (a) an aggregate of $22 million raised before the award of our FCC
license, (b) $24.5 million of net proceeds from the sale of 1,905,488 shares
of Common Stock to Loral Space & Communications Ltd. in August 1997,
(c) $46.4 million of net proceeds from the sale of 3,050,000 shares of
Common Stock in a public offering in November 1997 and (d) $98 million of
net proceeds from the sale of 5,000,000 shares of Common Stock to Prime 66
in November 1998.
(4) The Apollo Investors have granted us an option, expiring September 30, 1999,
to sell them a total of 650,000 shares of 9.2% Series B Junior Preferred
Stock for $65 million, which is expected to result in net proceeds to us of
$63 million.
(5) We currently expect to satisfy our future funding requirements through the
issuance of additional debt and/or equity securities in the public or
private markets. If Bank of America is unable to arrange a new credit
facility, we will need to raise an additional $221 million to fund our
operations through the end of the fourth quarter of 2000.
(6) This amount includes $15 million of long-lead time parts for a fifth
satellite. As of March 31, 1999, we had incurred none of this amount.
(7) Includes (a) an estimated $57 million for the construction and development
of our National Broadcast Studio, which includes costs associated with the
acquisition of programming, the purchase of tracking, telemetry and control
equipment and the construction of two earth stations in South America by
Loral Skynet, and (b) $56 million for terrestrial repeaters.
(8) Includes (a) cumulative historical cash operating expenses through
March 31, 1999 of approximately $62 million including $25.7 million of
expenses resulting primarily from our termination of our launch agreement
with Arianespace, and (b) projected operating and other capital expenses,
including operation of our terrestrial repeater network, pre-operational
marketing expenses, expenses relating to the development of receivers and
other general and administrative expenses from January 1, 1999 through the
end of the pre-operational period of $129 million.
25
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of CD Radio as
of March 31, 1999 (1) on a historical basis; and (2) as adjusted for the sale of
the units consisting of initial notes and warrants after deducting the fees of
the initial purchasers and other estimated expenses.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and marketable securities, at $208,227 $318,927
market(1).................................................
-------- --------
-------- --------
Restricted investments(2)................................... $ -- $ 79,300
-------- --------
-------- --------
Debt obligations:
Short-term notes payable............................... $ 79,814 $ 79,814
-------- --------
-------- --------
Long-term obligations
Deferred satellite payments, long-term................. 32,132 32,132
15% Senior Secured Discount Notes due 2007............. 161,707 161,707
14 1/2% Senior Secured Notes due 2009.................. -- 168,618
-------- --------
Total long-term debt obligations.................. 193,839 362,457
-------- --------
10 1/2% Series C Convertible Preferred Stock................ 161,169 161,169
9.2% Series A Junior Cumulative Convertible Preferred
Stock..................................................... 140,788 140,788
Stockholders' Equity
Common Stock, at par value, $0.001 per share(3)........ 23 23
Warrants(3)............................................ -- 31,382
Additional paid-in capital............................. 142,433 142,433
Accumulated deficit.................................... (82,113) (82,113)
-------- --------
Total capitalization.............................. $556,139 $756,139
-------- --------
-------- --------
</TABLE>
- ------------
(1) Marketable securities consist of fixed income securities with a maturity at
the time of purchase of greater than three months.
(2) Consists of the securities held by the trustee for the benefit of the
holders of the notes.
(3) All capitalization information excludes: (a) options outstanding as of
March 31, 1999 to purchase 4,408,850 shares of Common Stock, (b) warrants
issuable as of March 31, 1999 to purchase 2,784,322 shares of Common Stock
and (c) warrants issued to Ford to purchase 4,000,000 shares of our Common
Stock.
26
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected consolidated financial data for CD Radio shown below as of and
for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 are derived
from CD Radio's respective audited consolidated financial statements. The
financial information as of and for the three months ended March 31, 1998 and
1999 is derived from the unaudited consolidated financial statements
incorporated by reference into this prospectus. In the opinion of management,
the unaudited consolidated financial statements include all adjustments,
consisting of normal recurring accruals, that are necessary for a fair
presentation of the financial position and results of operations for these
periods. You should read the selected consolidated financial data together with
the Consolidated Financial Statements, the related notes and the information
contained in this prospectus under the heading 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues.................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss(1)........................... (4,065) (2,107) (2,831) (4,737) (48,396) (5,838) (10,444)
Preferred stock dividends............. -- -- -- (2,338) (19,380) (4,781) (7,330)
Preferred stock deemed dividends(2)... -- -- -- (51,975) (11,676) -- (2,256)
Accretion of dividends in connection
with the issuance of warrants on
preferred stock..................... -- -- -- -- (6,501) (4,275) (74)
Net loss applicable to common
stockholders........................ (4,065) (2,107) (2,831) (59,050) (85,953) (14,894) (20,104)
Per common share:
Net loss (basic and diluted).......... (0.48) (0.23) (0.29) (0.41) (2.70) (0.36) (0.45)
Preferred stock dividend.............. -- -- -- (0.20) (1.08) (0.30) (0.31)
Preferred stock deemed dividend....... -- -- -- (4.47) (0.65) -- (0.10)
Accretion of dividends in connection
with the issuance of warrants on
preferred stock..................... -- -- -- -- (0.36) (0.27) (0.01)
Net loss applicable to common
stockholders........................ (0.48) (0.23) (0.29) (5.08) (4.79) (0.93) (0.87)
Weighted average common shares
outstanding (basic and diluted)..... 8,398 9,224 9,642 11,626 17,932 16,049 23,220
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents............. $ 3,400 $ 1,800 $ 4,584 $ 900 $204,753 $160,794 $162,057
Marketable securities, at market(3)... -- -- -- 169,482 60,870 -- 46,170
Working capital....................... 2,908 1,741 4,442 170,894 180,966 161,429 104,489
Total assets.......................... 3,971 2,334 5,065 323,808 643,880 336,855 662,846
Short-term notes payable.............. -- -- -- -- 70,863 -- 79,814
Deferred satellite payments........... -- -- -- -- 31,324 -- 32,132
Long-term debt........................ -- -- -- 131,387 153,033 150,508 161,707
10 1/2% Series C Preferred Stock...... -- -- -- 176,025 156,755 115,323 161,169
9.2% Series A Preferred Stock......... -- -- -- -- 137,755 -- 140,788
Deficit accumulated during the
development stage................... (13,598) (15,705) (18,536) (23,273) (71,669) (29,110) (82,113)
Stockholders' equity.................. 3,431 1,991 4,898 15,980 77,953 70,845 60,343
Book value per common share........... 0.37 0.21 0.48 1.00 3.36 4.41 2.60
</TABLE>
- ------------
(1) Included in the 1998 net loss of ($48,396) is ($25,682) of special charges
related primarily to the termination of certain launch and orbit related
contracts required when we decided to enhance our satellite delivery system
to include a third in-orbit satellite.
(2) The deemed dividend in 1997 relates to the discount feature associated with
our 5% Delayed Convertible Preferred Stock and the deemed dividend in 1998
relates primarily to the conversion feature associated with our 9.2%
Series A Junior Cumulative Convertible Preferred Stock. We computed these
deemed dividends in accordance with the Commission's position on accounting
for preferred stock which is convertible at a discount to the market price.
(3) Marketable securities consist of fixed income securities with a maturity at
the time of purchase of greater than three months.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains some forward-looking statements within the meaning
of the federal securities laws. Actual results and the timing of some events
could differ materially from those projected in the forward-looking statements
due to a number of factors, including those described under 'Risk Factors' and
elsewhere in this prospectus. See 'Special Note Regarding Forward Looking
Statements' below.
OVERVIEW
CD Radio was organized in May 1990 and is in its development stage. Our
principal activities to date have included technology development, obtaining
regulatory approval for the CD Radio service, commencement of construction of
four satellites, acquisition of content for our programming, strategic planning,
market research, recruitment of our management team and securing financing for
working capital and capital expenditures. We do not expect to generate any
revenues from operations until the first quarter of 2001, at the earliest, and
we expect that positive cashflow from operations will not be generated until the
third quarter 2001, at the earliest. In addition, we require additional capital
to complete development and commence commercial operations of CD Radio. We
cannot assure you that we will ever commence operations, that we will attain any
particular level of revenues or that we will achieve profitability. For further
information about these risks, please refer to the section of this prospectus
entitled 'Risk Factors.'
Upon commencing commercial operations, we expect our primary source of
revenues to be monthly subscription fees. We currently anticipate that our
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,
we expect to derive additional revenues from directly selling or bartering
advertising time on our non-music channels. We do not intend to manufacture the
consumer electronic devices necessary to receive CD Radio and thus will not
receive any revenues from their sale. Although we hold patents covering some of
the technology which may be used in these consumer electronic devices, we expect
to license our technology to manufacturers at no charge.
We expect 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. As of June 17, 1999, we had
55 employees and we expect to have approximately 150 employees by the time we
commence commercial operations.
In addition to funding initial operating losses, we require funds for
working capital, interest and financing costs on borrowings and capital
expenditures in the near term.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
We recorded net losses of $10,444,000 for the three months ended March 31,
1999 and $5,838,000 for the three months ended March 31, 1998. Our total
operating expenses were $11,875,000 for the three months ended March 31, 1999
and $2,333,000 for the three months ended March 31, 1998.
Engineering design and development costs were $6,911,000 for the three
months ended March 31, 1999 and $379,000 for the three months ended March 31,
1998, respectively. Engineering costs increased in the 1999 quarter primarily
due to payments to Lucent in connection with the chip set development effort and
payments to consumer electronic manufacturers in connection with receiver
development efforts.
28
<PAGE>
General and administrative expenses increased for the three months ended
March 31, 1999 to $4,964,000 from $1,954,000 for the three months ended March
31, 1998. General and administrative expenses increased due to the occupancy of
our new offices and broadcast studios and the growth of our management team and
the workforce necessary to develop and commence the broadcast of CD Radio. The
major components of general and administrative expenses in the 1999 quarter were
salaries and employment related costs (28%), rent and occupancy costs (30%) and
legal and regulatory fees (15%), while in the 1998 quarter the major components
were salaries and employment related costs (27%), rent and occupancy costs (5%),
and legal and regulatory fees (14%). The remaining portion of general and
administrative expenses (27% in the 1999 quarter and 54% in the 1998 quarter)
consists of other costs such as insurance, market research, consulting, travel,
depreciation and supplies, with none of these amounts exceeding 10% of the
total.
The increase of interest and investment income to $2,864,000 for the three
months ended March 31, 1999, from $2,318,000 in the three months ended March 31,
1998, was the result of a higher average balances of cash and marketable
securities during the first quarter of 1999. We obtained the additional cash and
marketable securities from the stock sales during the fourth quarter of 1998.
Interest expense, net of capitalized interest, was $1,433,000 in the 1999
quarter compared with $5,823,000 in the 1998 quarter and capitalized interest
was $10,127,000 in the 1999 quarter compared with $277,000 in the 1998 quarter.
Gross interest expense was $11,560,000 in the 1999 quarter and $6,100,000 in the
1998 quarter. This increase was primarily due to interest expense on the
short-term notes payable and the deferred satellite payments, neither of which
were outstanding in the 1998 quarter.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
We recorded net losses of $48,396,000 ($2.70 per share) for the year ended
December 31, 1998 and $4,737,000 ($.41 per share) for the year ended
December 31, 1997. Our total operating expenses were $39,079,000 in 1998 and
$6,865,000 in 1997. Excluding the special charges recorded in the second quarter
of 1998 totaling $25,682,000 which related primarily to the termination of
certain launch and orbit related contracts required when we decided to enhance
our satellite delivery system to include a third in-orbit satellite, we recorded
net losses of $22,714,000 and operating costs of $13,397,000 in 1998.
Legal, consulting and regulatory fees increased to $4,064,000 in 1998 from
$3,236,000 in 1997. The increase in the level of expenditures was primarily the
result of greater consulting expenses due to the accelerated execution of our
business plan. Consulting fees were generated primarily in connection with the
technical aspects of our business plan, such as satellite construction, chip set
design and terrestrial repeater network build-out. The major components of
legal, consulting and regulatory fees in the 1998 period were legal (48%),
consulting (50%) and regulatory (2%), while in the 1997 period the major
components were legal (51%), consulting (44%) and regulatory (5%).
Research and development costs were $22,000 in 1998, compared with $57,000
in 1997. This level of research and development cost is the result of our
completing the majority of these activities in 1994.
Other general and administrative expenses increased to $9,311,000 in 1998
from $3,572,000 in 1997. General and administrative activities have grown as we
continue to expand our management team and the workforce necessary to develop
and commence the broadcast of CD Radio. The major components of other general
and administrative costs in 1998 were salaries and employment related costs
(51%) and rent and occupancy costs (24%), while in the 1997 period the major
components were salaries and employment related costs (57%) and rent and
occupancy costs (11%). The increase in the percentage of the total costs related
to rent and occupancy was due to our taking possession of the premises where our
National Broadcast Studio is being constructed. The remaining portion of other
general and administrative costs (25% in 1998 and 32% in 1997) consists of other
costs such as insurance, market research, travel, depreciation and supplies,
with no amount exceeding 10% of the total.
29
<PAGE>
Interest and investment income increased to $7,250,000 in 1998 from
$4,074,000 in 1997. The increase was the result of a higher average investment
balance throughout 1998 than 1997. The higher average investment balance was due
to the completion of the sales of stock to both Prime 66 and the Apollo
Investors in 1998 and the unexpended proceeds from our 1997 securities
offerings.
Interest expense, net of capitalized interest, was $14,272,000 in 1998 and
$1,946,000 in 1997. This increase was due to interest expense accruing on our
Senior Discount Notes issued in November 1997. Although we recorded a net loss,
we recorded $2,295,000 of income tax expense in 1998, which is related to our
being a 'start-up' company for income tax purposes and the fact that the
interest expense on our Senior Discount Notes is deductible only when paid.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
We recorded net losses of $4,737,000 ($.41 per share) for the year ended
December 31, 1997 and $2,831,000 ($.29 per share) for the year ended
December 31, 1996. Our total operating expenses were $6,865,000 for the year
ended December 31, 1997 and $2,930,000 for the year ended December 31, 1996.
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 auction for our FCC license in April 1997, and in connection with
our public offerings of Common Stock and units consisting of Senior Discount
Notes and warrants to purchase Senior Discount Notes and the exchange offer for
our 5% Preferred Stock. The major components of legal, consulting and regulatory
fees in 1997 were legal (51%), consulting (44%) and regulatory (5%), while in
1996 the major components were legal (48%), consulting (38%) and regulatory
(14%).
Research and development costs were $57,000 for the year ended
December 31, 1997 and $117,000 for the year ended December 31, 1996. We
completed the majority of these 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 we continue to develop our business. The major components of other general
and administrative costs in 1997 were salaries and employment related costs
(57%) and rent and occupancy costs (11%), while in 1996 the major components
were salaries and employment related costs (50%) and rent and occupancy costs
(22%). The remaining portion of other general and administrative costs (32% in
1997 and 28% in 1996) consists of other costs such as insurance, market
research, travel, depreciation and supplies, with no amount exceeding 10% of the
total.
The increase in interest and investment income to $4,074,000 for the year
ended December 31, 1997, from $112,000 in the year ended December 31, 1996, was
the result of a higher average investment balance during 1997. The investments
on hand were primarily obtained from the debt and equity offerings completed 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 consisting of Senior Discount Notes and
warrants to purchase Senior Discount Notes in November 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, we had a total of cash, cash equivalents and marketable
securities of $208,227,000 and working capital of $104,489,000 compared with
cash, cash equivalents and marketable securities of $265,623,000 and working
capital of $180,966,000 at December 31, 1998. The decrease in these balances was
primarily the result of payments for satellite construction, launch vehicles and
services, payments under our agreement with Lucent and other engineering
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agreements and other operating expenses exceeding interest and investment income
during the period.
Funding Requirements. We require near-term funding to continue building our
CD Radio system. We believe we can fund our planned operations and the
construction of our satellite system into the first quarter of 2000 from the
proceeds of this offering and from our working capital. We estimate that we will
require approximately $1,138 million to develop and commence commercial
operations by the end of the fourth quarter of 2000. After giving effect to the
offering of units, consisting of initial notes and warrants, we have raised,
will have access to or will have identified sources for approximately $1,000
million (which includes $115 million of debt that must be repaid by the earlier
of February 29, 2000 and ten days prior to the launch of our second satellite),
leaving anticipated additional cash needs of approximately $138 million to fund
our operations through the fourth quarter of 2000. If Bank of America is unable
to arrange a new credit facility, we will need to raise an additional $221
million to fund our operations through the end of the fourth quarter of 2000. We
anticipate additional cash requirements of approximately $100 million to fund
our operations through the first full year of commercial operations. We expect
to finance the remainder of our funding requirements through the future issuance
of debt or equity securities, or a combination of debt and equity securities.
To build and launch the satellites necessary for the operations of CD Radio
we entered into the Loral Satellite Contract. The Loral Satellite Contract
provides for Loral to construct, launch and deliver three satellites in-orbit
and checked-out, to construct for us a fourth satellite for use as a ground
spare and to become our launch services provider. We are committed to make
aggregate payments of approximately $718 million under the Loral Satellite
Contract. We also intend to enter into an amendment to the Loral Satellite
Contract pursuant to which we will purchase $15 million of long-lead time parts
for a fifth satellite. As of December 31, 1998, $221 million of this obligation
had been satisfied. Under the Loral Satellite Contract, with the exception of a
payment made to Loral in March 1993, payments are made in installments
commencing in April 1997 and will end in December 2003. Approximately half of
these payments are contingent upon Loral meeting specified milestones in the
construction of our satellites.
If there is a satellite or launch failure, we will be required to pay Loral
the deferred amount for the affected satellite no later than 120 days after the
date of the failure. If we elect to put one of our first three satellites into
ground storage, rather than having it shipped to the launch site, the deferred
amount for that satellite will become due within 60 days of this election.
We 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. We expect our
interest expense will increase significantly when compared to our 1998 interest
expense as a result of the issuance of the notes we are offering; however, our
Senior Discount Notes, which represent a substantial portion of our planned
indebtedness, will not require cash payments of interest until June 2003. In
addition, a portion of the net proceeds of this offering will be used to
purchase a portfolio of U.S. government securities in an amount sufficient to
pay the first six payments of interest on the notes we are offering.
We cannot assure you that we will be able to obtain additional financing on
favorable terms, or at all, or that we will be able to do so in a timely
fashion. Our Senior Discount Notes Indenture, the indenture governing the notes
and the Tranche A Facility contain, and documents governing any indebtedness
incurred in the future are expected to contain, provisions limiting our ability
to incur additional indebtedness. If additional financing were not available on
a timely basis, we would be required to delay satellite and/or launch vehicle
construction to conserve cash to fund continued operations, which would cause
delays in the commencement of operations and increase costs.
The amount and timing of our actual cash requirements will depend upon
numerous factors, including costs associated with the construction and
deployment of our satellite system and the rate of growth of our business after
commencing service, costs of financing and the possibility of unanticipated
costs. Additional funds would be required if there are delays, cost overruns,
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unanticipated expenses, launch failures, launch services or satellite system
change orders, or any shortfalls in estimated levels of operating cash flow.
Sources of Funding. To date, we have funded our capital needs through the
issuance of debt and equity. As of March 31, 1999, we had received a total of
$441 million in equity capital. $192 million of our equity capital was received
in 1997 as a result of the issuance of 5,400,000 shares of 5% Preferred Stock,
resulting in net proceeds of $121 million, and 4,955,488 shares of Common Stock,
resulting in net proceeds of $71 million. A total of 1,905,488 shares of Common
Stock were sold to Loral Space & Communications, Ltd. in August 1997 and
3,050,000 shares of Common Stock were sold to the public in November 1997. On
November 2, 1998, we sold an additional 5,000,000 shares of Common Stock to
Prime 66 resulting in net proceeds of $98 million and on December 23, 1998, we
sold 1,350,000 of 9.2% Series A Junior Preferred Stock to the Apollo Investors
resulting in net proceeds of $129 million, and the Apollo Investors granted us
an option to sell them an additional 650,000 shares of the 9.2% Series B Junior
Preferred Stock for an estimated net proceeds of $63 million. As long as there
has been no material adverse change to our business, management or financial
condition, we may exercise our option to require the Apollo Investors to
purchase the 9.2% Series B Junior Preferred Stock at any time before September
30, 1999.
In May 1999, we received net proceeds of approximately $190 million from
the issuance of 200,000 units, each consisting of $1,000 aggregate principal
amount of the initial notes and three warrants, each to purchase 3.65 shares of
our common stock. We invested approximately $79.3 million of these net proceeds
in a portfolio of U.S. government securities, which we pledged as security for
the payment in full of interest on the notes through May 15, 2002. In November
1997, we received net proceeds of $116 million from the issuance of 12,910
units, each consisting of $20,000 aggregate principal amount at maturity of
Senior Discount Notes and a warrant to purchase additional Senior Discount Notes
with an aggregate principal amount at maturity of $3,000. All warrants were
exercised in 1997. The aggregate value at maturity of the Senior Discount Notes
is $297 million. The Senior Discount Notes mature on November 15, 2007 and the
first cash interest payment is due in June 2003. The indenture governing the
notes and the Senior Discount Notes Indenture contain some limitations on our
ability to incur additional indebtedness. The notes and the Senior Discount
Notes are secured by a pledge of the stock of Satellite CD Radio Inc., our
subsidiary that holds our FCC license.
On July 28, 1998, we entered into the Tranche A Facility with a group of
financial institutions (the 'Lenders'), including Bank of America as agent and a
lender, under which the Lenders agreed to provide us a term loan facility in an
aggregate principal amount of up to $115 million (the term loans under the
Tranche A Facility, the 'Tranche A Loans'). The proceeds of the Tranche A Loans
are being used to fund a portion of the progress payments required to be made by
us under the Loral Satellite Contract for the purchase of launch services and to
pay interest, fees and other expenses related to the Tranche A Facility. The
Tranche A Loans are due on the earlier of February 29, 2000 and ten days prior
to the launch of our second satellite. As of March 31, 1999, we had borrowed
$79.8 million under the Tranche A Facility; substantially all of which was used
to make progress payments under the Loral Satellite Contract.
In connection with the Tranche A Facility, Loral agreed with Bank of
America that at maturity of the Tranche A Loans (including maturity as a result
of an acceleration), upon the occurrence of a bankruptcy of CD Radio or upon the
occurrence of an event of default by Loral under its agreement with Bank of
America, Loral will repurchase from the Lenders the Tranche A Loans at a price
equal to the principal amount of the Tranche A Loans plus accrued and unpaid
interest. In exchange for providing this credit support, Loral receives a fee
from us equal to 1.25% per annum of the outstanding amount of the Tranche A
Loans from time to time.
We have also entered into an agreement with Bank of America under which
Bank of America has agreed to attempt to arrange a syndicate of lenders to
provide a term loan facility (the 'Tranche B Facility') for us in the aggregate
principal amount of $225 million (the term loans under the Tranche B Facility,
the 'Tranche B Loans'). It is anticipated that a portion of the proceeds of the
Tranche B Loans would be used to repay amounts outstanding under the
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Tranche A Facility and for other general corporate purposes. Bank of America has
not committed to provide the Tranche B Loans. The closing of the Tranche B
Facility is expected to be conditioned on the satisfaction of specific
significant conditions and there is no assurance that these Tranche B Loans will
be arranged or the terms of these Tranche B Loans will be acceptable to us. If
we are unable to close the Tranche B Facility, we will seek to repay the
Tranche A Loans from the proceeds of the sale of debt securities, equity
securities, or a combination of debt and equity securities.
The Junior Preferred Stock is convertible into shares of Common Stock at a
price of $30 per share. The Junior Preferred Stock is callable by us beginning
November 15, 2001 if the current market price, as defined in the Certificate of
Designation of the Junior Preferred Stock, of our Common Stock exceeds $60 per
share for a period of 20 consecutive trading days, and in all events will be
callable beginning November 15, 2003 at a price of 100% and must be redeemed by
us on November 15, 2011. Dividends on the Junior Preferred Stock are
payable-in-kind or cash annually, at our option. Holders of the Junior Preferred
Stock have the right to vote, on an as-converted basis, on matters in which the
holders of our Common Stock have the right to vote.
Loral has agreed to defer a total of $50 million of the payments under the
Loral Satellite Contract originally scheduled for payment in 1999. These
deferred amounts bear interest at 10% per annum and all interest on these
deferred amounts will accrue until December 2001, at which time interest will be
payable quarterly in cash. The principal amounts of the deferred payments under
the Loral Satellite Contract are required to be repaid in six installments
between June 2002 and December 2003. As collateral security for these deferred
payments, we have agreed to grant Loral a security interest in our terrestrial
repeater network.
OTHER MATTERS -- THE YEAR 2000 ISSUE
The Year 2000 Issue will test the capability of business processes to
function correctly. We have undertaken an effort to identify and mitigate The
Year 2000 Issue in our information systems, product, suppliers and facilities.
Our approach to The Year 2000 Issue can be separated into four phases: (1)
define/measure -- identify and inventory possible sources of Year 2000 Issues;
(2) analyze -- determine the nature and extent of Year 2000 Issues and develop
project plans to address those issues; (3) improve -- execute project plans and
perform a majority of the testing; and (4) control -- complete testing, continue
monitoring readiness and complete necessary contingency plans. The first three
phases of the program have been completed for a substantial majority of our
mission-critical activities. Management plans to have nearly all significant
information systems and facilities through the control phase of the program by
mid-1999.
We have also communicated with our significant vendors and suppliers to
determine the extent to which we are vulnerable to the failure of these parties
to remedy Year 2000 Issues. We can give no assurance that failure to address the
Year 2000 Issues by third parties on whom our systems and business processes
rely would not have a material adverse effect on our operations or financial
condition.
The total Year 2000 Issue remediation expenditures are expected to be
approximately $100,000 of which 25% was spent by March 31, 1999. Substantially
all of the remainder is expected to be spent in 1999. The activities involved in
the Year 2000 effort necessarily involve estimates and projections of activities
and resources that will be required in the future. These estimates and
projections could change as work progresses.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
The following cautionary statements identify important factors that could
cause our actual results to differ materially from those projected in the
forward looking statements made in this prospectus. Any statements about our
expectations, beliefs, plans, objectives, assumptions or future events or
performance are not historical facts and may be forward looking. These
statements are often, but not always, made through the use of words or phrases
such as 'will likely result,' 'are expected to,' 'will continue,' 'is
anticipated,' 'estimated,' 'intends,' 'plans,' 'projection' and
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'outlook.' Accordingly, these statements involve estimates, assumptions and
uncertainties which could cause actual results to differ materially from those
expressed in them. Any forward looking statements are qualified in their
entirety by reference to the factors discussed throughout this prospectus, and
particularly the risk factors described under 'Risk Factors' in this prospectus.
Among the significant factors that have a direct bearing on our results of
operations are:
the potential risk of delay in implementing our business plan;
increased costs of construction and launch of necessary satellites;
risk of launch failure;
unproven market and unproven applications of technology;
our dependence on Loral and Lucent;
unavailability of receivers and antennas; and
our need for additional financing.
These and other factors are discussed in 'Risk Factors' and elsewhere in
this prospectus.
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward looking
statements made by us or on our behalf, you should not place undue reliance on
any of these forward looking statements. Further, any forward looking statement
speaks only as of the date on which it is made, and we undertake no obligation
to update any forward looking statement or statements to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it
is not possible for us to predict which will arise. In addition, we cannot
assess with any precision the impact of each factor on our 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.
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BUSINESS
We are building a digital quality radio service with up to 100 channels to
be broadcast directly from satellites to vehicles. CD Radio will be broadcast
throughout the continental United States, over a frequency band, the 'S-band,'
that will augment traditional AM and FM radio bands. We hold one of only two
licenses issued by the FCC to build, launch and operate a national satellite
radio broadcast system. Under our FCC license, we have the exclusive use of a
12.5 MHz portion of the S-band for this purpose. Our service, which will be
primarily for motorists, will offer 50 channels of commercial-free, digital
quality music programming and up to 50 channels of news, sports, talk and
entertainment programming. We have entered into a contract with Loral for the
construction, launch and in-orbit delivery of three satellites beginning in
January 2000. We currently expect to commence CD Radio broadcasts in the fourth
quarter of 2000, at a subscription price of $9.95 per month.
As an entertainment company, we intend to design and originate programming
on each of our 50 commercial-free music channels. Each channel will be operated
as a separate radio station, with a distinct format. Some of the music channels
will offer continuous music while others will have program hosts, depending on
the type of music programming. CD Radio will offer the following range of music
categories:
Symphonic
Chamber Music
Opera
Top of the Charts
50's Hits
60's Hits
70's Hits
80's Hits
90's Hits
Soft Rock
Love Songs
Singers & Songs
Beautiful Instruments
Broadway's Best
Big Band/Swing
Classic Jazz
Contemporary Jazz
NAC Jazz
New Age
Soul Ballads
Contemporary R&B
Classic Soul Hits
R&B Oldies
Rap/Hip Hop
Dance
Tropical
Latin Jazz
Boleros
Latin Contemporary
Merengue
Cumbia
Mexicana
TexMex
Rock en Espanol
Country Hits
Modern Country
Classic Country
Folk Rock
Alternative Rock I
Alternative Rock II
Classic Rock I
Classic Rock II
Album Rock
Hard Rock/Metal
Blues
Reggae
World Beat
Gospel
Contemporary Christian
Children's Entertainment
Programming on our non-music channels will be provided by third parties,
and to date we have entered into programming agreements with content providers
for 25 of these channels, including Bloomberg News Radio, C-SPAN, Sports Byline
USA, National Public Radio, Public Radio International, Classic Radio, Hispanic
Radio Network, World Radio Network, Speedvision Radio and Outdoor Life Radio. A
majority of our non-music channels will contain advertising, which will augment
our subscription revenue. These channels will include news and talk shows and
special interest programming directed to a diverse range of groups, including
sports enthusiasts, Hispanic listeners, truck drivers and campers.
Our music and non-music channels will be broadcast from our National
Broadcast Studio in Rockefeller Center in New York City. The National Broadcast
Studio will contain our corporate headquarters, our music library, facilities
for programming origination, programming personnel and program hosts, as well as
facilities to transmit programming to our orbiting satellites, to activate or
deactivate service to subscribers and to perform the tracking, telemetry and
control of the satellites.
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On June 15, 1999, we announced an agreement with Ford Motor Company which
anticipates Ford manufacturing, marketing and selling vehicles that include
receivers capable of receiving the CD Radio broadcasts. As part of this
agreement, Ford will be entitled to participate in a portion of the revenues
derived by us from new Ford vehicles equipped to receive CD Radio broadcasts. In
addition, we will reimburse Ford for specific costs of equipping these Ford
vehicles to receive CD Radio broadcasts and we have granted Ford warrants to
purchase 4,000,000 shares of our common stock at an exercise price of $30 per
share. Ford may exercise these warrants based upon the number of Ford vehicles
equipped to receive CD Radio broadcasts that Ford elects to manufacture, and
these warrants are fully exercisable upon 4,000,000 of these vehicles being
manufactured.
We have entered into an agreement with Lucent for the development and
manufacture of a chip set that represents the essential element of consumer
electronics devices which are capable of receiving CD Radio. On March 29, 1999,
Lucent delivered to us completed system engineering documents, completing Phase
I of the work under the agreement.
CD Radio Inc. was incorporated in the state of Delaware as Satellite
CD Radio, Inc. on May 17, 1990. On December 7, 1992, we changed our name to
CD Radio Inc., and we formed a wholly owned subsidiary, Satellite CD Radio,
Inc., that is the holder of our FCC license. Our executive offices are located
at 1221 Avenue of the Americas, New York, New York 10020, our telephone number
is (212) 584-5100 and our internet address is cdradio.com. The information on
our website is not part of this prospectus.
PROGRESS TO DATE AND SIGNIFICANT DEVELOPMENT MILESTONES
The following chart lists our past and projected development milestones. We
cannot assure you that we will be able to meet any of our projections for 1999
or 2000, including completion of our satellite launches or commencement of
commercial operations in the fourth quarter of 2000 as planned. See 'Risk
Factors.'
<TABLE>
<S> <C>
1990: CD Radio Inc. incorporated
Proposed that FCC create satellite radio service and filed
license application
1991: Conducted stationary service simulation
Conducted nationwide focus groups
1992: Radio spectrum allocated for satellite radio service
1993: Contracted with Loral for satellite construction
Conducted additional nationwide focus groups
1994: Completed initial public offering of our Common Stock
1995: Completed Loral satellite design
Designed proprietary miniature satellite dish antenna
Obtained patents for portions of our broadcast system
1996: Designed radio card adapter
</TABLE>
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<TABLE>
<S> <C>
1997: Obtained one of only two national satellite radio
broadcasting licenses from the FCC
Commenced construction of our three satellites
Recruited key programming, marketing and financial
management team
Completed strategic sale of $25 million of Common Stock to
Loral Space &
Communications, Ltd.
Completed additional debt and equity financings, raising
$315 million
1998: Expanded from 50 planned broadcast channels to 100 broadcast
channels
Ordered fourth satellite and expanded Loral's role to
provide in-orbit system delivery
Obtained $50 million of vendor financing from Loral
Obtained $115 million of financing from Bank of America and
other lenders
Signed agreement with Lucent to design, develop and
manufacture chip sets
Obtained additional patents for portions of our broadcast
system
Signed programming agreements with content providers for 16
non-music channels
Constructed terrestrial repeater network in San Francisco
Completed sale of $100 million of Common Stock to Prime 66
Completed sale of $135 million of 9.2% Series A Junior
Preferred Stock to Apollo
Investors
Began construction of National Broadcast Studio
Hired various key employees
1999: Signed agreement with Recoton to design and develop an FM
modulated receiver,
radio card and antenna
Signed agreement with Delco to design, develop and
manufacture three-band receivers
and antennas
Signed agreement with Ford for factory installation of CD
Radio receivers in new
Ford vehicles
Completed sale of $200 million of units consisting of
initial notes and warrants
Lucent completes system architecture and receiver
specifications
Complete construction of National Broadcast Studio
Commence design and construction of customer transaction
management system
Commence nationwide rollout of terrestrial repeater network
Select additional non-music content providers
2000: Commence and complete satellite launches
Commence production of devices capable of receiving
CD Radio
Complete nationwide terrestrial repeater rollout
Finalize non-music channel content
Test markets
Begin commercial operations in fourth quarter
</TABLE>
THE CD RADIO SERVICE
CD Radio will offer motorists: (1) a wide choice of finely focused music
and non-music formats; (2) nearly seamless signal coverage throughout the
continental United States; and (3) commercial-free music programming.
Wide Choice Of Programming. CD Radio will offer subscribers a broad range
of programming formats and significant depth within each format. Each of our 50
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 and therefore offer limited formats. Even in the largest
metropolitan markets
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many of our planned formats are unavailable. Additionally, we will provide news,
sports and talk programming that is generally not available on conventional
radio.
'Seamless' Signal Coverage. CD Radio will be available throughout the
continental United States, enabling listeners almost always to be within its
broadcast range. We expect that our 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 preferred FM radio broadcasts. In addition, we expect that our
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. CD Radio will provide 50 channels of
commercial-free music programming. Our 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 service, our music channels will not contain
commercials.
Our research indicates that there is a significant market for music and
other radio programming such as news, talk and sports delivered through advanced
radio technology. While television technology has advanced steadily -- from
black and white to color, from broadcast to cable and satellite, and from
ordinary to high-definition television -- the last major advance in radio
technology was the introduction of FM broadcasts.
CD Radio is primarily a service for motorists. The Yankee Group, a market
research organization, estimates that there will be approximately 200 million
registered private motor vehicles in the United States by the end of 1999.
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
over one hour commuting daily; 45 million Americans who live in markets served
by five or fewer radio stations; three million truck drivers; three million
owners of recreational vehicles; and 28 million persons of Hispanic origin.
According to 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
1998, 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.
We believe that our ability to offer a wide variety of musical and
non-musical formats simultaneously throughout the continental United States will
enable us to tap significant unmet consumer demand for specialized 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 commercial radio
stations. Although niche music categories such as classical, jazz, rap, gospel,
oldies, soundtracks, new age music, children's programming and others accounted
for approximately 33% of sales of recorded music in 1998, these formats
generally are unavailable on existing radio stations in many markets. Even in
New York City, the nation's largest radio market, there are no radio stations
devoted solely to such programming as opera, blues, chamber music, soundtracks,
reggae and many others. CD Radio's wide choice of formats is expected to appeal
to the large number of currently underserved listeners. Furthermore, CD Radio's
ability to offer a number of channels devoted to each genre will enable
subscribers to listen to a wider range of music within their preferred format.
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 system is designed to
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cover the entire continental United States, enabling listeners to enjoy
virtually seamless coverage. Our ability to broadcast nationwide will also allow
us to serve currently underserved radio markets.
We also believe that CD Radio will have a competitive advantage over
conventional radio stations because our 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. We believe that
consumers dislike frequent commercial interruptions and that 'station surfing'
to avoid them is common.
PROGRAMMING
We intend to offer 50 channels of commercial-free, all-music programming
and up to 50 additional channels of other formats, 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. We believe that 50 music
channels will enable us to 'superserve' our subscribers with a greater range of
choice of content within their preferred format than is currently offered by
terrestrial radio, even in the most widely broadcast formats. We expect that the
initial subscription fee for CD Radio, which will entitle subscribers to receive
all CD Radio channels, will be $9.95 per month.
We have recruited nine full-time and eleven consulting basis program
managers from the recording, broadcasting and entertainment industries to manage
the development of daily programming for each CD Radio music channel and intend
to recruit additional program managers. To be accessible to these industries, we
are building our National Broadcast Studio in Rockefeller Center in New York
City. Program managers also will coordinate our 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 our music library. We intend to
create an extensive music library which will consist of a deep range of recorded
music in each genre broadcast. We have begun to acquire recordings for our music
library. Through March 31, 1999, we had acquired approximately 400,000 titles,
across a broad range of music genres. We expect that our music library will
consist of approximately 2,000,000 titles when we commence commercial broadcasts
of CD Radio. We expect to update our music library with new recordings as they
are released, and in some cases, we will seek to acquire recordings that are no
longer commercially available.
In addition to our music channels, we expect to offer up to 50 channels of
news, sports and talk programming, most of which will include commercial
advertising. We generally do not intend to produce programming for our non-music
channels, and will obtain this programming from various third party content
providers. To date, we have entered into agreements for a total of 25 channels
with content providers including Bloomberg News Radio, C-SPAN, Sports Byline
USA, National Public Radio, Public Radio International, Classic Radio, Hispanic
Radio Network, World Radio Network, Wisdom Channel, Speedvision Radio and
Outdoor Life Radio.
In connection with our music programming, we will be required to negotiate
and enter into royalty arrangements with performing rights societies, such as
the American Society of Composers, Authors and Publishers ('ASCAP'), Broadcast
Music, Inc. ('BMI') and SESAC, Inc. ('SESAC'). These organizations collect
royalties and distribute them to songwriters and music publishers. Copyright
users negotiate a fee with these organizations based on a percentage of
advertising and/or subscription revenues. If the parties cannot reach agreement
with ASCAP or BMI, special judicial rate setting procedures are available under
antitrust consent decrees that govern these organizations. SESAC is not bound by
a consent decree or a special judicial rate setting mechanism. Broadcasters
currently pay a combined total of 4% of their revenues to the music performing
rights societies. We also will be required to negotiate similar arrangements
with the owners of the copyrights in sound recordings under the Digital
Performance Right in Sound
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Recordings Act of 1995 (the 'Digital Recordings Act'). The determination of some
of the royalty arrangements with the owners of sound recording copyrights under
the Digital Recordings Act were previously subject to arbitration proceedings.
In 1998, the Copyright Office reviewed the results of this arbitration and set
the royalty rate at 6.5% of the licensee's 'gross revenues resulting from
residential services in the United States' including subscription fees,
advertising and time share revenues. We believe that we will be able to
negotiate royalty arrangements with the music performing rights organizations
and the owners of sound recording copyrights, but we cannot assure you as to the
terms of the royalty arrangements ultimately negotiated or established by
arbitration or judicial rate setting.
MARKETING AND DISTRIBUTION
We plan 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. Our
marketing strategy for CD Radio has three interrelated components: (1) creating
consumer awareness of CD Radio, (2) generating subscriptions to CD Radio and (3)
generating purchases of consumer electronic devices capable of receiving
CD Radio broadcasts.
We believe that the introduction of CD Radio will have high news value,
which we expect will result in significant national and local publicity before
and during the initial launch of the service. In addition, we plan 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 us, 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.
We intend to focus our initial efforts on a number of demographic groups
that we believe represent potential target markets for CD Radio, including
commuters, niche music listeners, Hispanic listeners, sports enthusiasts, truck
drivers, recreational vehicle owners and consumers in areas with sparse radio
coverage. We also intend to aggressively target early adopters of new
technologies, who we believe are likely to have a high level of interest in
CD Radio.
Commuters. Of the 110 million commuters, we have identified 34 million as
highly addressable by virtue of their commute times averaging over one hour
daily. To reach these commuters, we plan 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 30% of the market for recorded music sales. To reach niche music
listeners, we intend to work with the recording industry to include print
material about CD Radio inside niche music compact disc packaging, place print
advertising in specialty music magazines targeted to niche music listeners and
members of fan clubs, conduct direct mailings to specialized music mailing lists
of record clubs and sponsor and advertise at certain music events.
Hispanic Market. Currently there are approximately 28 million
Spanish-speaking Americans, many of whom have limited access to Spanish language
radio, and this population group is growing rapidly and is expected to reach 36
million by 2005. We intend to broadcast a number of music and non-music channels
that will cater to the Hispanic market. We plan to purchase local television
spots on Spanish speaking channels and place advertising in national Spanish
language magazines and local Spanish language newspapers.
Sports Enthusiasts. Many fans of various sports are unable to receive
broadcasts of interest to them because events are broadcast only within limited
regional areas. We intend to broadcast a number of channels containing this
sports programming. We plan to purchase advertising on national and regional
cable television sports channels, in sports magazines and in the sports sections
of newspapers.
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
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are long-distance haulers. We intend 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. We plan 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. We believe 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, we
plan to utilize local newspaper and target direct mailings to music enthusiasts
in these areas.
We expect that FM modulated receivers and three-band receivers will be sold
through electronics superstores as well as independent autosound retailers and
that radio cards will be sold through electronics superstores, mass merchants
and direct marketing channels, such as the Internet.
SUBSCRIPTION AND BILLING
We intend to contract out our customer care functions to a national
customer service and telemarketing provider. Access to our customer service
center will be via our toll-free number, (888) CD RADIO. Operators at our
customer care center will have the ability to access our separate billing
services center for various functions, including customer activation, billing
inquiries, program service changes and address changes. When appropriate,
operators will also refer technical problems to either a CD Radio help desk, or
to the appropriate equipment manufacturer. We intend to automate customer care
functions where appropriate, either through interactive voice response
technology (IVR), or through our Web site. We expect to pay our customer service
provider based on transaction and call volume.
We also intend to contract out our customer billing and activation function
to a national billing services company. This billing center will receive
requests from our separate customer care center for actions such as radio
activations, deactivations, program service changes, and billing inquiries. This
billing center will handle all other customer processing operations, including
remittance processing, collections, interfacing to credit/debit card clearing
houses, and fulfillment processing. We expect that a large percentage of our
subscribers will pay using a credit card. However, our customer billing system
will also have the capability to do direct invoicing. There will be a modest
one-time activation fee to cover subscriber sign-up costs. The billing software
application and database will be customized to handle our unique requirements,
including interfacing and exchanging of information with automobile
manufacturers, automobile dealers and consumer electronic retailers, and
employing special techniques to address the challenge of activating and
deactivating receivers. We expect to pay our billing services company based on
transaction volumes.
THE CD RADIO DELIVERY SYSTEM
The CD Radio satellite system is designed 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 our satellites or is
within range of one of our 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
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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.
We plan to use 12.5 MHz of bandwidth in the 7060-7072.5 MHz band (or some
other suitable frequency) for uplink transmissions to our satellites. Downlink
transmission from the satellites to subscribers' will use 12.5 MHz of bandwidth
in the 2320.0-2332.5 MHz frequency band.
In May 1998, we expanded our system from 50 planned broadcast channels to
up to 100 channels. As part of that expansion, we announced our plan to change
the orbital location of our satellites from geostationary orbits over the
equator to inclined elliptical orbits. This modification will allow our
satellites to maximize the time spent over the continental United States, which
will permit us to fully utilize the bandwidth allocated to us by the FCC. Each
satellite will travel in a figure eight pattern extending above and below the
equator, and will spend approximately 16 hours per day north of the equator. A
satellite north of the equator will serve the United States at a better
elevation angle than a geostationary satellite over the equator. At any given
time, two of our three satellites will operate from the portion of the orbit
north of the equator while the third satellite will not broadcast as it
traverses the portion of the orbit south of the equator.
CD Radio is designed to broadcast the same signals from two of the three
satellites. This design involves new applications of technology that have not
been deployed and we cannot assure you that the CD Radio system will work as
planned.
The CD Radio delivery system will consist of three principal components:
(1) the satellites; (2) the receivers; and (3) the National Broadcast Studio.
THE SATELLITES
Satellite Design. Our satellites are of the Loral FS-1300 model series.
This family of satellites has a history of reliability with a total of 275 years
in-orbit operation time. The satellites are designed to have a useful life of
approximately 15 years. To ensure the durability of our satellites, we have
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 our
satellites before launch to detect assembly defects and avoid premature
satellite failure.
Our 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
approximately 81 feet long, 19 feet wide and 17 feet tall.
Our satellites will incorporate a design which will act essentially as a
'bent pipe,' relaying received signals directly to the ground. Our satellites
will not contain on-board processors. All of our processing operations will be
on the ground where they are accessible for maintenance and continuing
technological upgrade without the need to launch replacement satellites.
High Elevation Angles. We plan to place our satellites in orbits that
extend over North America to provide very high signal elevation angles and
thereby mitigate service interruptions which can result from signal blockage and
fading. Each of our two transmitting satellites will broadcast the same signal.
Memory Buffer. Our transmission design incorporates the use of a memory
buffer chip contained within the receiver. Each memory buffer chip is designed
to store signals and to mitigate service interruptions which can result from
signal blockage and fading. As with any wireless broadcast service, we expect to
experience occasional 'dead zones' where the service from our satellites will be
interrupted by nearby tall buildings, elevations in topography, tree clusters,
highway overpasses and similar obstructions; however, in most of these places,
we expect that subscribers will continue to receive a signal from their
receiver's memory buffer.
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Terrestrial Repeaters. In some areas with high concentrations of tall
buildings, such as urban cores and in tunnels, signals from our satellites will
be blocked and reception will be adversely affected. In these urban areas, we
plan to install terrestrial repeating transmitters to rebroadcast our satellite
signals, increasing the availability of service. The FCC has not yet established
rules governing these terrestrial repeaters, and we cannot predict the outcome
of the FCC's current rulemaking on this subject. We also will need to obtain the
rights to use towers or the roofs of some structures where the repeaters will be
installed. We cannot assure you that we can obtain these tower or roof rights on
acceptable terms or in all appropriate locations.
During 1998, we completed the construction and testing of our terrestrial
repeater network in San Francisco on an experimental basis. During 1999, we
expect to enter into various agreements for site acquisition, site design and
site construction services related to our terrestrial repeater network and
expect to acquire substantially all necessary sites and commence construction at
many of these sites. In addition, in 1999 we expect to enter into agreements
with vendors to purchase the broadcast equipment necessary to operate our
terrestrial repeater network.
Satellite Construction and Launch Services. In March 2, 1993, we entered
into a contract with Loral to build three satellites, two of which we intended
to launch and one of which we intended to keep in reserve as a spare. Under the
contract, we had an option to order a fourth satellite on preset price and
delivery terms. We notified Loral of the exercise of this option in March 1998.
On July 28, 1998, as a result of an evaluation of the advantages of a
three-satellite orbital configuration, we and Loral entered into the Loral
Satellite Contract. Under the Loral Satellite Contract, Loral has agreed to
construct, launch and deliver our three satellites, in-orbit and checked-out, to
construct for us a fourth satellite for use as a ground spare and to become our
launch services provider. Our four satellites are currently under construction.
All of the components of our first satellite have been substantially completed.
The main structure, or bus, for our first satellite has been fully integrated
and is undergoing testing. All of the components of our second satellite are
either substantially complete or undergoing final testing before integration.
All of the subsystems for our third and fourth satellites are also under
construction.
Each of our satellites is scheduled to be launched on Proton launch
vehicles. Loral has scheduled the launch of our first satellite for January
2000, the launch of our second satellite in March 2000, the launch of our third
satellite by May 2000 and has agreed to deliver our fourth satellite to a
designated ground storage site by August 2000. Loral expects to deliver all
three of our satellites in-orbit and checked-out by June 30, 2000. We cannot
assure you, however, that Loral will be able to meet this schedule. It is a
default under the Loral Satellite Contract if (1) we fail to maintain a minimum
net worth, (2) we fail to have sufficient funds or committed financing to pay
our obligations on a timely basis or (3) there occurs an event of default under
our existing credit agreement with Bank of America and other lenders.
Title to our first, second and third satellites will pass to us at the time
these satellites are delivered to us in-orbit and checked out. Risk of loss for
our first, second and third satellites will pass to us at the time of launch.
Title and risk of loss for our fourth satellite will pass to us at the time this
satellite is shipped to the ground storage site designated by us. Each satellite
is warranted to be in accordance with the performance specifications contained
in the Loral Satellite Contract and free from defects in materials and
workmanship. Loral's warranties will expire at the time of launch or, in the
case of our fourth satellite, two years from the date of delivery to the ground
storage site. If there is a delay in the construction of the satellites that is
caused by us, the Loral Satellite Contract provides that the terms of the
contract will be equitably adjusted.
Following the launch of each satellite, Loral will conduct an in-orbit
performance verification. If this testing shows that a satellite is not meeting
the satellite performance specifications contained in the Loral Satellite
Contract, we and Loral have agreed to negotiate an equitable reduction in the
final payment to be made by us for the affected satellite.
Satellite launches have significant risks, including destruction or damage
of the satellite during launch or failure to achieve proper orbital placement.
Although past experience is not necessarily indicative of future performance,
the Proton family of Russian-built launch vehicles has a 92%
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launch success rate based on its last 50 launches. There is no assurance that
the launches of our satellites will be successful. Satellites also may fail to
achieve a proper orbit in some instances or be damaged in space. Loral will not
bear the risk of loss for either a satellite or launch vehicle failure. However,
Loral will provide a free launch if there is a failure of the first Proton
launch vehicle which is used to launch one of our satellites. In that event, we
would attempt to launch the spare satellite that we are having constructed. See
'Risk Factors -- We Are Dependent Upon Loral to Build and Launch Our Satellites'
and ' -- Satellite Launches Have Significant Risks.'
We are relying upon Loral to arrange for the timely launch of our
satellites. Failure of Loral to arrange to launch the satellites in a timely
manner could materially adversely affect our business. Loral will not be liable
for indirect or consequential damages or lost revenues or profits resulting from
late delivery or other defaults. If Loral fails to deliver the three satellites
in-orbit and checked out by July 31, 2000 or fails to deliver the fourth
satellite to its storage site by September 30, 2000, it may be liable for
specific late delivery penalties. We cannot assure you that these remedies will
adequately mitigate any damage to our business caused by launch delays.
After reaching agreement with Loral to provide launch services, we
terminated our prior launch services agreement with Arianespace S.A.
('Arianespace') and terminated the related vendor financing with a subsidiary of
Arianespace. As a result of these terminations, we incurred a liability of
approximately $18 million. We expensed this item, together with approximately $7
million of related capitalized and other costs, in the second quarter of 1998.
Risk Management and Insurance. Three custom-designed, fully dedicated
satellites are required to broadcast all 100 planned channels of CD Radio. Our
agreement with Loral includes a free relaunch if there is a failure of the first
Proton launch vehicle used to launch one of our satellites. We intend to insure
against other contingencies, including a failure during launch caused by factors
other than the launch vehicle and failure of launch vehicles other than the
first Proton. If we are required to launch our spare satellite due to a launch
failure, our operational timetable would be delayed for up to six months. The
launch or in-orbit failure of two satellites would require us to arrange for
additional satellites to be built and could delay the commencement or
continuation of our operations by at least 16 months. See 'Risk Factors -- We
Are Dependent Upon Loral to Build and Launch Our Satellites' and ' -- Satellite
Launches Have Significant 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. Before the launch of our first satellite, we intend to
purchase insurance covering launch risks and in-orbit failure during the first
five years of operation for each of our satellites. Before the expiration of
this insurance, we intend to evaluate the need for in-orbit insurance for the
remainder of the estimated useful life of each satellite. After we have launched
our satellites and begun to generate revenues, we will evaluate the need for
business interruption insurance.
Satellites are designed to minimize the adverse effects of transmission
component failure through the incorporation of redundant components which
activate automatically or by ground command upon failure. If multiple component
failures occur, and the supply of redundant components is exhausted, the
satellite generally will continue to operate, but at reduced capacity. In that
event, signal quality may be preserved by reducing the number of channels
broadcast until a replacement satellite can be launched. Alternatively, the
number of broadcast channels may be preserved by reducing the signal quality
until a replacement satellite can be launched.
THE RECEIVERS
We expect consumers will receive CD Radio initially by purchasing specially
designed radio receivers for their existing vehicles and later through a new
generation of three-band radios installed in new vehicles by one or more major
automotive manufacturers. The market for new radio receivers installed in
existing vehicles (which is commonly referred to as the 'aftermarket') is
approximately 7 to 8 million units annually. In the automotive aftermarket, we
expect that CD Radio subscribers will initially have the choice of one of three
different receiving devices for their cars -- an FM modulated receiver, a
three-band receiver and a radio card. These devices,
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along with CD Radio satellite antennas, are expected to be manufactured and
distributed by a number of consumer electronics manufacturers. All CD Radio
receivers will have a visual display that will indicate the channel and format
selected, as well as the title, recording artist and album title of the musical
selection being played. Although we do not intend to manufacture or distribute
FM modulated receivers, three-band receivers, radio cards or antennas, in the
early years of our service their availability will be critical to us because
they will be the only means by which to receive CD Radio.
These three CD Radio receivers will offer customers a range of options in
price, ease-of-installation and quality.
FM Modulated Receivers. The CD Radio FM modulated receiver (which we call
the Satellite Audio System) will be usable in all vehicles which have an FM
radio, or approximately 95% of all U.S. vehicles. Each FM modulated receiver
will operate with a device that will be approximately the size of a 35mm camera,
and will be mounted either in the vehicle's trunk, behind the dashboard or under
a seat. Each FM modulated receiver will interface with a vehicle's existing
radio through the FM antenna input. The CD Radio data display, as well as the
controls for changing channels, will be contained in a small remote control
which will either be wired or wireless. We expect the retail price of this FM
modulated receiver, with a hard-wired satellite antenna and professional
installation, will be approximately $299. We anticipate that FM modulated
receivers will be sold through electronics superstores as well as independent
autosound retailers.
FM modulation technology is widely used in the autosound industry for the
integration of automobile compact disc changers, which typically interface with
the player unit through the FM antenna input and, like the CD Radio FM modulated
receiver, are controlled through a remote control. Approximately 700,000 FM
modulated compact disc changers were sold in the United States in 1998.
Three-Band Receivers. To address consumers who replace their vehicle's
sound system, we expect there will be available a receiver capable of receiving
AM, FM and CD Radio broadcasts. In appearance, this three-band receiver will be
nearly identical to existing aftermarket car stereos and will permit the user to
listen to AM, FM, or CD Radio with the push of a button. Like existing
conventional radios, a number of these three-band receivers may also incorporate
cassette or compact disc players. The receiver apparatus will include a
'CD Radio Ready' head-unit, which will accept the direct output of the receiver
device. We expect the retail price of these CD Radio-ready receivers, including
the receiver device, antenna and professional installation, will retail for
approximately $150 more than similar receivers which are not capable of
receiving CD Radio broadcasts. We anticipate that three-band receivers,
including the head unit and the receiver device, will be sold through electronic
superstores as well as independent autosound retailers. Our long-term objective
is to promote the adoption of three-band receivers as standard equipment in all
automobiles sold in the United States.
Radio Cards. CD Radio's wireless adapter, or radio card, will not require
professional installation and will be usable by all vehicles in the United
States equipped with a cassette player, which represents approximately 65% of
all vehicles on the road. Each radio card will include two components -- the
radio card adapter, which will insert into existing cassette slots, and a
wireless version of the CD Radio satellite antenna. The radio card will be
designed so that it can be removed by pushing the cassette player's 'eject'
button. A subscriber will be able to move a radio card from car to car, assuming
a subscriber purchases a separate antenna to receive our service. A subscriber
will simply attach the adhesive antenna to a vehicle and insert the radio card
to receive CD Radio.
The wireless satellite antenna will easily adhere to a vehicle's rear widow
using a high adhesive backing. The wireless satellite antenna will be mounted on
a small base housing a solar recharging battery and microwatt transmitter that
will relay CD Radio's broadcasts to the vehicle's radio card. Wireless satellite
dish antennas will also be sold separately, so that consumers will be able to
receive CD Radio in a vehicle that has a wireless satellite antenna attached to
it simply by moving a radio card.
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We expect the retail price of the radio card, including the wireless
satellite antenna, will be approximately $199. The radio card will be sold
though electronics superstores, mass merchant type stores and direct marketing
channels, such as the Internet.
Lucent Agreement. Each CD Radio receiving device will employ a custom
designed chip set presently being developed by Lucent. This chip set is the
essential element of all CD Radio receivers, and performs all of the digital
signal processing of CD Radio's broadcasts. On April 28, 1998, we entered into
an agreement with Lucent to develop and manufacture this chip set. On
February 2, 1999, we amended and restated this agreement with Lucent. Lucent has
agreed to use commercially reasonable efforts to deliver commercial quantities
of the chip set by June 2000. We have agreed to pay Lucent the cost of the
development work related to the chip sets, currently estimated to be
approximately $27,000,000. Approximately half of the expected payments to Lucent
are dependent upon satisfactory completion of designated development milestones.
Under our original agreement with Lucent, we had expected Lucent to deliver chip
sets by December 1999 and had expected to pay approximately $9,000,000, as the
costs of the chip set development. The design and development of the chip sets
has required more engineering resources than originally estimated. The
additional amounts paid to Lucent will be used to pay costs of these additional
engineering resources. We cannot assure you that Lucent will be able to deliver
chip sets within the time frame described above. In addition, the cost to us of
the chip set development work could exceed $27,000,000. On March 29, 1999,
Lucent delivered to us completed system engineering documents, completing the
first phase of the work under the agreement. We expect Lucent to deliver the
plans and specifications for the chip set in the third quarter of 1999.
Lucent has agreed to repay all the costs of the chip set development work,
through discounted chip set prices, after commercial production of the chip set
has begun.
Delco Agreement. On March 29, 1999, we entered into an agreement with Delco
to design, develop and manufacture three-band receivers (including the related
receiver device) and satellite antennas for sale to major automotive
manufacturers. Delco is the world's largest producer of audio systems for
original automotive equipment and is a leader in mobile communications
technology. We have agreed to pay Delco, when specified development milestones
are completed, specific costs relating to designing and manufacturing prototypes
of this three-band receiver and antenna. Delco has agreed to use commercially
reasonable efforts to complete the design and development work and have three
band receivers and antennas available for sale to automobile manufacturers by
March 2001. We cannot assure you that Delco will be able to design and develop
these three-band receivers and antennas. In addition, although we expect that
Delco will manufacture and sell substantial quantities of three-band receivers
and antennas, Delco is not required to manufacture specified quantities under
this agreement.
Recoton Agreement. On February 23, 1999, we entered into an agreement with
Recoton to design and develop specifications for the FM modulated receiver
(including the receiver device) and the radio card, and manufacture prototypes
of each. Recoton, the owner of the Jensen, Advent, AR/Acoustic Research and
Interact brands, is a worldwide manufacturer and distributer of consumer
electronic products, and is the third largest producer of aftermarket car
stereos sold in the U.S. As part of this agreement, we also agreed to deliver to
Recoton plans and specifications for a hard-wired satellite antenna, which we
have separately developed. Recoton has agreed to manufacture prototypes of this
hard-wired satellite antenna for use with FM modulated receivers and to use
commercially reasonable efforts to design and develop a wireless satellite
antenna for use with radio cards. We have agreed to pay Recoton, when specified
development milestones are completed, specific costs relating to designing and
manufacturing prototypes of the FM modulated receiver, the radio card, the
hard-wired satellite antenna and the wireless satellite antenna. Recoton has
agreed to deliver to us plans and specifications for the FM modulated receiver,
the radio card and the wireless satellite antenna within 90 business days after
Lucent delivers to us plans and specifications for the chip set (which we expect
will be in the third quarter of 1999). Similarly, Recoton has agreed to deliver
to us prototypes of the FM modulated receiver, the radio card, the hard-wired
satellite antenna and the wireless satellite antenna within 90 business days
after Lucent delivers to us prototypes of the chip set (which we expect will be
in the second quarter of 2000).
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We cannot assure you that Recoton will be able to design and develop the FM
modulated receiver, the radio card or the wireless satellite antenna or that
Recoton will be able to manufacture prototypes of the FM modulated receiver, the
radio card, the hard-wired satellite antenna or the wireless satellite antenna.
As part of our agreement with Recoton, Recoton has also agreed to negotiate
with us in good faith an agreement to manufacture, market and sell substantial
quantities of FM modulated receivers, radio cards, three-band receivers,
hard-wired satellite antennas and wireless satellite antennas which are capable
of receiving CD Radio broadcasts using Recoton's distribution network and under
our brand name. These negotiations with Recoton are in an early stage and we
cannot assure you that we will be able to complete a manufacturing and marketing
agreement with Recoton. Recoton has one of the largest distribution systems for
automotive consumer electronics with more than 1,000 retail customers, which
Recoton believes have more than 30,000 outlets in the United States and Canada.
None of the CD Radio receivers or antennas is currently available, and
other than Delco and Recoton, we are not aware of any manufacturer currently
developing these products. We have commenced discussions with several other
manufacturers regarding manufacturing receivers and antennas for retail sale in
the United States. We cannot assure you that these discussions will result in a
binding commitment by any manufacturer to produce receivers and antennas in a
timely manner so as to permit the widespread introduction of CD Radio in
accordance with our business plan or that sufficient quantities of receivers and
antennas will be available to meet anticipated consumer demand. Failure to have
at least one manufacturer develop and widely market receivers and antennas at
affordable prices, or to develop and widely market these products upon the
launch of CD Radio, would have a material adverse effect on our business. In
addition, our FCC license depends on us certifying that our system includes a
receiver design that will permit end users to access the system of the other
licensee. We may also be bound by with this interoperability requirement for any
person licensed by the FCC to provide a satellite digital audio radio service in
the future.
In addition to our agreement with Ford, we are currently in discussions
with several other automobile manufacturers to include CD Radio reception
capability either as standard or optional equipment in new cars. We do not
expect CD Radio reception capability to be included in new vehicles before
January 2001, at the earliest. Our long-term objective is to promote the
adoption of three-band radios as standard equipment in all automobiles sold in
the United States.
To reduce fraud, each CD Radio receiver will contain a security circuit
with an electronically encoded identification number. After verification of
subscriber billing information, we will transmit a digital signal to activate
the receiver's CD Radio capability. This feature will help us protect against
piracy of CD Radio's broadcasts. Through this feature, we will directly (via
satellite) deactivate receivers of subscribers who are delinquent in paying the
monthly subscription fee.
THE NATIONAL BROADCAST STUDIO
We will originate up to 100 channels of programming from our National
Broadcast Studio in Rockefeller Center in New York City. The National Broadcast
Studio will house our corporate headquarters, our music library, facilities for
programming origination, programming personnel and program hosts, as well as
facilities to transmit programming to our orbiting satellites, to activate or
deactivate service to subscribers and to perform the tracking, telemetry and
control of the satellites.
Programming will be originated at the National Broadcast Studio and
transmitted to our satellites for broadcast to CD Radio subscribers. We expect
that our broadcast transmissions will be uplinked to our satellites at
frequencies in the 7060-7072.5 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 level sufficient to enable its receipt
directly by subscribers. Service-related commands also will be relayed from the
National Broadcast Studio to our satellites for retransmission to subscribers'
receivers. These service-related commands include those required to
(1) initiate and suspend subscriber service, (2) change the encryption
parameters
47
<PAGE>
in receivers to reduce piracy and (3) activate receiver displays to show program
related information.
Tracking, telemetry and control of our orbiting satellites also will be
performed from the National Broadcast Studio. These activities will include
routine stationkeeping, such as satellite orbital adjustments and monitoring of
the satellites. Loral Skynet is designing, developing, integrating, installing
and testing our tracking, telemetry and command facilities. Loral Skynet also
will provide back-up tracking, telemetry and command capabilities from its
facility in Hawley, Pennsylvania. As part of our tracking, telemetry and command
facilities, Loral Skynet is constructing for us two earth stations in Quito,
Ecuador, and Utibe, Panama. These earth stations, which will be operated by
Loral Skynet, will permit us to continuously communicate with our satellites.
DEMONSTRATIONS OF THE CD RADIO SYSTEM
In support of our application for our FCC license, we conducted a
demonstration of our 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 satellite dish antenna installed in a car to simulate
some of the transmission characteristics of our planned system. Because there
are no commercial satellites in orbit capable of transmitting S-band frequencies
to the United States, we constructed a terrestrial simulation of our planned
system. For this purpose, we selected a test range covering several kilometers
near Washington, D.C. which included areas shadowed by buildings, trees and
overpasses. We 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 our proposed service. We also modified
the standard factory installed sound system of an automobile to create a radio
receiving AM, FM and S-band signals, and integrated our 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 test range. We have also successfully tested our system in
San Francisco, where construction of our terrestrial repeater network has been
completed. Before testing with orbiting satellites, antennas and receivers
suitable for commercial production, we cannot assure you that the CD Radio
system will function as intended. See 'Risk Factors -- Our Planned System Relies
on Unproven Applications of Technology.'
COMPETITION
We expect to face competition from two principal sources: (1) conventional
AM/FM radio broadcasting, including, when available, terrestrial digital radio
broadcasting; and (2) XM, the other holder of an FCC license to provide a
satellite-based digital audio radio service. XM recently announced that it had
entered into an exclusive agreement with General Motors Corporation, which has a
significant equity interest in XM's parent company, under which GM would install
devices capable of receiving XM's signal beginning in 2001 In addition, XM has
obtained a total of $250 million of financing from GM, Hughes Electronics
Corporation (a GM subsidiary) and several other investors.
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 our radio broadcasting competitors
have substantially greater financial resources than we do.
Unlike CD Radio, the radio industry has a well established market for its
services and generally offers 'free' broadcast reception paid for by commercial
advertising rather than by a subscription fee. In addition, some AM and FM
stations, such as National Public Radio, offer programming without commercial
interruption. Many radio stations also offer information programming of a local
nature, such as local news or traffic reports, which we may be unable to offer.
CD Radio will compete with conventional radio stations on the basis of its
targeted programming formats, nearly seamless signal coverage, freedom from
advertising and digital quality sound, features which are largely unavailable on
conventional broadcast radio.
48
<PAGE>
Currently, radio stations broadcast by means of analog signals, as opposed
to digital transmission. We believe, 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, we expect that the use of this technology
will permit digital AM sound quality to approach monaural FM sound quality and
permit digital FM broadcasts to approach compact disc sound quality. 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, we do not believe it would affect broadcasters' ability to address the
other advantages of CD Radio. In addition, we view the growth of terrestrial
digital broadcasting as a positive force that would encourage listeners to
replace existing radios and thereby facilitate the introduction of receivers
capable of receiving CD Radio broadcasts.
Although some 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: (1) these operators do not broadcast on radio frequencies
suitable for reception in a mobile environment; (2) CD Radio-type service
requires fully dedicated satellites; (3) CD Radio-type service requires a custom
satellite system design; and (4) CD Radio-type service requires regulatory
approvals, which existing satellite operators do not have.
The FCC could also grant new licenses that would enable additional
competitors to broadcast satellite radio. Finally, there are many portions of
the electromagnetic spectrum that are currently licensed for other uses and some
other portions for which licenses have been granted by the FCC without
restriction as to use, and we cannot assure you that these portions of the
spectrum could not be utilized for satellite radio broadcasting in the future.
Although any of these licensees would face cost and competition barriers, we
cannot assure you that there will not be an increase in the number of
competitors in the satellite radio industry.
TECHNOLOGY AND PATENTS
We have been granted U.S. patents on various features of satellite radio
technology. We cannot assure you, however, that any U.S. patent issued to us
will cover our actual commercialized technology or will not be circumvented by
others, or that if challenged would be held to be valid. We have 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 been
granted patents in a number of these countries. We cannot assure you that
additional foreign patents will be awarded to us or, if any of these patents are
granted, that the laws of foreign countries where we receive patents will
protect our proprietary rights to our technology to the same extent as the laws
of the United States. Although we believe that obtaining patent protection may
provide benefits, we do not believe that our business is dependent on obtaining
patent protection or successfully defending any of the patents that may be
obtained against infringement by others.
Some of our know-how and technology is not the subject of U.S. patents. To
protect our rights, we require some of our employees, consultants, advisors and
collaborators to enter into confidentiality agreements. We cannot assure you,
however, that these agreements will provide meaningful protection for our trade
secrets, know-how or other proprietary information if there is any unauthorized
use or disclosure. In addition, our business may be adversely affected by
competitors who independently develop competing technologies.
Our proprietary technology was principally developed by Robert D. Briskman,
CD Radio's co-founder, and was assigned and belongs to us. We believe that we
are the sole owner of the technology covered by our issued patents. We cannot
assure you, however, that third parties will not bring suit against us for
patent infringement or for declaratory judgment to have our patents declared
invalid. On January 12, 1999, we filed a lawsuit against XM in the United States
District
49
<PAGE>
Court for the Southern District of New York. The lawsuit alleges patent
infringement by XM of our U.S. Patent Nos. 5,319,673, 5,485,485 and 5,592,471.
See ' -- Legal Proceedings.'
If a dispute arises concerning our patents, trade secrets or know-how,
litigation might be necessary to enforce our patents, to protect our trade
secrets or know-how or litigation may occur to determine the scope of the
proprietary rights of others. This litigation could result in substantial cost
to, and diversion of effort by, us, and adverse findings in any proceeding could
subject us to significant liabilities to third parties, require us to seek
licenses from third parties or otherwise adversely affect our ability to
successfully develop and market CD Radio.
GOVERNMENT REGULATION
As an operator of a privately owned satellite system, we are regulated by
the FCC under the Communications Act. The FCC is the government agency with
primary authority in the United States over satellite radio communications. We
currently must comply with regulation by the FCC principally with respect to
(1) the licensing of our satellite system; (2) preventing interference with or
to other users of radio frequencies; and (3) compliance with rules that the FCC
has established specifically for United States satellites and rules that the FCC
has established for providing a satellite radio service.
On May 18, 1990, we 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. We were a winning bidder for one of two FCC licenses with a
bid of approximately $83 million. XM was the other winning bidder for an FCC
license with a bid of $89 million. After payment of the full amount by us, on
October 10, 1997, the FCC's International Bureau issued us a license to place
two satellites in a geostationary orbit. Our FCC license was 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 our application for an FCC license were entitled to petition the
International Bureau to reconsider its decision to grant the FCC license to us
or request review of the decision by the full FCC. An application for review by
the FCC was filed by one of the low-bidding applicants in the auction. This
petition requests, among other things, that the FCC adopt restrictions on
foreign ownership, which were not applied in the license issued to us by the
FCC's International Bureau on October 10, 1997 (the 'IB Order'), and, on the
basis of our ownership, overrule the IB Order. Since December 1997, there have
been no further developments concerning this petition.
Although we believe the FCC will uphold the IB Order, we 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 to overturn the grant of our FCC license.
Under the FCC Licensing Rules, we are required to meet specific progress
milestones. We are required to begin satellite construction within one year of
the grant of our FCC license; to launch and begin operating our first satellite
within four years; and to begin operating our entire system within six years.
The IB Order states that failure to meet these milestones will render our FCC
license null and void. On May 6, 1997, we notified the FCC that we had begun
construction on the first of our 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. To
date, the FCC has not responded to the petition for reconsideration. We cannot
predict the outcome of this petition.
In 1998, we decided to increase the number of satellites in our system from
two to three and modify our orbits from geostationary to inclined, elliptical
geosynchronous, requiring modification of our FCC license. On December 11, 1998,
we filed an application with the FCC for this modification. Although we believe
that the FCC will approve our application for this change, we cannot assure you
that this will occur. XM and WCS Radio Inc. have filed comments opposing our
application with the FCC. We cannot predict the time it will take the FCC to act
on our
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<PAGE>
application. Failure of the FCC to approve the requested modification to our
license in a timely fashion would have a material adverse effect on our
business, financial condition and prospects.
The term of our 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, we
will be required to apply for a renewal of the relevant FCC license. Although we
anticipate that, absent significant misconduct on our part, the FCC licenses
will be renewed in due course to permit operation of our satellites for their
useful lives, and that a license would be granted for any replacement
satellites, we cannot assure you of this renewal or grant.
The spectrum allocated by the FCC for satellite radio in the United States
is used in Canada and Mexico for terrestrial microwave links, mobile telemetry
and other purposes. In September 1998, the United States government and Canada
reached an agreement to coordinate the use of this spectrum. Under the rules
adopted by the FCC on March 3, 1997 for the national satellite radio broadcast
service, the United States government must still coordinate the United States'
use of this spectrum with the Mexican government before our satellites may
become operational. The FCC Licensing Rules require that both ourselves and XM
successfully complete detailed frequency coordination with existing operations
in Mexico, and the IB Order conditions our FCC license on this coordination.
Although the United States government has begun this coordination process with
Mexico, we cannot assure you that we will be able to coordinate the use of this
spectrum with Mexican operators or will be able to do so in a timely manner.
To operate our satellites, we also will have to obtain a license from the
FCC to operate our uplink facility. Normally, this approval is sought after
issuance of an FCC license. Although we cannot assure you that these licenses
will be granted, we do not expect difficulties in obtaining a feeder link
frequency and ground station approval in the ordinary course.
In the future, any assignments or transfers of control of our FCC license
must be approved by the FCC. We cannot assure you that the FCC would approve any
of these transfers or assignments.
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 our satellites. In some areas with high concentrations
of tall buildings, such as urban cores, or in tunnels, signals from our
satellites will be blocked and reception will be adversely affected. In these
cases, we plan 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 our ability to deploy our terrestrial repeating transmitters.
The repeaters we have constructed in San Francisco are operating under temporary
experimental licenses. We cannot predict the outcome, or the timing of, these
FCC proceedings. In addition, in connection with the installation and operation
of our terrestrial repeating transmitters, we need to obtain the rights to use
towers or the roofs of some structures where the transmitters will be installed.
We cannot assure you that we can obtain these tower or roof rights on acceptable
terms or in appropriate locations for the operation of CD Radio.
The IB Order conditions our FCC license on us certifying that our system
includes a receiver design that will permit end users to access XM's system. We
have made progress towards developing a receiver which is interoperable with the
satellite digital audio radio system XM is constructing. However, because of the
various technological challenges involved in designing an interoperable
receiver, we cannot predict whether we will be able to satisfy this
interoperability requirement. Complying with this interoperability requirement
could make the devices capable of receiving CD Radio broadcasts and the related
antenna more difficult and costly to manufacture. Accordingly, this
interoperability requirement could delay the commercial introduction of these
products or require that they be sold at higher prices.
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The FCC has proposed to update regulations for a new type of lighting
device that may generate radio energy in the part of the spectrum to be used by
us. The devices would be required to comply with FCC rules that prohibit these
devices from causing harmful interference to an authorized radio service such as
CD Radio. However, unless the FCC adopts adequate technical standards
specifically applicable to these devices, it may be difficult for us to enforce
our rights if the use of these devices were to become commonplace. We believe
that the currently proposed FCC rules must be strengthened to assure protection
of our spectrum. The FCC's failure to adopt adequate standards could have a
material adverse effect on reception of our broadcasts. We believe that the FCC
will set adequate standards to prevent harmful interference, although we cannot
assure you that it will do so.
Our business operations as currently contemplated may require a variety of
permits, licenses and authorizations from governmental authorities other than
the FCC, but we have not identified any permit, license or authorization that we
believe could not be obtained in the ordinary course of business.
The Communications Act prohibits the issuance of a license to a foreign
government or a representative of a foreign government, and contains limitations
on the ownership of common carrier, broadcast and some other radio licenses by
non-U.S. citizens. We are regulated as a private carrier, not a common carrier,
by the FCC. As such, the IB Order determined that we are not bound by the
foreign ownership provisions of the Communications Act. The FCC has before it a
petition to apply the foreign ownership rules to digital audio radio services,
but has not acted on that petition or indicated that it is likely to do so in
the near future. As a private carrier, we are free to set our own prices and
serve customers according to our own business judgment, without economic
regulation.
The foregoing discussion reflects the application of current communications
law, FCC regulations and international agreements to our proposed service in the
United States. Changes in law, regulations or international agreements relating
to communications policy or to matters affecting specifically the services
proposed by us could adversely affect our ability to retain our FCC license and
obtain or retain other approvals required to provide CD Radio or the manner in
which our proposed service would be regulated. Further, actions of the FCC may
be reviewed by federal courts and we cannot assure you that if challenged, these
actions would be upheld.
PERSONNEL
As of June 17, 1999, we had 55 employees and 14 part time consultants. By
commencement of operations, we expect to have approximately 150 employees. The
extent and timing of the increase in staffing will depend on the availability of
qualified personnel and other developments in our business. None of our
employees is represented by a labor union, and we believe that our relationship
with our employees is satisfactory.
LEGAL PROCEEDINGS
On January 12, 1999, we filed a lawsuit against XM in the United States
District Court for the Southern District of New York. The lawsuit alleges patent
infringement by XM of our U.S. Patent Nos. 5,319,673, 5,485,485 and 5,592,471.
We are seeking, among other things, an injunction against infringement by XM by
any manufacture, use, offer for sale or sale within the scope of any claim of
U.S. Patents Nos. 5,319,673, 5,485,485 and 5,592,471. On March 1, 1999, XM
answered our complaint in this lawsuit, denying our allegations and asserting
affirmative defenses. Both XM and ourselves have requested that the other
produce specific documents and answer interrogatories and this process is
proceeding. While we believe that we should prevail in this lawsuit, we cannot
assure you that the Court will rule in our favor.
Except as described above, we are not a party to any material litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are described below. Our directors
stand for election annually.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH CD RADIO
---- --- -------------------------
<S> <C> <C>
David Margolese........................... 41 Chairman, Chief Executive Officer and Director
Robert D. Briskman........................ 66 Executive Vice President, Engineering
and Director
Andrew J. Greenebaum...................... 37 Senior Vice President and Chief Financial
Officer
Ira H. Bahr............................... 36 Senior Vice President, Marketing
Joseph S. Capobianco...................... 49 Senior Vice President, Content
Patrick L. Donnelly....................... 37 Senior Vice President, General Counsel and
Secretary
Lawrence F. Gilberti(1)(2)................ 48 Director
Joseph V. Vittoria(1)(2).................. 63 Director
Ralph V. Whitworth(1)(2).................. 43 Director
</TABLE>
- ------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
DAVID MARGOLESE has served as Chairman and Chief Executive Officer since
August 1993, and as a director since August 1991. Before his involvement with CD
Radio, Mr. Margolese proposed and co-founded Cantel Inc., Canada's national
cellular telephone carrier, which was acquired by Rogers Communications Inc. in
1989, and Canadian Telecom Inc., a radio paging company, serving as that
company's president until the company's sale in 1987.
ROBERT D. BRISKMAN is CD Radio's co-founder and has served as Executive
Vice President, Engineering, and as a director since October 1991. Before 1986,
during his twenty-two year career at Communications Satellite Corporation, a
satellite communications company, he was responsible for the engineering and
implementation of numerous major satellite systems, including ITALSAT, ARABSAT
and CHINASAT. 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 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 has served as Senior Vice President and Chief
Financial Officer since August 1997. From August 1989 to August 1997, he held a
variety of senior management positions with The Walt Disney Company, a
diversified international entertainment corporation. 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.
IRA H. BAHR has served as Senior Vice President, Marketing, since October
1998. From June 1998 to October 1998, Mr. Bahr was Vice President, Marketing.
Previously, Mr. Bahr held senior management positions at BBDO New York, a
worldwide advertising agency. From 1992 through 1998, Mr. Bahr was Senior Vice
President and Worldwide Account Director in charge of the agency's relationship
with Federal Express. In that role, he planned, managed and executed FedEx
advertising and promotional programs around the world and worked closely with
FedEx executive management in developing long term business and branding
strategies.
JOSEPH S. CAPOBIANCO has served as Senior Vice President, Content, 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,
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including Home Box Office, a cable television service and a subsidiary of Time
Warner Entertainment Company, L.P., and ABC Radio. 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.
PATRICK L. DONNELLY has served as Senior Vice President, General Counsel
and Secretary since May 1998. From June 1997 to May 1998, he was Vice President
and Deputy General Counsel of ITT Corporation, a hotel, gaming and entertainment
corporation that was acquired by Starwood Hotels & Resorts Worldwide, Inc. in
February 1998. From October 1995 to June 1997, he was Assistant General Counsel
of ITT Corporation. Before October 1995, Mr. Donnelly was an associate at the
law firm of Simpson Thacher & Bartlett.
LAWRENCE F. GILBERTI has been a director of CD Radio since September of
1993 and served as its Secretary from November 1992 until May 1998. 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.,
our subsidiary which holds our FCC license. Mr. Gilberti is of counsel to the
law firm of Reed Smith Shaw & McClay LLP and has provided legal services to CD
Radio since 1992. From August 1994 to May 1998, Mr. Gilberti was a partner in
the law firm of Fischbein Badillo Wagner & Harding; and from 1987 to
August 1994, was an attorney with the law firm of Goodman Phillips & Vineberg.
JOSEPH V. VITTORIA has been a director of CD Radio since April 1998. Since
1997, Mr. Vittoria has served as Chairman and Chief Executive Officer of Travel
Services International, Inc., a travel services distributor, and as a member of
the Board of Overseers of Columbia Business School. From September 1987 to
February 1997, Mr. Vittoria was the Chairman and Chief Executive Officer of Avis
Inc., one of the world's largest rental car companies, and served as its
President and Chief Operating Officer during the prior five years. During that
time, Mr. Vittoria was responsible for creating the Avis Employee Stock
Ownership Plan and for the sale of Avis to HFS Incorporated in 1996.
RALPH V. WHITWORTH has been a director of CD Radio since March 1994.
Mr. Whitworth has been a principal and managing member at Relational Investors,
LLC, a private investment company, since March 1996. Since April 1998, he has
been Chairman of Apria Healthcare Group Inc., a home-health company. In January
1997, Mr. Whitworth became a partner of Batchelder & Partners, Inc., a financial
advisory firm. From August 1988 to December 1996, he was President of Whitworth
and Associates, a Washington, D.C.-based consulting firm. Mr. Whitworth was
President of United Shareholders Association, a shareholders' association, from
its founding in 1986 to 1993. Mr. Whitworth is also a director of Waste
Management, Inc. and Wilshire Technologies Inc.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Gilberti, a director, is of counsel to the law firm of Reed Smith
Shaw & McClay LLP and has provided legal services to us since 1992.
Under an agreement dated October 21, 1992, we retained Batchelder &
Partners, Inc. ('Batchelder') to provide financial consulting services. We
agreed to terminate the agreement with Batchelder on November 30, 1997; however,
the parties agreed that the termination would not affect our obligations with
respect to some transactions entered into within 24 months of the termination
date. In January 1997, Mr. Whitworth became a partner in Batchelder. In the
fiscal year ended December 31, 1998, Mr. Whitworth, as a partner in Batchelder,
received $205,149 from the total fees we paid to Batchelder. We provided options
to purchase our shares of common stock to Batchelder and on December 29, 1997,
Mr. Whitworth received a portion of these as an option to purchase 17,800 shares
of our common stock at an exercise price of $6.25. This option is exercisable
for a period of 10 years from the date of grant. In connection with the sale in
May 1999 of the units consisting of the initial notes and warrants, we paid
Batchelder a fee of $2,000,000 and Mr. Whitworth received $ of this amount.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership
of CD Radio's Common Stock as of May 31, 1999 by (1) each stockholder known by
CD Radio to be the beneficial owner of more than 5% of the outstanding Common
Stock, (2) each director of CD Radio, (3) each executive officer of CD Radio and
(4) all directors and executive officers as a group. Except as otherwise
indicated, we believe that the beneficial owners of the Common Stock listed
below, based on information furnished by these owners, have sole investment and
voting power with respect to these shares, except as otherwise provided by
community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAMES AND ADDRESS OF OF COMMON STOCK COMMON STOCK
BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
----------------------------------- ------------------ ---------------------
<S> <C> <C>
David Margolese(3) ...................................... 5,975,293% 17.6%
Prime 66 Partners, L.P.(4) .............................. 5,066,700 14.9%
201 Main Street
Suite 3200
Fort Worth, Texas 76102
Apollo Investment Fund IV, L.P.(5) ...................... 4,500,000 13.3%
Apollo Overseas Partners IV, L.P.
Two Manhattanville Road
Purchase, New York 10577
Everest Capital Master Fund, L.P.(6)(7) ................. 4,256,299 12.5%
Everest Capital Limited
c/o Morgan Stanley & Co. Incorporated
One Pierpont Plaza
10th Floor
Brooklyn, New York 11201
Darlene Friedland(8) .................................... 2,834,500 8.3%
1210 Wolseley Road
Point Piper 2027
Sydney, Australia
Loral Space & Communications Ltd.(9) .................... 1,905,488 5.6%
600 Third Avenue
New York, New York 10016
Robert D. Briskman(10) .................................. 193,190 *
Lawrence F. Gilberti(11) ................................ 50,000 *
Joseph V. Vittoria(12) .................................. 26,667 *
Ralph V. Whitworth(13) .................................. 67,800 *
Joseph S. Capobianco(14) ................................ 42,791 *
</TABLE>
(table continued on next page)
55
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAMES AND ADDRESS OF OF COMMON STOCK COMMON STOCK
BENEFICIAL OWNER OF COMMON STOCK(1) BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
----------------------------------- ------------------ ---------------------
<S> <C> <C>
Ira H. Bahr(15) ......................................... 8,571 *
Patrick L. Donnelly(16) ................................. 35,130 *
Andrew J. Greenebaum(17) ................................ 59,661 *
All Executive Officers and Directors as a Group
(9 persons)(18) ....................................... 6,459,103 19.0%
</TABLE>
- ------------
* Less than 1%
(1) This table is based upon information supplied by directors, officers and
principal stockholders. Percentage of ownership is based on shares of
Common Stock outstanding on May 31, 1999. Unless otherwise indicated, the
address of the beneficial owner is that of CD Radio.
(2) Determined as provided by Rule 13d-3 under the Exchange Act. Under this
rule, a person is deemed to be the beneficial owner of securities that can
be acquired by this person within 60 days from the date of determination
upon the exercise of options, and each beneficial owner's percentage
ownership is determined by assuming that options that are held by this
person (but not those held by any other person) and that are exercisable
within 60 days from the date of determination have been exercised.
(3) Includes 793 shares of Common Stock acquired under CD Radio's 401(k) Plan
and 1,540,000 shares of Common Stock issuable under stock options that are
exercisable within 60 days. Under a voting trust agreement (the 'Voting
Trust Agreement') entered into by Darlene Friedland, as grantor, David
Margolese, as trustee, and CD Radio, Mr. Margolese has the power to vote in
his discretion all shares of Common Stock owned or acquired in the future
by Darlene Friedland and some of her affiliates (2,834,500 shares as of
May 31, 1999) until November 20, 2002. Does not include 960,000 shares
issuable under stock options that are not exercisable within 60 days.
(4) This information is based upon the Schedule 13D dated November 12, 1998
filed by Prime 66 Partners, L.P. with the Commission.
(5) Represents 1,350,000 shares of 9.2% Series A Junior Preferred Stock which
entitles the holder to vote as if the shares had been converted to Common
Stock. Each share of 9.2% Series A Junior Preferred Stock is entitled to
three and one-third votes per share. This information is based upon the
Schedule 13D dated December 23, 1998 filed by the Apollo Investors with the
Commission.
(6) Represents 57,711 shares of Common Stock and shares of Common Stock
issuable upon conversion of 442,545 shares of Series C Preferred Stock.
This information is based upon the Schedule 13D dated December 15, 1998
filed by Everest Capital Limited with the Commission.
(7) Includes shares of Common Stock issuable under warrants to purchase
1,740,000 shares of Common Stock at a purchase price of $50 per share.
These warrants are exercisable from June 15, 1998 through and including
June 15, 2005.
(8) Under the Voting Trust Agreement, David Margolese has the power to vote in
his discretion all shares of Common Stock owned or acquired by Darlene
Friedland and some of her affiliates (2,834,500 shares as of May 31, 1999)
until November 26, 2002.
(9) This information is based on the Schedule 13D dated August 14, 1997 filed
by Loral Space & Communications Ltd. with the Commission.
(10) Includes 690 shares of Common Stock acquired under CD Radio's 401(k) Plan
and 192,500 shares of Common Stock issuable under stock options exercisable
within 60 days. Does not include 57,500 shares issuable under stock options
that are not exercisable within 60 days.
(11) Represents 50,000 shares of Common Stock issuable under stock options
exercisable within 60 days.
(footnotes continued on next page)
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(footnotes continued from previous page)
(12) Represents 26,667 shares of Common Stock issuable under stock options
exercisable within 60 days. Does not include 13,333 shares of Common Stock
issuable under stock options that are not exercisable within 60 days.
(13) Represents 67,800 shares of Common Stock issuable under stock options
exercisable within 60 days.
(14) Includes 291 shares of Common Stock acquired under CD Radio's 401(k) Plan
and 42,500 shares of Common Stock issuable under stock options exercisable
within 60 days. Does not include 57,500 shares of Common Stock issuable
under stock options that are not exercisable within 60 days.
(15) Includes 321 shares of Common Stock acquired under CD Radio's 401(k) Plan,
6,250 shares of Common Stock issuable under stock options exercisable
within 60 days and 2,000 shares of Common Stock owned by Mr. Bahr. Does not
include 93,750 shares of Common Stock issuable under stock options that are
not exercisable within 60 days.
(16) Includes 130 shares of Common Stock acquired under CD Radio's 401(k) Plan
and 35,000 shares of Common Stock issuable under stock options exercisable
within 60 days. Does not include 75,000 shares issuable under stock options
that are not exercisable within 60 days.
(17) Includes 661 shares of Common Stock acquired under CD Radio's 401(k) Plan
and 59,000 shares of Common Stock issuable under stock options exercisable
within 60 days. Does not include 166,000 shares of Common Stock issuable
under stock options not exercisable within 60 days.
(18) Includes 2,019,717 shares of Common Stock issuable under stock options
exercisable within 60 days. Does not include 1,423,083 shares issuable
under stock options that are not exercisable within 60 days.
VOTING TRUST AGREEMENT
We are party to a Voting Trust Agreement by and among Darlene Friedland, as
grantor, and David Margolese, as the voting trustee. The following is a summary
of the material provisions of the Voting Trust Agreement. The complete text of
the Voting Trust Agreement is filed with the Commission as an exhibit to the
registration statement covering the exchange notes.
The Voting Trust Agreement provides for the establishment of a trust (the
'Trust') into which there were deposited all of the shares of Common Stock owned
by Mrs. Friedland on August 26, 1997 and into which any shares of Common Stock
acquired by Mrs. Friedland, her spouse Robert Friedland, any member of either of
their immediate families or any entity directly or indirectly controlled by Mrs.
Friedland, her spouse or any member of their immediate families (the 'Friedland
Affiliates') between August 26, 1997 and the termination of the Trust must also
be deposited. The Trust will terminate on November 26, 2002.
The Voting Trust Agreement does not restrict the ability of Mrs. Friedland
or any of the Friedland Affiliates to sell, assign, transfer or pledge any of
the shares of Common Stock deposited into the Trust, nor does it prohibit Mrs.
Friedland or the Friedland Affiliates from purchasing additional shares of
Common Stock, provided those shares are deposited in the Trust, as described
above.
Under the Voting Trust Agreement, the trustee has the power to vote shares
of Common Stock held in the Trust in relation to any matter upon which the
holders of these shares of Common Stock would have a right to vote, including
without limitation the election of directors. For so long as David Margolese
remains trustee of the Trust, he may exercise these voting rights in his
discretion. Any successor trustee or trustees of the Trust must vote as follows:
on the election of directors, the trustee(s) must vote the entire number
of shares of Common Stock held by the Trust, with the number of shares of
Common Stock voted for each director (or nominee for director) determined
by multiplying the total number of votes held by the Trust by a fraction,
the numerator of which is the number of votes cast for this
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director by other stockholders of CD Radio and the denominator of which is
the sum of the total number of votes represented by all shares casting any
votes in the election of directors;
if the matter under Delaware law or the Amended and Restated Certificate
of Incorporation or the Amended and Restated Bylaws of CD Radio requires
at least an absolute majority of all outstanding shares of Common Stock of
CD Radio to be approved, the trustee(s) must vote all of the shares of
Common Stock in the Trust in the same manner as the majority of all votes
that are cast for or against the matter by all other stockholders of CD
Radio; and
on all other matters, including without limitation any amendment of the
Voting Trust Agreement for which a stockholder vote is required, the
trustee(s) must vote all of the shares in the Trust for or against the
matter in the same manner as all votes that are cast for or against the
matter by all other stockholders of CD Radio.
The Voting Trust Agreement may not be amended without the prior written
consent of CD Radio, acting by unanimous vote of the Board of Directors, and
approval of CD Radio's stockholders, acting by the affirmative vote of
two-thirds of the total voting power of CD Radio, except in limited
circumstances where amendments to the Voting Trust Agreement must comply with
applicable law.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
We are offering to exchange our exchange notes for a like aggregate
principal amount of our initial notes.
The exchange notes that we propose to issue in this exchange offer will be
substantially identical to our initial notes except that, unlike our initial
notes, the exchange notes will have no transfer restrictions or registration
rights. You should read the description of the exchange notes in the section in
this prospectus entitled 'Description of the Notes.'
We reserve the right in our sole discretion to purchase or make offers for
any initial notes that remain outstanding following the expiration or
termination of this exchange offer and, to the extent permitted by applicable
law, to purchase initial notes in the open market or privately negotiated
transactions, one or more additional tender or exchange offers or otherwise. The
terms and prices of these purchases or offers could differ significantly from
the terms of this exchange offer. In addition, nothing in this exchange offer
will prevent us from exercising our right to discharge our obligations on the
initial notes by depositing certain securities with the trustee and otherwise.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
This exchange offer will expire at 5:00 p.m., New York City time, on
, 1999, unless we extend it in our reasonable discretion. The
expiration date of this exchange offer will be at least 20 business days after
the commencement of the exchange offer in accordance with Rule 14e-1(a) under
the Exchange Act.
We expressly reserve the right to delay acceptance of any initial notes,
extend or terminate this exchange offer and not accept any initial notes that we
have not previously accepted if any of the conditions described below under
' -- Conditions to the Exchange Offer' have not been satisfied or waived by us.
We will notify the exchange agent of any extension by oral notice promptly
confirmed in writing or by written notice. We will also notify the holders of
the initial notes by mailing an announcement or by a press release or other
public announcement communicated before 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date unless
applicable laws require us to do otherwise.
We also expressly reserve the right to amend the terms of this exchange
offer in any manner. If we make any material change, we will promptly disclose
this change in a manner reasonably calculated to inform the holders of our
initial notes of the change including providing public announcement or giving
oral or written notice to these holders. A material change in the terms of this
exchange offer could include a change in the timing of the exchange offer, a
change in the exchange agent and other similar changes in the terms of this
exchange offer. If we make any material change to this exchange offer, we will
disclose this change by means of a post-effective amendment to the registration
statement which includes this prospectus and will distribute an amended or
supplemented prospectus to each registered holder of initial notes. In addition,
we will extend this exchange offer for an additional five to ten business days
as required by the Exchange Act, depending on the significance of the amendment,
if the exchange offer would otherwise expire during that period. We will
promptly notify the exchange agent by oral notice, promptly confirmed in
writing, or written notice of any delay in acceptance, extension, termination or
amendment of this exchange offer.
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PROCEDURES FOR TENDERING INITIAL NOTES
PROPER EXECUTION AND DELIVERY OF LETTERS OF TRANSMITTAL
To tender your initial notes in this exchange offer, you must use one of
the three alternative procedures described below:
(1) Regular delivery procedure: Complete, sign and date the letter of
transmittal, or a facsimile of the letter of transmittal. Have the
signatures on the letter of transmittal guaranteed if required by the
letter of transmittal. Mail or otherwise deliver the letter of transmittal
or the facsimile together with the certificates representing the initial
notes being tendered and any other required documents to the exchange agent
on or before 5:00 p.m., New York City time, on the expiration date.
(2) Book-entry delivery procedure: Send a timely confirmation of a
book-entry transfer of your initial notes, if this procedure is available,
into the exchange agent's account at The Depository Trust Company in
accordance with the procedures for book-entry transfer described under
' -- Book-Entry Delivery Procedure' below, on or before 5:00 p.m., New York
City time, on the expiration date.
(3) Guaranteed delivery procedure: If time will not permit you to
complete your tender by using the procedures described in (1) or (2) above
before the expiration date, comply with the guaranteed delivery procedures
described under ' -- Guaranteed Delivery Procedure' below.
The method of delivery of the initial notes, the letter of transmittal and
all other required documents is at your election and risk. Instead of delivery
by mail, we recommend that you use an overnight or hand-delivery service. If you
choose the mail, we recommend that you use registered mail, properly insured,
with return receipt requested. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO
ASSURE TIMELY DELIVERY. You should not send any letters of transmittal or
initial notes to us. You must deliver all documents to the exchange agent at its
address provided below. You may also request your broker, dealer, commercial
bank, trust company or nominee to tender your initial notes on your behalf.
Only a holder of initial notes may tender initial notes in this exchange
offer. A holder is any person in whose name initial notes are registered on our
books or any other person who has obtained a properly completed bond power from
the registered holder.
If you are the beneficial owner of initial notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your notes, you must contact that registered holder promptly
and instruct that registered holder to tender your notes on your behalf. If you
wish to tender your initial notes on your own behalf, you must, before
completing and executing the letter of transmittal and delivering your initial
notes, either make appropriate arrangements to register the ownership of these
notes in your name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
You must have any signatures on a letter of transmittal or a notice of
withdrawal guaranteed by:
(1) a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc.,
(2) a commercial bank or trust company having an office or
correspondent in the United States, or
(3) an eligible guarantor institution within the meaning of Rule
17Ad-15 under the Exchange Act,
unless the initial notes are tendered:
(1) by a registered holder or by a participant in The Depository Trust
Company whose name appears on a security position listing as the owner, who
has not completed the box entitled 'Special Issuance Instructions' or
'Special Delivery Instructions' on the letter of
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transmittal and only if the exchange notes are being issued directly to
this registered holder or deposited into this participant's account at The
Depository Trust Company, or
(2) for the account of a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent
in the United States or an eligible guarantor institution within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934.
If the letter of transmittal or any bond powers are signed by:
(1) The recordholder(s) of the initial notes tendered: the signature
must correspond with the name(s) written on the face of the initial notes
without alteration, enlargement or any change whatsoever.
(2) A participant in The Depository Trust Company: the signature must
correspond with the name as it appears on the security position listing as
the holder of the initial notes.
(3) A person other than the registered holder of any initial notes:
these initial notes must be endorsed or accompanied by bond powers and a
proxy that authorize this person to tender the initial notes on behalf of
the registered holder, in satisfactory form to us as determined in our sole
discretion, in each case, as the name of the registered holder or holders
appears on the initial notes.
(4) Trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity: these persons should so indicate when signing. Unless waived by
us, evidence satisfactory to us of their authority to so act must also be
submitted with the letter of transmittal.
BOOK-ENTRY DELIVERY PROCEDURE
Any financial institution that is a participant in The Depository Trust
Company's systems may make book-entry deliveries of initial notes by causing The
Depository Trust Company to transfer these initial notes into the exchange
agent's account at The Depository Trust Company in accordance with The
Depository Trust Company's procedures for transfer. To effectively tender notes
through The Depository Trust Company, the financial institution that is a
participant in The Depository Trust Company will electronically transmit its
acceptance through the Automatic Tender Offer Program. The Depository Trust
Company will then edit and verify the acceptance and send an agent's message to
the exchange agent for its acceptance. An agent's message is a message
transmitted by The Depository Trust Company to the exchange agent stating that
The Depository Trust Company has received an express acknowledgment from the
participant in The Depository Trust Company tendering the notes that this
participation has received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce this agreement against this participant.
The exchange agent will make a request to establish an account for the initial
notes at The Depository Trust Company for purposes of the exchange offer within
two business days after the date of this prospectus.
A delivery of initial notes through a book-entry transfer into the exchange
agent's account at The Depository Trust Company will only be effective if an
agent's message or the letter of transmittal or a facsimile of the letter of
transmittal with any required signature guarantees and any other required
documents is transmitted to and received by the exchange agent at the address
indicated below under ' -- Exchange Agent' on or before the expiration date
unless the guaranteed delivery procedures described below are complied with.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURE
If you are a registered holder of initial notes and desire to tender your
notes, and (1) these notes are not immediately available, (2) time will not
permit your notes or other required documents to reach the exchange agent before
the expiration date or (3) the procedures for book-
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entry transfer cannot be completed on a timely basis and an agent's message
delivered, you may still tender in this exchange offer if:
(1) you tender through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent
in the United States, or an eligible guarantor institution within the
meaning of Rule 17Ad-15 under the Exchange Act,
(2) on or before the expiration date, the exchange agent receives a
properly completed and duly executed letter of transmittal or facsimile of
the letter of transmittal, and a notice of guaranteed delivery,
substantially in the form provided by us, with your name and address as
holder of the initial notes and the amount of notes tendered, stating that
the tender is being made by that letter and notice and guaranteeing that
within three business days after the expiration date the certificates for
all the initial notes tendered, in proper form for transfer, or a
book-entry confirmation with an agent's message, as the case may be, and
any other documents required by the letter of transmittal will be deposited
by the eligible institution with the exchange agent, and
(3) the certificates for all your tendered initial notes in proper
form for transfer or a book-entry confirmation as the case may be, and all
other documents required by the letter of transmittal are received by the
exchange agent within three business days after the expiration date.
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Your tender of initial notes will constitute an agreement between you and
us governed by the terms and conditions provided in this prospectus and in the
related letter of transmittal.
We will be deemed to have received your tender as of the date when your
duly signed letter of transmittal accompanied by your initial notes tendered, or
a timely confirmation of a book-entry transfer of these notes into the exchange
agent's account at The Depository Trust Company with an agent's message, or a
notice of guaranteed delivery from an eligible institution is received by the
exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of tenders will be determined by us in our
sole discretion. Our determination will be final and binding.
We reserve the absolute right to reject any and all initial notes not
properly tendered or any initial notes which, if accepted, would, in our opinion
or our counsel's opinion, be unlawful. We also reserve the absolute right to
waive any conditions of this exchange offer or irregularities or defects in
tender as to particular notes. Our interpretation of the terms and conditions of
this exchange offer, including the instructions in the letter of transmittal,
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of initial notes must be cured within
such time as we shall determine. We, the exchange agent or any other person will
be under no duty to give notification of defects or irregularities with respect
to tenders of initial notes. We and the exchange agent or any other person will
incur no liability for any failure to give notification of these defects or
irregularities. Tenders of initial notes will not be deemed to have been made
until such irregularities have been cured or waived. The exchange agent will
return without cost to their holders any initial notes that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived as promptly as practicable following the expiration date.
If all the conditions to the exchange offer are satisfied or waived on the
expiration date, we will accept all initial notes properly tendered and will
issue the exchange notes promptly thereafter. Please refer to the section of
this prospectus entitled ' -- Conditions to the Exchange Offer' below. For
purposes of this exchange offer, initial notes will be deemed to have been
accepted as validly tendered for exchange when, as and if we give oral or
written notice of acceptance to the exchange agent.
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We will issue the exchange notes in exchange for the initial notes tendered
pursuant to a notice of guaranteed delivery by an eligible institution only
against delivery to the exchange agent of the letter of transmittal, the
tendered initial notes and any other required documents, or the receipt by the
exchange agent of a timely confirmation of a book-entry transfer of initial
notes into the exchange agent's account at The Depository Trust Company with an
agent's message, in each case, in form satisfactory to us and the exchange
agent.
If any tendered initial notes are not accepted for any reason provided by
the terms and conditions of this exchange offer or if initial notes are
submitted for a greater principal amount than the holder desires to exchange,
the unaccepted or non-exchanged initial notes will be returned without expense
to the tendering holder, or, in the case of initial notes tendered by book-
entry transfer procedures described above, will be credited to an account
maintained with the book-entry transfer facility, as promptly as practicable
after withdrawal, rejection of tender or the expiration or termination of the
exchange offer.
By tendering into this exchange offer, you will irrevocably appoint our
designees as your attorney-in-fact and proxy with full power of substitution and
resubstitution to the full extent of your rights on the notes tendered. This
proxy will be considered coupled with an interest in the tendered notes. This
appointment will be effective only when, and to the extent that we accept your
notes in this exchange offer. All prior proxies on these notes will then be
revoked and you will not be entitled to give any subsequent proxy. Any proxy
that you may give subsequently will not be deemed effective. Our designees will
be empowered to exercise all voting and other rights of the holders as they may
deem proper at any meeting of note holders or otherwise. The initial notes will
be validly tendered only if we are able to exercise full voting rights on the
notes, including voting at any meeting of the note holders, and full rights to
consent to any action taken by the note holders.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders
of initial notes at any time before 5:00 p.m., New York City time, on the
expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided below under
' -- Exchange Agent' and before acceptance of your tendered notes for exchange
by us.
Any notice of withdrawal must:
(1) specify the name of the person having tendered the initial notes
to be withdrawn,
(2) identify the notes to be withdrawn, including, if applicable, the
registration number or numbers and total principal amount of these notes,
(3) be signed by the person having tendered the initial notes to be
withdrawn in the same manner as the original signature on the letter of
transmittal by which these notes were tendered, including any required
signature guarantees, or be accompanied by documents of transfer sufficient
to permit the trustee for the initial notes to register the transfer of
these notes into the name of the person having made the original tender and
withdrawing the tender,
(4) specify the name in which any of these initial notes are to be
registered, if this name is different from that of the person having
tendered the initial notes to be withdrawn, and
(5) if applicable because the initial notes have been tendered though
the book-entry procedure, specify the name and number of the participant's
account at The Depository Trust Company to be credited, if different than
that of the person having tendered the initial notes to be withdrawn.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of all notices of withdrawal and our determination
will be final and binding on all parties.
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Initial notes that are withdrawn will be deemed not to have been validly
tendered for exchange in this exchange offer.
The exchange agent will return without cost to their holders all initial
notes that have been tendered for exchange and are not exchanged for any reason,
as promptly as practicable after withdrawal, rejection of tender or expiration
or termination of this exchange offer.
You may retender properly withdrawn initial notes in this exchange offer by
following one of the procedures described under ' -- Procedures for Tendering
Initial Notes' above at any time on or before the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
We will complete this exchange offer only if:
(1) there is no action or proceeding instituted or threatened in any
court or before any governmental agency or body that in our judgment would
reasonably be expected to prohibit, prevent or otherwise impair our ability
to proceed with this exchange offer,
(2) there is no change in the laws and regulations which, in our
judgment, would reasonably be expected to impair our ability to proceed
with this exchange offer,
(3) there is no change in the current interpretation of the staff of
the Commission which permits resales of the exchange notes,
(4) there is no stop order issued by the Commission or any state
securities authority suspending the effectiveness of the registration
statement which includes this prospectus or the qualification of the
indenture for our exchange notes under the Trust Indenture Act of 1939 and
there are no proceedings initiated or, to our knowledge, threatened for
that purpose, and
(5) we obtain all governmental approvals that we deem in our sole
discretion necessary to complete this exchange offer.
These conditions are for our sole benefit. We may assert any one of these
conditions regardless of the circumstances giving rise to it and may also waive
any one of them, in whole or in part, at any time and from time to time, if we
determine in our reasonable discretion that it has not been satisfied, subject
to applicable law. We will not be deemed to have waived our rights to assert or
waive these conditions if we fail at any time to exercise any of them. Each of
these rights will be deemed an ongoing right which we may assert at any time and
from time to time.
If we determine that we may terminate this exchange offer because any of
these conditions is not satisfied, we may:
(1) refuse to accept and return to their holders any initial notes
that have been tendered,
(2) extend the exchange offer and retain all notes tendered before the
expiration date, subject to the rights of the holders of these notes to
withdraw their tenders, or
(3) waive any condition that has not been satisfied and accept all
properly tendered notes that have not been withdrawn or otherwise amend the
terms of this exchange offer in any respect as provided under the section
in this prospectus entitled ' -- Expiration Date; Extensions; Amendments;
Termination.'
ACCOUNTING TREATMENT
We will record the exchange notes at the same carrying value as the initial
notes as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. We
will amortize the costs of the exchange offer and the unamortized expenses
related to the issuance of the exchange notes over the term of the exchange
notes.
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EXCHANGE AGENT
We have appointed United States Trust Company of New York as exchange agent
for this exchange offer. You should direct all questions and requests for
assistance on the procedures for tendering and all requests for additional
copies of this prospectus or the letter of transmittal to the exchange agent as
follows:
By mail:
United States Trust Company of New York
P.O. Box 844
Cooper Station
New York, NY 10276-0844
Attention: Corporate Trust Services
By hand/overnight delivery:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, NY 10003
Attention: Corporate Trust Services
Facsimile Transmission: (212) 780-0592
Confirm by Telephone: (800) 548-6565
Attention: Corporate Trust Services
FEES AND EXPENSES
We will bear the expenses of soliciting tenders in this exchange offer,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of this exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with this
exchange offer.
We will pay all transfer taxes, if any, applicable to the exchange of
initial notes in accordance with this exchange offer. However, tendering holders
will pay the amount of any transfer taxes, whether imposed on the registered
holder or any other persons, if:
(1) certificates representing exchange notes or initial notes for
principal amounts not tendered or accepted for exchange are to be delivered
to, or are to be registered or issued in the name of, any person other than
the registered holder of the notes tendered,
(2) tendered initial notes are registered in the name of any person
other than the person signing the letter of transmittal, or
(3) a transfer tax is payable for any reason other than the exchange
of the initial notes in this exchange offer.
If you do not submit satisfactory evidence of the payment of any of these
taxes or of any exemption from this payment with the letter of transmittal, we
will bill you directly the amount of these transfer taxes.
YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
The initial notes were not registered under the Securities Act or under the
securities laws of any state and you may not resell them, offer them for resale
or otherwise transfer them unless they are subsequently registered or resold
under an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your initial notes for
exchange notes in accordance with this exchange offer, or if you do not properly
tender your
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initial notes in this exchange offer, you will not be able to resell, offer to
resell or otherwise transfer the initial notes unless they are registered under
the Securities Act or unless you resell them, offer to resell or otherwise
transfer them under an exemption from the registration requirements of, or in a
transaction not subject to, the Securities Act. In addition, you will not
necessarily be able to obligate us to register the initial notes under the
Securities Act.
DESCRIPTION OF THE NOTES
The notes were issued under an indenture dated as of May 15, 1999 between
the Company, as issuer, and United States Trust Company of New York, as trustee
(the 'Trustee'), a copy of which is filed as an exhibit to the registration
statement relating to this exchange offer.
The following summary of some provisions of the indenture does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
the provisions of the notes and the indenture, including the definitions of some
terms contained in it and those terms made part of the indenture by reference to
the Trust Indenture Act. For definitions of some capitalized terms used in the
following summary, see ' -- Certain Definitions.' In this description, the word
'Company' refers only to CD Radio Inc. and not to any of its subsidiaries.
GENERAL
The notes will be limited to $200,000,000 aggregate principal amount and
will mature on May 15, 2009.
We will pay interest on each note at the rate set forth on the cover page
hereof from May 18, 1999 or from the most recent interest payment date to which
interest has been paid or duly provided for, payable in cash on May 15 and
November 15 of each year, commencing November 15, 1999, until we have paid or
duly provided for the payment of the principal of such note to the Person in
whose name the note (or any predecessor note) is registered at the close of
business on the May 1 or November 1 next preceding such interest payment date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
We will pay the principal of, premium, if any, on and interest on the
notes, and holders may exchange and transfer the notes, at our office or agency
in The City of New York maintained for such purposes (which initially will be
the office of the Trustee). However, at our option, we may pay interest by check
mailed to the address of the Person entitled thereto as shown on the security
register. We will issue the notes only in fully registered form without coupons.
We will not charge holders any fee in connection with any registration of
transfer or exchange or redemption of notes, but we may require payment in
certain circumstances of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
RANKING
The notes will rank
equal in right of payment with all of our existing and future
unsubordinated obligations, including the Senior Discount Notes, and
senior in right of payment to all of our existing and future obligations
expressly subordinated in right of payment to the notes.
Under the indenture, we and our subsidiaries are entitled to incur, subject to
significant conditions and limitations, additional indebtedness, including
indebtedness secured by the issued and outstanding stock of Satellite CD Radio,
Inc. As of March 31, 1999, on a pro forma basis after giving effect to the sale
of the units consisting of initial notes and warrants, we would have had $474
million in aggregate principal amount of indebtedness outstanding (including the
notes) which ranked equal in right of payment with the notes, all of which was
secured. We currently have no subordinated obligations outstanding.
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In addition, the notes will be effectively subordinated to all existing and
future obligations of our subsidiaries. As of March 31, 1999, our subsidiaries
had no liabilities outstanding.
SECURITY
The exchange notes will be secured by a first priority perfected security
interest in all the issued and outstanding common stock of Satellite CD Radio,
Inc., our wholly owned subsidiary (the 'Pledged Stock'), on an equal basis with
holders of the Senior Discount Notes pursuant to the Pledge Agreement. We are
entitled to incur additional secured financing as set forth in 'Certain
Covenants -- Limitation on Indebtedness.' Any such secured financing with
respect to the Pledged Stock must be secured on an equal basis with the holders
of the notes. As of March 31, 1999, approximately $162 million of indebtedness
secured by the Pledged Stock was outstanding.
So long as no Event of Default has occurred and is continuing, we are
entitled to exercise all voting rights with respect to the Pledged Stock,
provided that we cast no vote that is inconsistent with the provisions of the
indenture. Upon the occurrence of an Event of Default, the collateral agent
under the Pledge Agreement is entitled, subject to the provisions of an
intercreditor agreement between the Trustee and the trustee of the Senior
Discount Notes and subject as well to the satisfaction of any regulatory
requirements, to vote the Pledged Stock or realize upon and sell or otherwise
dispose of all or any part of the Pledged Stock and will apply the proceeds of
any sale or disposition,
first to the payment of costs and expenses of sale,
second to amounts due the collateral agent,
third to the payment of all amounts due and unpaid on the notes and,
if an event of default has occurred in connection with the Senior Discount
Notes or with any other indebtedness secured by the Pledged Stock, the
Senior Discount Notes or such other indebtedness, on an equal and ratable
basis,
finally, any surplus to us.
Regulatory considerations may affect the collateral agent's ability to
exercise rights with respect to the Pledged Stock upon the occurrence of an
Event of Default. In particular, the Trustee under the indenture is not entitled
to exercise any rights with respect to the Pledged Stock upon the occurrence of
an Event of Default if such action would constitute or result in any assignment
of our FCC License or any change of control (whether as a matter of law or fact)
of the Company unless the prior approval of the FCC is first obtained. We cannot
assure you that any such required FCC approval can be obtained on a timely
basis, or at all.
In addition, at the time we issued the initial notes, we applied
approximately $79.3 million of the net proceeds of this offering to purchase,
and we pledged to the Trustee in escrow for the benefit of the holders of the
notes, the Pledged Securities to provide for payment in full of the first six
scheduled interest payments due on the notes. The Pledged Securities were
pledged by us to the Trustee for the benefit of the holders of the notes
pursuant to the Collateral Pledge Agreement and will be held by the Trustee in
the Pledge Account. Immediately prior to each interest payment date on the notes
from November 15, 1999, through May 15, 2002, we may either deposit with the
Trustee, from funds otherwise available to us, cash sufficient to pay the
interest scheduled to be paid on such date or we may direct the Trustee to
release from the Pledge Account proceeds sufficient to pay interest then due. In
the event that we exercise the former option, we may thereafter direct the
Trustee to release to us proceeds or Pledged Securities from the Pledge Account
in like amount, provided that the balance remaining in such Pledge Account is
sufficient to pay all scheduled interest through May 15, 2002.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by us, to provide for payment in
full of the first six scheduled interest payments due on the notes (or, in the
event an interest payment or payments have been made, an amount sufficient to
provide the
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payment in full of any interest payments remaining, up to and including the
sixth scheduled interest payment), the Trustee will release to us at our request
any such excess amount.
Under the Collateral Pledge Agreement, assuming that we make the first six
scheduled interest payments on the notes in a timely manner, all of the Pledged
Securities will have been released from the Pledge Account, and the notes will
thereafter not be secured by the Pledged Securities.
Except as set forth above, the notes are not secured by any lien on, or
other security interest in, any other properties or assets of the Company or
Satellite CD Radio, Inc.
SINKING FUND
The notes will not be entitled to the benefit of any sinking fund.
REDEMPTION
Except as set forth below, we are not entitled to redeem the notes at our
option prior to May 15, 2004.
On and after May 15, 2004, we will be entitled to redeem all or a part of
the notes at our option, on not less than 30 nor more than 60 days' prior
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below, together with accrued interest, if any, to the redemption date,
if redeemed during the 12-month period beginning on May 15 of the years
indicated below (subject to the right of holders of record on relevant record
dates to receive interest due on a relevant interest payment date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- -----
<S> <C>
2004..................................................... 107.250%
2005..................................................... 104.833%
2006..................................................... 102.417%
2007 and thereafter...................................... 100.000%
</TABLE>
In addition, at any time or from time to time prior to May 15, 2002, we are
entitled to redeem up to a maximum of 35% of the original aggregate principal
amount of the notes with the net proceeds of one or more equity offerings at a
redemption price (expressed as a percentage of principal amount on the
redemption date) of 114.50% plus accrued interest to the redemption date;
provided, however, that immediately after giving effect to such redemption, at
least 65% of the original aggregate principal amount of the notes remains
outstanding; provided further, however, that notice of such redemption shall be
given within 60 days of the closing of such equity offering.
If at any time we are redeeming less than all the notes, the Trustee will
select the particular notes to be redeemed not more than 60 days prior to the
redemption date by such method as the Trustee shall deem fair and appropriate.
We will send a notice of redemption by mail, first-class postage prepaid,
at least 30 but not more than 60 days before the redemption date to each holder
of notes to be redeemed at its registered address. If we are redeeming any note
in part only, notice of redemption relating to such note will identify the
portion of the principal amount thereof to be redeemed. We will issue a new note
in a principal amount equal to the unredeemed portion thereof in the name of the
holder thereof upon cancellation of the original note.
On and after any redemption date, interest will cease to accrue on notes or
portions thereof called for redemption and accepted for payment.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS
The Company will not, and will not permit any Restricted Subsidiary to,
create, assume, issue, guarantee or in any manner become directly or indirectly
liable for or with respect to the payment
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of, or otherwise incur (collectively, to 'incur'), any Indebtedness, except for
Permitted Indebtedness; provided, however, that
the Company will be permitted to incur Indebtedness and
a Restricted Subsidiary will be permitted to incur Acquired Indebtedness
if, in either case, after giving pro forma effect to such incurrence (including
the application of the net proceeds therefrom), the ratio of
(1) Total Consolidated Indebtedness to
(2) Adjusted Consolidated Operating Cash Flow for the latest four
fiscal quarters for which consolidated financial statements of the Company
are available preceding the date of such incurrence, taken as a whole,
would be greater than zero and less than or equal to 4.0 to 1.0.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not make, and will not permit any Restricted Subsidiary to
make, directly or indirectly, any of the following:
(1) the declaration or payment of any dividend or any other
distribution on Capital Stock of the Company or any payment made to the
direct or indirect holders (in their capacities as such) of Capital Stock
of the Company (other than dividends or distributions payable solely in
Qualified Capital Stock of the Company or in options, warrants or other
rights to purchase Qualified Capital Stock of the Company);
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company (other than any such Capital
Stock owned by the Company or a Restricted Subsidiary) or any affiliate of
the Company (other than any Restricted Subsidiary);
(3) the making of any principal payment on, or the repurchase,
redemption, defeasance or other acquisition or retirement for value of,
prior to any scheduled principal payment, sinking fund payment or maturity,
any Subordinated Indebtedness (other than any Subordinated Indebtedness
held by a Restricted Subsidiary); or
(4) the making of any Investment (other than a Permitted Investment)
in any Person
(such payments or other actions described in (but not excluded from) clauses (1)
through (4) are collectively referred to as 'Restricted Payments'), unless, in
each case:
(A) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted
Payment;
(B) immediately after giving effect to such Restricted Payment, the
Company would be able to incur at least $1.00 of Indebtedness (other than
Permitted Indebtedness) under the proviso of the 'Limitation on
Indebtedness' covenant; and
(C) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
November 26, 1997 would not exceed an amount equal to the sum of
(a) the difference between (x) the Cumulative Available Cash Flow
determined at the time of such Restricted Payment and (y) 150% of the
cumulative Consolidated Interest Expense of the Company determined for
the period commencing on November 26, 1997 and ending on the last day of
the latest fiscal quarter for which consolidated financial statements of
the Company are available preceding the date of such Restricted Payment
plus
(b) the aggregate Net Cash Proceeds received by the Company from
the issue or sale (other than to any Restricted Subsidiary) of Qualified
Capital Stock of the Company after January 1, 1998, plus
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(c) the aggregate Net Cash Proceeds received after November 26,
1997 by the Company from the issuance or sale (other than to any
Restricted Subsidiary) of debt securities or Redeemable Capital Stock
that have been converted into or exchanged for Qualified Capital Stock
of the Company, together with the aggregate Net Cash Proceeds received
by the Company at the time of such conversion or exchange, plus
(d) to the extent not otherwise included in the Consolidated
Operating Cash Flow of the Company, an amount equal to the sum of
(i) the net reduction in Investments (other than the Permitted
Investments) in any Person resulting from the payment in cash of
dividends, repayments of loans or advances or other transfers of assets,
in each case to the Company or any Restricted Subsidiary after
November 26, 1997 from such Person and (ii) the portion (proportionate
to the Company's equity interest in such Subsidiary) of the fair market
value of the net assets of any Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; provided,
however, that in the case of (i) or (ii) above, the foregoing sum shall
not exceed the aggregate amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary, minus
(e) the sum of 80% of the outstanding principal amount of the Notes
and all Indebtedness incurred pursuant to clause 1(b) of the definition
of Permitted Indebtedness.
For purposes of determining the amount expended for Restricted Payments,
property other than cash shall be valued at its Fair Market Value.
The provisions of this covenant will not prohibit, so long as, with respect
to clauses (2) through (8) below, no Default or Event of Default shall have
occurred and be continuing:
(1) the payment of any dividend or other distribution within 60 days
after the date of declaration thereof if at such date of declaration such
payment complied with the provisions of the Indenture, and such payment
will be deemed to have been paid on the date of declaration for purposes of
the calculation in the foregoing paragraph;
(2) the purchase, redemption, retirement or other acquisition of any
shares of Capital Stock of the Company in exchange for, or out of the Net
Cash Proceeds of a substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of, shares of Qualified Capital Stock of the
Company;
(3) the purchase, redemption, retirement, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness made by
exchange for, or out of the Net Cash Proceeds of a substantially concurrent
issue or sale (other than to a Restricted Subsidiary) of, Qualified Capital
Stock of the Company;
(4) the purchase of (a) any Subordinated Indebtedness at a purchase
price not greater than 101% of the principal amount or accreted value
thereof, as the case may be, together with accrued interest, if any, in the
event of a Change of Control in accordance with provisions similar to the
'Purchase of Notes upon a Change of Control' covenant or (b) any Preferred
Stock of the Company at a purchase price not greater than 101% of the
liquidation preference thereof, together with accrued dividends, if any, in
the event of a Change of Control in accordance with provisions similar to
the 'Purchase of Notes upon a Change of Control' covenant; provided,
however, that, in each case, prior to such purchase the Company has made
the Change of Control Offer as provided in such covenant with respect to
the Notes and has purchased all Notes validly tendered for payment in
connection with such Change of Control Offer;
(5) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or out
of the Net Cash Proceeds of a substantially concurrent incurrence (other
than to a Restricted Subsidiary) of, new Subordinated Indebtedness so long
as
(a) the principal amount of such new Subordinated Indebtedness does
not exceed the principal amount (or, if such Subordinated Indebtedness
being refinanced provides for an
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amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, such lesser amount as of the date
of determination) of the Subordinated Indebtedness being so purchased,
redeemed, defeased, acquired or retired, plus the lesser of the amount
of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Subordinated Indebtedness being refinanced
or the amount of any premium reasonably determined by the Company as
necessary to accomplish such refinancing, plus, in either case, the
amount of expenses of the Company incurred in connection with such
refinancing,
(b) such new Subordinated Indebtedness is subordinated to the Notes
to the same extent as such Subordinated Indebtedness so purchased,
redeemed, defeased, acquired or retired and
(c) such new Subordinated Indebtedness has an Average Life longer
than the Average Life of the Notes and a final Stated Maturity of
principal later than the Stated Maturity of principal of the Notes;
(6) the purchase of any Subordinated Indebtedness at a purchase price
not greater than 100% of the principal amount or accreted value thereof, as
the case may be, together with accrued interest, if any, following an Asset
Sale in accordance with provisions similar to the 'Limitation on Sale of
Assets' covenant; provided, however, that prior to making any such purchase
the Company has made the Excess Proceeds Offer as provided in such covenant
with respect to the Notes and has purchased all Notes validly tendered for
payment in connection with such Excess Proceeds Offer;
(7) the payment of cash dividends on outstanding shares of Series C
Preferred Stock of the Company out of the Net Cash Proceeds of a
substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of Common Stock of the Company; and
(8) any other Restricted Payments in an aggregate amount not to exceed
$15.0 million.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (1), (2), (3), (4), (6), (7) and
(8) above shall be included as Restricted Payments.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company will not permit
any Restricted Subsidiary to issue any Capital Stock (other than to the
Company or a Restricted Subsidiary); and
any Person (other than the Company or a Restricted Subsidiary) to own any
Capital Stock of any Restricted Subsidiary;
provided, however, that this covenant shall not prohibit
(1) the issuance or sale of all, but not less than all, of the issued
and outstanding Capital Stock of any Restricted Subsidiary owned by the
Company or any Restricted Subsidiary in compliance with the other
provisions of the Indenture; or
(2) the ownership by directors of directors' qualifying shares or the
ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law.
LIMITATION ON LIENS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind, other than Permitted Liens, on or with respect to any of its property or
assets, including any shares of stock or Indebtedness of any Restricted
Subsidiary, whether owned at the date of the Indenture or thereafter acquired,
or any income, profits or proceeds therefrom, or assign or otherwise convey any
right to receive income thereon, unless
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in the case of any Lien securing Subordinated Indebtedness, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Lien; and
in the case of any other Lien, the Notes are equally and ratably secured;
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each holder of Notes
will have the right to require that the Company purchase such holder's Notes, in
whole or in part in integral multiples of $1,000 principal amount, at a purchase
price (the 'Change of Control Purchase Price') in cash in an amount equal to
101% of the principal amount of such Notes as of the date of purchase, plus
accrued and unpaid interest, if any, to the date of purchase (the 'Change of
Control Purchase Date'), pursuant to the offer described below (the 'Change of
Control Offer') and the other procedures set forth in the Indenture.
Within 15 days following any Change of Control, the Company will notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Notes by first-class mail, postage prepaid, at the address of such holder
appearing in the security register, stating, among other things,
the purchase price and the purchase date, which will be a business day no
earlier than 30 days nor later than 60 days from the date such notice is
mailed, or such later date as is necessary to comply with requirements
under the Exchange Act or any applicable securities laws or regulations;
that any Note not tendered will continue to accrue interest;
that, unless the Company defaults in the payment of the purchase price,
any Notes accepted for payment pursuant to the Change of Control Offer
will cease to accrue interest after the Change of Control Purchase Date;
and
certain other procedures that a holder of Notes must follow to accept a
Change of Control Offer or to withdraw such acceptance.
The Company will have no obligation to purchase any Notes in a Change of Control
Offer if no Notes are tendered by the holders thereof.
If a Change of Control Offer is made, we cannot assure you that we will
have available funds sufficient to pay the Change of Control Purchase Price for
all the Notes that might be delivered by holders of the Notes seeking to accept
the Change of Control Offer. Our failure to make or consummate the Change of
Control Offer or pay the Change of Control Purchase Price when due would result
in an Event of Default and would give the Trustee and the holders of the Notes
the rights described under ' -- Events of Default.'
One of the events that constitutes a Change of Control under the Indenture
is the disposition of 'all or substantially all' of our assets. This term has
not been interpreted under New York law (which is the governing law of the
Indenture) to represent a specific quantitative test. Therefore, if holders of
the Notes elect to require us to purchase the Notes and we elect to contest such
election, we can not assure you how a court interpreting New York law would
interpret the phrase.
The existence of a holder's right to require us to purchase such holder's
Notes upon a Change of Control may deter a third party from acquiring the
Company in a transaction that constitutes a Change of Control.
The definition of 'Change of Control' in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of notes the right to
require us to purchase such Notes in the event of a highly leveraged transaction
or certain transactions with our management or our affiliates, including a
reorganization, restructuring, merger or similar transaction involving the
Company (including, in certain circumstances, an acquisition of the Company by
management or its affiliates) that may adversely affect holders of the Notes, if
such transaction is not a transaction defined as a Change of Control. See
' -- Certain Definitions' for the definition of 'Change of
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Control.' A transaction involving our management or our affiliates, or a
transaction involving a recapitalization of the Company, would result in a
Change of Control only if it is the type of transaction specified by such
definition.
The Company will comply to the extent applicable with the requirements of
the tender offer rules, including Rule 14e-1 under the Exchange Act, and any
other applicable securities laws and regulations in connection with a Change of
Control Offer.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into any sale-leaseback transaction involving any
of its assets or properties whether now owned or hereafter acquired, whereby the
Company or a Restricted Subsidiary sells or transfers such assets or properties
and then or thereafter leases such assets or properties or any part thereof or
any other assets or properties which the Company or such Restricted Subsidiary,
as the case may be, intends to use for substantially the same purpose or
purposes as the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if:
the lease is for a period, including renewal rights, of not in excess of
three years;
the transaction is solely between the Company and any Restricted
Subsidiary or solely between Restricted Subsidiaries; or
the Company or such Restricted Subsidiary, within 12 months after the sale
or transfer of any assets or properties is completed, applies an amount
not less than the net proceeds received from such sale in accordance with
paragraph (b) of the 'Limitation on Sale of Assets' covenant described
below.
LIMITATION ON SALE OF ASSETS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, engage in any Asset Sale unless:
(1) the consideration received by the Company or such Restricted
Subsidiary for such Asset Sale is not less than the Fair Market Value of
the shares or assets sold (as determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution); and
(2) the consideration received by the Company or the relevant
Restricted Subsidiary in respect of such Asset Sale consists of at least
80% cash or Cash Equivalents.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company is entitled to use the Net Cash Proceeds thereof within 12 months
after the later of such Asset Sale or the receipt of such Net Cash Proceeds:
(1) to permanently repay or prepay any then outstanding Pari Passu
Indebtedness;
(2) to invest in any one or more businesses, capital expenditures or
other tangible assets of the Company or any Restricted Subsidiary, in each
case, engaged, used or useful in the CD Radio Business (or enter into a
legally binding agreement to do so within 6 months); or
(3) to invest in properties or assets that replace the properties and
assets that are the subject of such Asset Sale (or enter into a legally
binding agreement to do so within 6 months).
If any such legally binding agreement to invest such Net Cash Proceeds is
terminated, then the Company is entitled, within 90 days of such termination or
within 12 months of such Asset Sale, whichever is later, to apply or invest such
Net Cash Proceeds as provided in clause (1), (2) or (3) (without regard to the
parenthetical contained in clause (2) or (3)) above. The amount of such Net Cash
Proceeds not so used as set forth above in this paragraph (b) constitutes
'Excess Proceeds.'
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(c) When the aggregate amount of Excess Proceeds exceeds $10.0 million the
Company will (i) comply with the provisions of Section 1016(c) of the Senior
Discount Notes Indenture that require the Company to make an offer to purchase
Senior Discount Notes, if applicable, and (ii) within 30 business days after the
completion of such offer, or if such provisions are not applicable, within 30
days after the time Excess Proceeds exceed $10.0 million, make an offer to
purchase (an 'Excess Proceeds Offer') from all holders of Notes and, if the
Company so elects, from holders of Pari Passu Indebtedness, on a pro rata basis,
in accordance with the procedures set forth below, the maximum principal amount
of Notes and, if applicable, such Pari Passu Indebtedness that may be purchased
with the Excess Proceeds. In the case of other Pari Passu Indebtedness that is
issued at a discount to its face amount, the requirement that Notes and other
Pari Passu Indebtedness be purchased on a 'pro rata basis' means that the amount
of such other Pari Passu Indebtedness to be purchased will be based on the
amount to which the Pari Passu Indebtedness has accreted in value for purposes
of determining the amount that would be payable thereon in the event of the
occurrence of an event of default (or similar event) under such other Pari Passu
Indebtedness. The offer price as to each Note and such other Pari Passu
Indebtedness shall be payable in cash in an amount equal to 100% of the
principal amount, or accreted value, as the case may be, of such Note or other
Pari Passu Indebtedness (without premium) as of the date of purchase plus
accrued interest, if any (the 'Offered Price'), to the date such Excess Proceeds
Offer is consummated (the 'Offer Date').
To the extent that the aggregate principal amount, or accreted value, as
the case may be, of Notes and such other Pari Passu Indebtedness tendered
pursuant to an Excess Proceeds Offer is less than the Excess Proceeds relating
thereto, the Company is entitled to use such additional Excess Proceeds for
general corporate purposes or to fund an offer to redeem any outstanding
Subordinated Indebtedness in accordance with provisions similar to this
'Limitation on Sale of Assets' covenant.
If the aggregate principal amount of Notes and such other Pari Passu
Indebtedness validly tendered and not withdrawn by holders thereof exceeds the
Excess Proceeds, the Company will select Notes and such other Pari Passu
Indebtedness to be purchased on a pro rata basis as described in the second
preceding paragraph. Upon completion of such offer to purchase, the amount of
Excess Proceeds will be reset to zero.
(d) If the Company becomes obligated to make an Excess Proceeds Offer
pursuant to paragraph (c) above, the Company will purchase Notes, at the option
of the holder thereof, in whole or in part in integral multiples of $1,000, on a
date that is not earlier than 30 days and not later than 60 days from the date
the notice is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act or any other
applicable securities laws or regulations, subject to proration in the event the
amount of Excess Proceeds is less than the aggregate Offered Price of all Notes
and such other Pari Passu Indebtedness tendered.
(e) The Company will comply to the extent applicable with the requirements
of the tender offer rules, including Rule 14e-1 under the Exchange Act, and any
other applicable securities laws and regulations in connection with an Excess
Proceeds Offer.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including the sale, purchase, exchange or lease of
assets, property or services) with, or for the benefit of, any Affiliate of the
Company (other than the Company or a Restricted Subsidiary) unless:
(1) such transaction or series of related transactions is on terms
that are no less favorable to the Company or such Restricted Subsidiary, as
the case may be, as determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board
Resolution, than those that could have been obtained in an arm's-length
transaction with unrelated third parties who are not Affiliates;
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(2) with respect to any transaction or series of related transactions
involving aggregate consideration equal to or greater than $2.5 million,
the Company shall have delivered an officers' certificate to the Trustee
certifying that such transaction or series of related transactions complies
with clause (1) above and such transaction or series of related
transactions has been approved by a majority of the Disinterested Directors
of the Board of Directors of the Company, or the Company has obtained a
written opinion from a nationally recognized investment banking firm to the
effect that such transaction or series of related transactions is fair to
the Company or such Restricted Subsidiary, as the case may be, from a
financial point of view; and
(3) with respect to any transaction or series of related transactions
including aggregate consideration in excess of $10.0 million or in the
event no members of the Board of Directors of the Company are Disinterested
Directors with respect to any transaction or series of transactions
included in clause (2), the Company will obtain an opinion from a
nationally recognized investment banking firm as described above;
provided, however, that this covenant will not restrict
(1) any transaction by the Company or any Restricted Subsidiary with
an Affiliate directly related to the purchase, sale or distribution of
products in the ordinary course of business consistent with industry
practice,
(2) the Company from paying reasonable and customary regular
compensation and fees to directors of the Company or any Restricted
Subsidiary who are not employees of the Company or any Restricted
Subsidiary,
(3) the payment of compensation (including stock options and other
incentive compensation) to officers and other employees the terms of which
are approved by the Board of Directors,
(4) the Company or any Restricted Subsidiary from making any
Restricted Payment in compliance with the 'Limitation on Restricted
Payments' covenant (including pursuant to the second paragraph thereof),
(5) transactions between the Company and Batchelder & Partners Inc.
pursuant to agreements in effect on November 26, 1997; provided, however,
that the Company will not, and will not permit any Restricted Subsidiary to
amend, modify or in any way alter, other than an extension of the term
thereof, the terms of any such agreement in a manner materially adverse to
the holders of the Notes,
(6) transactions among the Company and its Restricted Subsidiaries, or
(7) amendments to the Loral Satellite Contract; provided, however,
that the Company will not amend, modify or in any way alter the terms of
such agreement in a manner materially adverse to the holders of the Notes.
Under Delaware corporate law, the Disinterested Directors' fiduciary
obligations require that they act in good faith in a manner which they
reasonably believe to be in the best interests of the Company and its
stockholders, which may not necessarily be the same as those of holders of the
notes.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to:
(a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock;
(b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary;
(c) make Investments in the Company or any other Restricted
Subsidiary;
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(d) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary; or
(e) guarantee any Indebtedness of the Company or any other Restricted
Subsidiary,
except for such encumbrances or restrictions existing under or by reason of
(1) any agreement in effect on the Issue Date,
(2) applicable law or judicial or regulatory action,
(3) customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Restricted Subsidiary,
(4) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance
or restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person, or the property or assets of the
Person, so acquired and the Subsidiaries of such Person,
(5) any mortgage or other Lien on real property acquired or improved
by the Company or any Restricted Subsidiary after the date of the Indenture
that prohibit transfers of the type described in (d) above with respect to
such real property,
(6) any encumbrance or restriction contained in contracts for sales of
assets permitted by the 'Limitation on Sale of Assets' covenant with
respect to the assets to be sold pursuant to such contract;
(7) any such customary encumbrance or restriction contained in a
security document creating a Permitted Lien to the extent relating to the
property or asset subject to such Permitted Lien;
(8) any agreement or other instrument governing any Pari Passu
Indebtedness if such encumbrance or restriction applies only
(x) to amounts which at any point in time (other than during such
periods as are described in clause (y)) (a) exceed amounts due and
payable (or which are to become due and payable within 30 days) in
respect of the Notes or the Indenture for interest, premium and
principal (after giving effect to any realization by the Company under
any applicable Currency Agreement), or (b) if paid, would result in an
event described in the following clause (y) of this clause (8), or
(y) during the pendency of any event that causes, permits or, after
notice or lapse of time, would cause or permit the holder(s) of the
Indebtedness governed by such agreement or instrument to declare any
such Indebtedness to be immediately due and payable or require cash
collateralization or cash cover for such Indebtedness for so long as
such cash collateralization or cash cover has not been provided; or
(9) the refinancing of Indebtedness incurred under the agreements
described in clause (5) above, so long as such encumbrances or restrictions
are no less favorable in any material respect to the Company or any
Restricted Subsidiary than those contained in the respective agreement as
in effect on the Issue Date.
INSURANCE
(a) The Company will maintain launch insurance with respect to each
satellite launch covering the period from the launch to 180 days following the
launch of each satellite in an amount equal to or greater than the sum of
(1) the cost to replace such satellite with a satellite of comparable
or superior technological capability (as determined by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) and having at least as much transmission capacity as the
satellite to be replaced,
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(2) the cost to launch a replacement satellite pursuant to the
contract whereby a replacement satellite will be launched and
(3) the cost of launch insurance for such replacement or, in the event
that the Company has reason to believe that the cost of obtaining
comparable insurance for a replacement would be materially higher, the
Company's best estimate of the cost of such comparable insurance.
Notwithstanding the foregoing, the Company will not be obligated to maintain
insurance pursuant to this paragraph (a) with respect to (1) the launch of its
first satellite and (2) any subsequent launch not preceded by a launch failure
or failure of any satellite within 180 days from the date of its launch;
provided, however, that the Company's spare satellite shall be under
construction in accordance with the terms of the Loral Satellite Contract or the
Company shall have otherwise obtained a spare satellite.
(b) The Company will maintain full in-orbit insurance with respect to each
satellite it owns and launches in an amount at least equal to
(1) the cost to replace such satellite with a satellite of comparable
or superior technological capability (as determined by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) and having at least as much transmission capacity as the
satellite to be replaced,
(2) the cost to launch a replacement satellite pursuant to the
contract pursuant to which a replacement satellite will be launched and
(3) the cost of launch insurance for such replacement or, in the event
that the Company has reason to believe that the cost of obtaining
comparable insurance for a replacement would be materially higher, the
Company's best estimate of the cost of such comparable insurance.
The in-orbit insurance required by this paragraph will provide that if 50% or
more of a satellite's capacity is lost, the full amount of insurance will become
due and payable, and that if a satellite is able to maintain more than 50% but
less than 100% of its capacity, a portion of such insurance will become due and
payable.
(c) In the event that the Company receives proceeds from insurance relating
to any satellite, the Company is entitled to use all or a portion of such
proceeds to repay any vendor or third-party purchase money financing pertaining
to such satellite that is required to be repaid by reason of the loss giving
rise to such insurance proceeds. The Company will use the remainder of such
proceeds to develop and construct a replacement satellite; provided, however,
that
(1) such replacement satellite is of comparable or superior
technological capability as compared with the satellite being replaced and
has at least as much transmission capacity as the satellite being replaced
(as determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution);
(2) the Company will have sufficient funds (together with the proceeds
of any business interruption insurance) to service the Company's projected
debt service requirements until the scheduled launch of the Company's spare
satellite and for one year thereafter and to develop and construct such
replacement satellite; and
(3) the Company's spare satellite is scheduled to be launched within
12 months of the receipt of such proceeds.
Any such proceeds not used as permitted by this paragraph shall constitute
'Excess Proceeds' for purposes of the 'Limitation on Sale of Assets' covenant.
PROVISION OF FINANCIAL STATEMENTS AND REPORTS
The Company will file on a timely basis with the Commission, to the extent
such filings are accepted by the Commission and whether or not the Company has a
class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to file
if it were subject to Section 13 or 15 of the Exchange Act. The Company will
also be required
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to file with the Trustee, and provide to each holder of Notes, without
cost to such holder, copies of such reports and documents within 15 days
after the date on which the Company files such reports and documents with
the Commission or the date on which the Company would be required to file
such reports and documents if the Company were so required, and
if filing such reports and documents with the Commission is not accepted
by the Commission or is prohibited under the Exchange Act, to supply at
the Company's cost copies of such reports and documents to any prospective
holder of Notes promptly upon written request.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not in a single transaction or a series of related
transactions consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets as an entirety to any Person or Persons, and the
Company will not permit any Restricted Subsidiary to enter into any such
transaction, or series of transactions, if such transaction or series of
transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any Person or Persons, unless:
(1) either (a) the Company shall be the surviving corporation or
(b) the Person (if other than the Company) formed by such consolidation or
into which the Company or the Company and its Restricted Subsidiaries is
merged or the Person which acquires by sale, conveyance, transfer, lease or
other disposition, all or substantially all of the properties and assets of
the Company or the Company and its Restricted Subsidiaries, as the case may
be (the 'Surviving Entity') (i) shall be a corporation organized and
validly existing under the laws of the United States of America, any state
thereof or the District of Columbia and (ii) shall expressly assume, by an
indenture supplemental to the Indenture executed and delivered to the
Trustee, in form satisfactory to the Trustee, the Company's obligations for
the due and punctual payment of the principal of (or premium, if any, on)
and interest on all the Notes and the performance and observance of every
covenant of the Indenture on the part of the Company to be performed or
observed;
(2) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating any obligation of the
Company or any Restricted Subsidiary in connection with or as a result of
such transaction as having been incurred at the time of such transaction),
no Default or Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (on the assumption that the transaction
or series of transactions occurred on the first day of the latest four
fiscal quarters for which consolidated financial statements of the Company
are available prior to the consummation of such transaction or series of
transactions with the appropriate adjustments with respect to the
transaction or series of transactions, including the incurrence and
repayment of any Indebtedness incident to such transaction, being included
in such pro forma calculation), the Company (or the Surviving Entity if the
Company is not the continuing obligor under the Indenture) could incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
under the proviso to the 'Limitation on Indebtedness' covenant; provided,
however, that this clause (3) shall not apply to a consolidation, merger or
sale, assignment, conveyance, transfer, lease or other disposition of all
or substantially all of the properties and assets of the Company and its
Restricted Subsidiaries if
(A) all Liens and Indebtedness of the Company or the Surviving
Entity, as the case may be, and its Restricted Subsidiaries outstanding
immediately after such transaction would, if incurred at such time, have
been permitted to be incurred (and all such Liens and Indebtedness,
other than the Liens and Indebtedness of the Company and its
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Restricted Subsidiaries outstanding immediately prior to the
transaction, shall be deemed to have been incurred at such time) for all
purposes of the Indenture and
(B) immediately after giving effect to such transaction or series
of transactions on a pro forma basis (and treating any obligation of the
Company or any Restricted Subsidiary incurred in connection with or as a
result of such transaction or series of transactions as having been
incurred at the time of such transaction), the Consolidated Net Worth of
the Company (or of the Surviving Entity if the Company is not the
continuing obligor under the Indenture) is equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such
transaction or series of transactions;
(4) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of the 'Limitation on Liens' covenant are complied with; and
(5) the Company or the Surviving Entity shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, conveyance, transfer,
lease or other disposition and such supplemental indenture comply with the
terms of the Indenture.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or other disposition of all of substantially all of the
properties and assets of the Company in accordance with the immediately
preceding paragraph in which the Company is not the continuing obligor under the
Indenture, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture, with the
same effect as if such successor had been named as the Company therein. When a
successor assumes all the obligations of its predecessor under the Indenture and
the Notes, the predecessor shall be released from those obligations; provided,
however, that in the case of a transfer by lease, the predecessor shall not be
released from the payment of principal and interest on the Notes.
EVENTS OF DEFAULT
The following will be 'Events of Default' under the Indenture:
(1) as to any interest payment date occuring on or prior to May 15,
2002, default in the payment of any interest on any Note when it becomes
due and payable; and as to any interest payment date thereafter, any
default in the payment of interest on any Note continued for 30 days;
(2) default in the payment of the principal of or premium, if any, on
any Note at its Maturity;
(3) default in the performance, or breach, of the provisions described
in 'Consolidation, Merger and Sale of Assets,' the failure to make or
consummate a Change of Control Offer in accordance with the provisions of
the 'Purchase of Notes upon a Change of Control' covenant or the failure to
make or consummate an Excess Proceeds Offer in accordance with the
provisions of the 'Limitation on Sale of Assets' covenant;
(4) default in the performance, or breach, of any covenant or
agreement of the Company contained in the Indenture (other than a default
in the performance, or breach, of a covenant or warranty which is
specifically dealt with elsewhere in the Indenture) and continuance of such
default or breach for a period of 30 days after written notice shall have
been given to the Company by the Trustee or to the Company and the Trustee
by the holders of at least 25% in aggregate principal amount of the Notes
then outstanding;
(5) (A) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of the Company or any Subsidiary of the
Company aggregating $10.0 million or more, when the same becomes due and
payable at the Stated Maturity thereof, and such default or defaults shall
have continued after any applicable grace period and shall not have been
cured or waived or (B) Indebtedness of the Company or any Subsidiary of the
Company aggregating $10.0 million or more shall have been accelerated or
otherwise declared due and
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payable, or required to be prepaid or repurchased (other than by regularly
scheduled required prepayment) prior to the Stated Maturity thereof;
(6) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Company or any Subsidiary
of the Company or their respective properties for the payment of money,
either individually or in an aggregate amount, in excess of $10.0 million
and either (A) an enforcement proceeding shall have been commenced by any
creditor upon such judgment or order or (B) there shall have been a period
of 30 consecutive days during which a stay of enforcement of such judgment
or order, by reason of a pending appeal or otherwise, was not in effect;
(7) any provision of the Collateral Documents shall cease, for any
reason, to be in full force and effect in any material respect, or the
Company shall so assert in writing; or the Trustee or the Collateral Agent,
as the case may be, shall cease to have a first priority perfected security
interest in the Pledged Stock or the Pledged Securities or the Pledge
Account, as the case may be (other than by reason of the release of any
such security interest in accordance with the Collateral Documents), or any
representation, warranty or certification of the Company made in or
pursuant to the Collateral Documents shall be false in any material respect
as of the date when made; or
(8) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Subsidiary of the
Company.
If an Event of Default (other than an Event of Default specified in clause
(8) above) shall occur and be continuing, the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding, by written
notice to us (and to the Trustee if such notice is given by the holders), may,
and the Trustee upon the written request of such holders, will declare the
principal of, premium, if any, and accrued interest on all of the outstanding
Notes immediately due and payable, and upon any such declaration all such
amounts payable in respect of the Notes shall become immediately due and
payable. If an Event of Default specified in clause (8) above occurs and is
continuing, then the principal of, premium, if any, and accrued interest on all
of the outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder of Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to us and the Trustee, may rescind such
declaration and its consequences if
(1) we have paid or deposited with the Trustee a sum sufficient to pay
(a) all overdue interest on all outstanding Notes,
(b) all unpaid principal of and premium, if any, on any outstanding
Notes that have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes,
(c) to the extent that payment of such interest is lawful, interest
upon overdue interest and overdue principal at the rate borne by the
Notes,
(d) all sums paid or advanced by the Trustee under the Indenture
and the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel; and
(2) all Events of Default, other than the nonpayment of amounts of
principal of, premium, if any, or interest on the Notes that has become due
solely by such declaration of acceleration, have been cured or waived.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may, on behalf of the holders of all the Notes, waive any
past defaults under the Indenture, except a default in the payment of the
premium of, if any, or interest on any Note, or in respect
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of a covenant or provision which under the Indenture cannot be modified or
amended without the consent of the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee will mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of,
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the holders of such Notes if a committee of its trust officers in good faith
determines that withholding the notice is in the interests of the holders of the
Notes.
We are required to furnish to the Trustee annual and quarterly statements
as to our performance of our obligations under the Indenture and as to any
default in such performance. We are also required to notify the Trustee within
five business days of the occurrence of any Default.
DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURE
We are entitled, at our option and at any time, to have our obligations
upon the Notes discharged with respect to the outstanding Notes ('defeasance').
Such defeasance means that we will be deemed to have paid and discharged the
entire Indebtedness represented by the outstanding Notes and to have satisfied
all of our other obligations under such Notes and the Indenture insofar as such
notes are concerned, except for
the rights of holders of outstanding Notes to receive payments in respect
of the principal of (and premium, if any, on) and interest on such Notes
when such payments are due,
our obligations to issue temporary Notes, register the transfer or
exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes,
maintain an office or agency for payments in respect of the Notes and
segregate and hold such payments in trust,
the rights, powers, trusts, duties and immunities of the Trustee, and
the defeasance provisions of the Indenture.
In addition, we are entitled, at our option and at any time, to have our
obligations released with respect to certain covenants set forth in the
Indenture, and any omission to comply with such obligations shall not constitute
a Default or an Event of Default with respect to the Notes ('covenant
defeasance').
In order to exercise either defeasance or covenant defeasance,
(1) we must irrevocably deposit or cause to be deposited with the
Trustee, as trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the holders of the Notes, cash in
United States dollars, or U.S. Government Obligations, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, or a
nationally recognized investment banking firm, to pay and discharge the
principal of (and premium, if any, on) and interest on the outstanding
Notes at Stated Maturity (or upon redemption, if applicable) of such
principal, premium, if any, or installment of interest;
(2) no Default or Event of Default with respect to the Notes will have
occurred and be continuing on the date of such deposit or, insofar as an
event of bankruptcy under clause (8) of ' -- Events of Default' above is
concerned, at any time during the period ending on the 91st day after the
date of such deposit;
(3) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than the Indenture) to which we are a party
or by which we are bound;
(4) in the case of defeasance, we shall have delivered to the Trustee
an opinion of counsel in the United States stating that we have received
from, or there has been published by, the Internal Revenue Service a
ruling, or since the date of this offering memorandum, there has been a
change in applicable federal income tax law, in either case to the effect,
and
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based thereon such opinion shall confirm that, the holders of the
outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(5) in the case of covenant defeasance, we shall have delivered to the
Trustee an opinion of counsel in the United States to the effect that the
holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such covenant defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred;
(6) in the case of defeasance or covenant defeasance, we shall have
delivered to the Trustee an opinion of counsel in the United States to the
effect that after the 91st day following the deposit or after the date such
opinion is delivered, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(7) we shall have delivered to the Trustee an officers' certificate
stating that we did not make the deposit with the intent of preferring the
holders of the Notes over our other creditors with the intent of hindering,
delaying or defrauding our other creditors; and
(8) we shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
provided for relating to either the defeasance or the covenant defeasance,
as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) and the Trustee, at our expense, will execute
proper instruments acknowledging satisfaction and discharge of the Indenture
when
(1) either
(a) all the Notes previously authenticated and delivered (other
than destroyed, lost or stolen notes which have been replaced or paid
and Notes for whose payment money has been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such
trust as provided for in the Indenture) have been delivered to the
Trustee for cancellation or
(b) all Notes not previously delivered to the Trustee for
cancellation (i) have become due and payable, (ii) will become due and
payable at their Stated Maturity within one year or (iii) are to be
called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by the Trustee in our
name, and at our expense, and we have irrevocably deposited or caused to
be deposited with the Trustee as trust funds in trust for such purpose
an amount sufficient to pay and discharge the entire Indebtedness on
such Notes not previously delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date of
such deposit (in the case of Notes which have become due and payable) or
to the Stated Maturity or redemption date, as the case may be;
(2) we have paid or caused to be paid all sums payable by us under the
Indenture; and
(3) we have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent provided in
the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
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AMENDMENTS AND WAIVERS
With certain exceptions, we and the Trustee may make modifications and
amendments of the Indenture and the Collateral Documents with the consent of the
holders of a majority in aggregate outstanding principal amount of the Notes;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, or reduce the principal thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or
change the coin or currency in which any Note or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in
the case of redemption, on or after the redemption date);
(2) reduce the percentage in principal amount of outstanding Notes,
the consent of whose holders is required for any such modification or
amendment or the consent of whose holders is required for any waiver of
compliance with certain provisions of, or certain defaults and their
consequences provided for under, the Indenture;
(3) modify any provisions described under ' -- Amendments and Waivers'
or ' -- Events of Default,' except to increase the percentage of principal
amount of outstanding Notes required for such actions or to provide that
certain other provisions of the Indenture cannot be modified or waived
without the consent of the holder of each outstanding Note;
(4) amend, change or modify our obligation to make and consummate a
Change of Control Offer in the event of a Change of Control or an Excess
Proceeds Offer in connection with any Asset Sale or modify any of the
provisions or definitions with respect thereto; or
(5) make any change in any of the provisions of the Collateral
Documents not authorized by the Indenture, which materially adversely
affect the holders of the Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes,
we and the Trustee are entitled to modify or amend the Indenture and the
Collateral Documents:
(1) to evidence the succession of another Person to the Company or any
other obligor on the Notes, and the assumption by any such successor of the
covenants of the Company or such obligor in the Indenture, the Collateral
Documents and in the Notes in accordance with the ' -- Consolidation,
Merger and Sale of Assets' covenant;
(2) to add to the covenants of the Company or any other obligor upon
the Notes for the benefit of the holders of the Notes or to surrender any
right or power conferred upon the Company or any other obligor upon the
Notes, as applicable, in the Indenture, the Collateral Documents or in the
Notes;
(3) to cure any ambiguity, or to correct or supplement any provision
in the Indenture, the Collateral Documents or the Notes which may be
defective or inconsistent with any other provision in the Indenture, the
Collateral Documents or the Notes or make any other provisions with respect
to matters or questions arising under the Indenture or the Notes; provided,
however, that, in each case, such provisions shall not adversely affect the
interest of the holders of such Notes;
(4) to comply with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust
Indenture Act;
(5) to add a guarantor of the Notes under the Indenture;
(6) to evidence and provide the acceptance of the appointment of a
successor Trustee under the Indenture; or
(7) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the holders of the Notes as
additional security for the payment and performance of our obligations
under the Indenture, in any property or assets, including any of which are
required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to the Indenture
or otherwise.
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The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent Person
would exercise under the circumstances in the conduct of such Person's own
affairs.
The Indenture and the provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become one of our creditors, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest
(as defined in the Trust Indenture Act) it must eliminate such conflict or
resign.
GOVERNING LAW
The Indenture, the Notes and the Collateral Documents will be governed by,
and construed in accordance with, the laws of the State of New York.
CERTAIN DEFINITIONS
'Acquired Indebtedness' means Indebtedness of a Person (1) existing at the
time such Person becomes a Restricted Subsidiary or (2) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition; provided, however, that,
for purposes of the 'Limitation on Indebtedness' covenant, such Indebtedness
shall be deemed to be incurred on the date of the related acquisition of assets
from any Person or the date the acquired Person becomes a Restricted Subsidiary.
'Adjusted Consolidated Operating Cash Flow' means Consolidated Operating
Cash Flow for the latest four fiscal quarters for which consolidated financial
statements of Company are available, taken as a whole. For purposes of
calculating 'Consolidated Operating Cash Flow' for any four fiscal quarter
period for purposes of this definition,
(1) all Restricted Subsidiaries of the Company on the date of the
transaction giving rise to the need to calculate 'Adjusted Consolidated
Operating Cash Flow' (the 'Transaction Date') shall be deemed to have been
Restricted Subsidiaries at all times during such four fiscal quarter period
and
(2) any Unrestricted Subsidiary on the Transaction Date shall be
deemed to have been an Unrestricted Subsidiary at all times during such
four fiscal quarter period.
In addition to and without limitation of the foregoing, for purposes of this
definition, 'Consolidated Operating Cash Flow' shall be calculated after giving
effect on a pro forma basis for the applicable four fiscal quarter period to,
without duplication,
(1) any Asset Sales or Asset Acquisitions (including any Asset
Acquisition giving rise to the need to make such calculation as a result of
the Company or a Restricted Subsidiary (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness) occurring
during the period commencing on the first day of such four fiscal quarter
period to and including the Transaction Date (the 'Reference Period'), as
if such Asset Sale or Asset Acquisition occurred on the first day of the
Reference Period and
(2) any incurrence or repayment, retirement or permanent reduction of
any Indebtedness of the Company or any Restricted Subsidiary during the
Reference Period, as if such
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incurrence, repayment, retirement or reduction occurred on the first day of
the Reference Period.
'Affiliate' means, with respect to any specified Person,
(1) any other Person directly or indirectly controlling or controlled
by or under direct or indirect common control with such specified Person or
(2) any other Person that owns, directly or indirectly, 10% or more of
such specified Person's Voting Stock or any executive officer or director
of any such specified Person or other Person or, with respect to any
natural Person, any Person having a relationship with such Person by blood,
marriage or adoption not more remote than first cousin.
For the purposes of this definition, 'control,' when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms 'controlling' and
'controlled' have meanings correlative to the foregoing.
'Asset Acquisition' means
(1) any capital contribution (by means of transfers of cash or other
property to others or payments for property or services for the account or
use of others, or otherwise) by the Company or any Restricted Subsidiary in
any other Person, or any acquisition or purchase of Capital Stock of any
other Person by the Company or any Restricted Subsidiary, in either case
pursuant to which such Person shall become a Restricted Subsidiary or shall
be merged with or into the Company or any Restricted Subsidiary or
(2) any acquisition by the Company or any Restricted Subsidiary of the
assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of
the ordinary course of business.
'Asset Sale' means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any Person other than
the Company or a Restricted Subsidiary in one transaction or a series of related
transactions, of
(1) any Capital Stock of any Restricted Subsidiary,
(2) any material license or other authorization of the Company or any
Restricted Subsidiary,
(3) any assets of the Company or any Restricted Subsidiary which
constitute substantially all of an operating unit or line of business of
the Company and the Restricted Subsidiaries or
(4) any other property or asset of the Company or any Restricted
Subsidiary outside of the ordinary course of business.
For the purposes of this definition, the term 'Asset Sale' shall not include
(1) any disposition of properties and assets of the Company that is
governed by the provisions described under ' -- Consolidation, Merger and
Sale of Assets' above,
(2) sales of property or equipment that have become worn out, obsolete
or damaged or otherwise unsuitable for use in connection with the business
of the Company or any Restricted Subsidiary, as the case may be,
(3) sales of accounts receivable by the Company for cash in an amount
at least equal to the fair market value of such accounts receivable,
(4) for purposes of the 'Limitation on Sale of Assets' covenant, any
sale, conveyance, transfer, lease or other disposition of any property or
asset, whether in one transaction or a series of related transactions,
involving assets with a Fair Market Value not in excess of $250,000 in any
twelve-month period and
(5) sales of rights to the Company's transmissions outside the
continental United States and outside the ordinary course of the Company's
business if (a) after giving effect to such sale and for a six month period
thereafter, the Company and the Restricted Subsidiaries shall
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have no Indebtedness outstanding under any Bank Credit Agreement, (b) the
consideration received by the Company for such sale is at least 80% cash or
Cash Equivalents and (c) the proceeds of such sale are used by the Company
for working capital or as provided in clause (1) or (2) of paragraph (b) of
the 'Limitation on Sale of Assets' covenant.
'Attributable Indebtedness' means with respect to an operating lease
included in any Sale and Leaseback Transaction at the time of determination, the
present value (discounted at the interest rate implicit in the lease or, if not
known, at the Company's incremental borrowing rate) of the obligations of the
lessee of the property subject to such lease for rental payments during the
remaining term of the lease included in such transaction, including any period
for which such lease has been extended or may, at the option of the lessor, be
extended, or until the earliest date on which the lessee may terminate such
lease without penalty or upon payment of penalty (in which case the rental
payments shall include such penalty), after excluding from such rental payments
all amounts required to be paid on account of maintenance and repairs,
insurance, taxes, assessments, water, utilities and similar charges.
'Average Life' means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing
(1) the sum of the products of (a) the number of years from the date
of determination to the date or dates of each successive scheduled
principal payment (including any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(2) the sum of all such principal payments.
'Bank Credit Agreement' means any one or more credit agreements (which may
include or consist of revolving credit agreements or similar arrangements)
between the Company or any Restricted Subsidiary and one or more banks or other
financial institutions providing financing for the business of the Company and
its Restricted Subsidiaries.
'Board of Directors' means the Board of Directors of the Company or any
duly authorized committee thereof.
'Bond Collateral' means (1) shares of Satellite CD Radio, Inc. or (2) any
license owned by Satellite CD Radio, Inc. that is required to operate a CD Radio
Business.
'Capital Stock' of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the Issue Date.
'Capitalized Lease Obligation' of any Person means any obligation of such
Person and its subsidiaries on a consolidated basis under a lease of (or other
agreement conveying the right to use) any property (whether real, personal or
mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
'Cash Equivalents' means
(1) any evidence of Indebtedness with a maturity of 365 days or less
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the full
faith and credit of the United States of America is pledged in support
thereof);
(2) certificates of deposit or acceptances with a maturity of 365 days
or less of any financial institution that is a member of the Federal
Reserve System, in each case having combined capital and surplus and
undivided profits of not less than $500 million;
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(3) commercial paper with a maturity of 270 days or less issued by a
corporation that is not an Affiliate of the Company and is organized under
the laws of any state of the United States or the District of Columbia and
rated at least A-1 by S&P or at least P-1 by Moody's; and
(4) any money market mutual fund organized under the laws of the
United States or any state thereof whose assets consist solely of cash or
the foregoing instruments.
'CD Radio Assets' means all assets, rights, services and properties,
whether tangible or intangible, used or intended for use in connection with a CD
Radio Business, including satellites, terrestrial repeating stations, uplink
facilities, musical libraries and other recorded programming, furniture,
fixtures and equipment and telemetry, tracking, monitoring and control
equipment.
'CD Radio Business' means the business of transmitting digital radio
programming throughout the United States by satellite to be received by paying
subscribers, including any business in which the Company was engaged on the date
of the Indenture, and any business reasonably related thereto.
'Change of Control' means the occurrence of any of the following events:
(1) any 'person' or 'group' (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than a Permitted Holder, is or
becomes the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a Person shall be deemed to have 'beneficial
ownership' of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 40% of the total outstanding
Voting Stock of the Company;
(2) the Company consolidates with, or merges with or into another
Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates
with or merges with or into the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is
converted into or exchanged for cash, securities or other property, other
than any such transaction where
(a) the outstanding Voting Stock of the Company is not converted or
exchanged at all (except to the extent necessary to reflect a change in
the jurisdiction of incorporation of the Company) or is converted into
or exchanged for (i) Voting Stock (other than Redeemable Capital Stock)
of the surviving or transferee corporation or (ii) Voting Stock (other
than Redeemable Capital Stock) of the surviving or transferee
corporation and cash, securities and other property (other than Capital
Stock of the surviving entity) in an amount that could be paid by the
Company as a Restricted Payment as described under the 'Limitation on
Restricted Payments' covenant and
(b) immediately after such transaction, no 'person' or 'group' (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is
the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to have 'beneficial
ownership' of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 40% of the total
outstanding Voting Stock of the surviving or transferee corporation;
(3) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Company, was
approved by a vote of 66 2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office; or
(4) the Company is liquidated or dissolved or a special resolution is
passed by the stockholders of the Company approving the plan of liquidation
or dissolution other than in a
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transaction which complies with the provisions described under
' -- Consolidation, Merger and Sales of Assets.'
'Collateral Agent' means initially IBJ Whitehall and thereafter any
successor Collateral Agent that is a financial institution in the State of New
York selected by the Trustee, acting as the agent and designee of the Trustee
pursuant to a Intercreditor Agreement, that
(a) is a financial intermediary (not a clearing corporation) within
the meaning of Section 8-313(4) of the Uniform Commercial Code
from time to time in effect in the State of New York carrying on
business in the State of New York,
(b) issues (or whose parent issues) commercial paper or certificates
of deposit rated as described in clause (c) of the definition of
Cash Equivalents,
(c) has combined capital and surplus and undivided profits of not less
than $500,000,000 and
(d) enters into a Intercreditor Agreement.
'Collateral Documents' means the Indenture, the Intercreditor
Agreement, the Pledge Agreement and the Collateral Pledge Agreement.
'Collateral Pledge Agreement' means the Collateral Pledge and Security
Agreement dated as of May 15, 1999 between the Company and the Trustee,
governing the disbursement of funds from the Pledge Account.
'Common Stock' means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however
designated and whether voting or nonvoting) of such Person's common stock
or ordinary shares, whether outstanding at the date of the Indenture or
thereafter issued, and includes all series and classes of such common stock
or ordinary shares.
'Consolidated Income Tax Expense' means, with respect to any period,
the provision for United States corporation, local, foreign and other
income taxes of the Company and the Restricted Subsidiaries for such period
as determined on a consolidated basis in accordance with GAAP.
'Consolidated Interest Expense' means, for any period, without
duplication, the sum of
(1) the interest expense of the Company and the Restricted
Subsidiaries for such period, including
(a) amortization of original issue discount,
(b) the net cost of Interest Rate Agreements (including
amortization of discounts),
(c) the interest portion of any deferred payment obligation,
(d) accrued interest,
(e) the consolidated amount of any interest capitalized by the
Company and
(f) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, plus
(2) the interest component of Capitalized Lease Obligations of the
Company and the Restricted Subsidiaries paid, accrued or scheduled to be
paid or accrued during such period, in each case as determined on a
consolidated basis in accordance with GAAP, plus
(3) cash and non-cash dividends paid on Redeemable Capital Stock by
the Company and any Restricted Subsidiary (to any Person other than the
Company and any Restricted Subsidiary), in each case as determined on a
consolidated basis in accordance with GAAP minus
(4) to the extent included in the calculation of interest expense, the
amortization of underwriting discounts and commissions and fees related to
the issuance of the Units and the November 1997 offering of units
(consisting of the Senior Discount Notes and warrants exercisable for
Senior Discount Notes);
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provided, however, that the Consolidated Interest Expense attributable to
interest on any Indebtedness computed on a pro forma basis and (A) bearing a
floating interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying, at the option of the Company, either the fixed or
the floating rate.
'Consolidated Net Income' means, for any period, the consolidated net
income (or loss) of the Company and all Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding, without
duplication,
(1) any net after-tax extraordinary gains or losses (less all fees and
expenses relating thereto),
(2) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to asset dispositions other than in the
ordinary course of business,
(3) the portion of net income (or loss) of any Person (other than the
Company or a Restricted Subsidiary), including Unrestricted Subsidiaries,
in which the Company or any Restricted Subsidiary has an ownership
interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any Restricted Subsidiary in
cash dividends or distributions during such period,
(4) net income (or loss) of any Person combined with the Company or
any Restricted Subsidiary on a 'pooling of interests' basis attributable to
any period prior to the date of combination,
(5) the net income of any Restricted Subsidiary, to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary is not at the date of determination permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary or its
stockholders and
(6) any non-cash items of the Company and any Restricted Subsidiary
(including monetary corrections) increasing or decreasing Consolidated Net
Income for such period (other than items that will result in the receipt or
payment of cash).
'Consolidated Net Worth' means, at any date, the stockholders' equity of
the Company or any Surviving Entity less the amount of such stockholders' equity
attributable to Redeemable Capital Stock or treasury stock of the Company, such
Surviving Entity and any Restricted Subsidiary, as determined on a consolidated
basis in accordance with GAAP.
'Consolidated Operating Cash Flow' means, with respect to any period, the
Consolidated Net Income of the Company and its Restricted Subsidiaries for such
period increased by (in each case to the extent included in computing
Consolidated Net Income) the sum of
(1) the Consolidated Income Tax Expense of the Company and its
Restricted Subsidiaries accrued according to GAAP for such period (other
than taxes attributable to extraordinary, unusual or non-recurring gains or
losses);
(2) Consolidated Interest Expense for such period;
(3) depreciation of the Company and its Restricted Subsidiaries for
such period; and
(4) amortization of the Company and its Restricted Subsidiaries for
such period, including amortization of capitalized debt issuance costs for
such period, all determined on a consolidated basis in accordance with
GAAP.
'Cumulative Available Cash Flow' means, as at any date of determination,
the positive cumulative Consolidated Operating Cash Flow realized during the
period commencing on December 1, 1997 and ending on the last day of the most
recent fiscal quarter immediately preceding the date of determination for which
consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
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'Currency Agreement' means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement entered into by a Person
that is designed to protect such Person against fluctuations in currency values.
'Default' means any event that after notice or passage of time or both
would be an Event of Default.
'Disinterested Director' means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
'Equity Offering' means an underwritten primary public offering of Common
Stock of the Company pursuant to an effective registration statement under the
Securities Act or any offering or placement of Qualified Capital Stock of the
Company, in each case resulting in gross proceeds equal to or greater than $50
million.
'Exchange Act' means the Securities Exchange Act of 1934, as amended.
'Fair Market Value' means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
'Generally Accepted Accounting Principles' or 'GAAP' means generally
accepted accounting principles in the United States, consistently applied, that
were in effect on November 26, 1997.
'guarantee' means, as applied to any obligation,
(1) a guarantee (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, in any
manner, of any part or all of such obligation and
(2) an agreement, direct or indirect, contingent or otherwise, the
practical effect of which is to assure in any way the payment or performance (or
payment of damages in the event of non-performance) of all or any part of such
obligation, including the payment of amounts drawn down by letters of credit.
'Indebtedness' means, with respect to any Person, without duplication,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent,
(1) all liabilities of such Person for borrowed money (including
overdrafts) or for the deferred purchase price of property or services,
excluding any trade payables and other accrued current liabilities
(including outstanding disbursements) incurred in the ordinary course of
business (whether or not evidenced by a note), but including all
obligations, contingent or otherwise, of such Person in connection with any
letters of credit and acceptances issued under letter of credit facilities,
acceptance facilities or other similar facilities,
(2) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments,
(3) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), but excluding trade accounts
payable arising in the ordinary course of business,
(4) all Capitalized Lease Obligations of such Person,
(5) all Indebtedness referred to in (but not excluded from) the
preceding clauses of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien upon or with respect to property (including accounts and
contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment
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of such Indebtedness (the amount of such obligation being deemed to be the
lesser of the value of such property or asset or the amount of the
obligation so secured),
(6) all guarantees by such Person of Indebtedness referred to in this
definition of any other Person,
(7) all Redeemable Capital Stock of such Person valued at the greater
of its voluntary or involuntary maximum fixed repurchase price plus accrued
and unpaid dividends,
(8) all obligations of such Person under or in respect of Interest
Rate Agreements or Currency Agreements and
(9) all Attributable Indebtedness of such Person.
For purposes hereof, the 'maximum fixed repurchase price' of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.
For purposes of the 'Limitation on Indebtedness' and 'Limitation on
Restricted Payments' covenants and the definitions of 'Events of Default' and
'Permitted Indebtedness,' in determining the principal amount of any
Indebtedness to be incurred by the Company or a Restricted Subsidiary or which
is outstanding at any date, (x) the principal amount of any Indebtedness which
provides that an amount less than the principal amount at maturity thereof shall
be due upon any declaration of acceleration thereof shall be the accreted value
thereof at the date of determination for purposes of determining the amount that
would be payable thereon in the event of the occurrence of an event of default
(or similar) event under such Indebtedness, (y) the sum of the principal amount
of any Indebtedness at such date and the principal amount of any other
Indebtedness outstanding at such date to the extent incurred to refinance such
Indebtedness shall be reduced by an amount equal to the Fair Market Value, on
the date of incurrence of such Indebtedness, of cash, Cash Equivalents or U.S.
Government Obligations constituting the collateral securing such Indebtedness on
a perfected basis, and dedicated for disbursement to the payment of principal of
or interest on such Indebtedness and (z) effect shall be given to the impact of
any Currency Agreement with respect to such Indebtedness. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability of any guarantees at such date; provided, however, that for purposes
of calculating the amount of Senior Discount Notes outstanding at any date, the
amount of Senior Discount Notes shall be the accreted value thereof as of such
date, unless cash interest has commenced to accrue pursuant to the terms of the
Senior Discount Notes and the Discount Notes Indenture, in which case the amount
of such Senior Discount Notes outstanding at such date shall be the aggregate
principal amount thereof at Stated Maturity; and provided further, however, that
for purposes of calculating the amount of noninterest bearing or other discount
security (other than the Senior Discount Notes), such Indebtedness shall be
deemed to be the principal amount thereof that would be shown on the balance
sheet of the Person dated such date prepared in accordance with GAAP but that
such security shall be deemed to have been incurred only on the date of the
original issuance thereof.
'Indenture' means the Indenture dated as of May 15, 1999 between the
Company and the Trustee.
'Interest Rate Agreements' means any interest rate protection agreement and
other types of interest rate hedging agreements or arrangements (including
interest rate swaps, caps, floors, collars and similar agreements) designed to
protect against or manage exposure to fluctuations in interest rates in respect
of Indebtedness.
'Investment' means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any
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purchase, acquisition or ownership by such Person of any Capital Stock, bonds,
notes, debentures or other securities or evidences of Indebtedness issued or
owned by any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the Fair Market Value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall
be deemed to be an 'Investment' made by the Company in such Unrestricted
Subsidiary at such time. 'Investments' shall exclude extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices.
'Issue Date' means the date on which the Notes are originally issued.
'LIBOR' means, on any date of determination, for purposes of calculating
the effective annual interest rate on any Indebtedness referred to in
clause (15) of the definition of Permitted Liens, the rate appearing on
Page 3750 of the Telerate Service (or on any successor or substitute page of
such Service, or any successor to or substitute for such Service, providing rate
quotations comparable to those currently provided on such page of such Service
for purposes of providing quotations of interest rates applicable to dollar
deposits in the London interbank market) at approximately 11:00 a.m, London
time, as the rate for dollar deposits with a maturity comparable to such
Indebtedness.
'Lien' means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
'Loral Satellite Contract' means the Amended and Restated Contract
No. SS/L-TP93002-01, dated as of June 30, 1998, among the Company and Space
Systems/Loral, Inc., as amended, modified or supplemented from time to time.
'Maturity' means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.
'Moody's' means Moody's Investors Service, Inc. and its successors.
'Net Cash Proceeds' means,
(1) with respect to any Asset Sale, the proceeds thereof in the form
of cash or Cash Equivalents including payments in respect of deferred
payment obligations or escrowed funds, but only when received in the form
of, or stock or other assets when disposed for, cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary), net of
(a) brokerage commissions and other fees and expenses (including
fees and expenses of legal counsel, accountants, consultants and
investment banks) related to such Asset Sale,
(b) provisions for all taxes payable as a result of such Asset
Sale,
(c) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject of such
Asset Sale or becomes due and payable as a result thereof,
(d) amounts required to be paid to any Person (other than the
Company or any Restricted Subsidiary) owning a beneficial interest in
the assets subject to the Asset Sale and
(e) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in
accordance with GAAP against any liabilities associated with such Asset
Sale and retained by the Company or any
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Restricted Subsidiary, as the case may be, after such Asset Sale,
including pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as
reflected in an officers' certificate delivered to the Trustee and
(2) with respect to any capital contribution or issuance or sale of
Capital Stock as referred to under the 'Limitation on Restricted Payments'
covenant, the proceeds of such capital contribution, issuance or sale in
the form of cash or Cash Equivalents, including payments in respect of
deferred payment obligations when received in the form of, or stock or
other assets when disposed for, cash or Cash Equivalents (except to the
extent that such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary), net of attorney's fees, accountant's
fees and brokerage, consulting, financial, advisory, underwriting and other
fees and expenses actually incurred in connection with such capital
contribution, issuance or sale and net of taxes paid or payable as a result
thereof.
'Pari Passu Indebtedness' means Indebtedness of the Company that is pari
passu in right of payment to the Notes.
'Permitted Holder' means Loral Space & Communications Ltd., and its
successors.
'Permitted Indebtedness' means any of the following:
(1) Pari Passu Indebtedness of the Company or any Restricted
Subsidiary in an aggregate principal amount which, when taken together with
the then outstanding principal amount of (x) Pari Passu Indebtedness
incurred pursuant to this clause (1), (y) the Notes and (z) any refinancing
of such Pari Passu Indebtedness or the Notes pursuant to clause (11) below,
does not exceed the sum of (a) $350 million and (b) an amount equal to 125%
of Total Incremental Equity as of the date of such incurrence;
(2) Indebtedness of the Company or any Restricted Subsidiary incurred
pursuant to the Tranche A Credit Facility in an amount which, after giving
effect to the incurrence thereof, the aggregate principal amount of
Indebtedness incurred under this clause (2) and any refinancings thereof
pursuant to clause (11) below and then outstanding, does not exceed $115
million;
(3) Indebtedness of the Company pursuant to the Notes or of any
Restricted Subsidiary pursuant to a guarantee of the Notes;
(4) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date, including amounts not yet advanced on the
Issue Date but which the Company is entitled to defer or incur under the
Loral Satellite Contract;
(5) Indebtedness of the Company owing to any Restricted Subsidiary;
provided, however, that any Indebtedness of the Company owing to any such
Restricted Subsidiary is subordinated in right of payment to the Notes from
and after such time as the Notes shall become due and payable (whether at
Stated Maturity, acceleration or otherwise) to the payment and performance
of the Company's obligations under the Notes; provided further, however,
that any disposition, pledge or transfer of any such Indebtedness to a
Person (other than a disposition, pledge or transfer to the Company or
another Restricted Subsidiary) shall be deemed to be an incurrence of such
Indebtedness by the Company not permitted by this clause (5);
(6) Indebtedness of a Restricted Subsidiary owing to the Company or to
a Restricted Subsidiary; provided, however, that any disposition, pledge or
transfer of any such Indebtedness to a Person (other than a disposition,
pledge or transfer to the Company or a Restricted Subsidiary) shall be
deemed to be an incurrence of such Indebtedness by such Restricted
Subsidiary not permitted by this clause (6);
(7) obligations of the Company entered into in the ordinary course of
business
(a) pursuant to bona fide Interest Rate Agreements designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates in respect of
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Indebtedness of the Company or any Restricted Subsidiary, which
obligations do not exceed the aggregate principal amount of such
Indebtedness, and
(b) pursuant to bona fide Currency Agreements entered into by the
Company or any of its Restricted Subsidiaries and designed to protect
such Person against fluctuation in currency values in respect of its
assets or obligations;
(8) Capitalized Lease Obligations and Purchase Money Obligations of
the Company, the aggregate value (in the case of Capitalized Lease
Obligations) or principal amount (in the case of Purchase Money
Obligations) of which (including any refinancings (as defined in clause
(11) below) thereof) does not exceed $20 million at any one time
outstanding;
(9) unsecured Subordinated Indebtedness of the Company incurred to
finance the operation of CD Radio Assets or the construction, expansion,
development or acquisition of music libraries and other recorded music
programming, furniture, fixtures and equipment if such Subordinated
Indebtedness has an Average Life longer than the Average Life of the Notes
and has a final Stated Maturity of principal later than the Stated Maturity
of principal of the Notes;
(10) in addition to the items referred to in clauses (1) through (9)
above, Indebtedness of the Company having an aggregate principal amount not
to exceed $15 million at any time outstanding; and
(11) Indebtedness of the Company or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing, refunding or
extension of outstanding Indebtedness of the Company or any Restricted
Subsidiary incurred or outstanding pursuant to clauses (1), (2), (3), (4),
(8) and (9) of this definition or the proviso of the covenant 'Limitation
on Indebtedness'; provided, however, that (i) Indebtedness of the Company
may not be replaced, renewed, refinanced, refunded or extended to such
extent under this clause (11) with Indebtedness of any Restricted
Subsidiary and (ii) any such replacement, renewal, refinancing, refunding
or extension
(a) shall not result in a lower Average Life of such Indebtedness
as compared with the Indebtedness being replaced, renewed, refinanced,
refunded or extended,
(b) shall not exceed the sum of the principal amount (or, (x) if
such Indebtedness provides for a lesser amount to be due and payable
upon a declaration of acceleration thereof, an amount no greater than
such lesser amount or (y), in the case of Indebtedness the principal
amount of which was calculated pursuant to clause (y) of the last
paragraph of the definition of Indebtedness, the face amount of such
Indebtedness) of the Indebtedness being replaced, renewed, refinanced,
refunded or extended plus the amount of accrued interest thereon and the
amount of any reasonably determined prepayment premium necessary to
accomplish such replacement, renewal, refinancing, refunding or
extension and the reasonable fees and expenses incurred in connection
therewith, and
(c) in the case of any replacement, renewal, refinancing, refunding
or extension by the Company of Pari Passu Indebtedness, the Notes or
Subordinated Indebtedness, such new Indebtedness is made pari passu with
or subordinate to the Notes, at least to the same extent as the
Indebtedness being replaced, renewed, refinanced, refunded or extended.
'Permitted Investments' means
(1) Cash Equivalents;
(2) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
other similar deposits;
(3) loans and advances to employees made in the ordinary course of
business;
(4) Interest Rate Agreements and Currency Agreements;
(5) bonds, notes, debentures or other securities received as a result
of Asset Sales permitted under the 'Limitation on Sale of Assets' covenant;
provided, however, that the
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Company or the Restricted Subsidiaries, as the case may be, have received
at least 80% of the aggregate consideration therefrom in cash or Cash
Equivalents;
(6) Investments by the Company or any Restricted Subsidiary in another
Person, if as a result of such Investment (i) such other Person becomes a
Restricted Subsidiary or (ii) such other Person is merged or consolidated
with or into, or transfers or conveys all or substantially all of its
assets to, the Company or a Restricted Subsidiary;
(7) Investments in the Company or in any Restricted Subsidiary
(8) investments in preferred stock of corporations (x) organized and
validly existing under the laws of any state of the United States of
America, (y) conducting business principally in the State of New York and
(z) whose long term unsecured debt rating is rated one of the four highest
rating categories by S&P, Moody's or another nationally recognized
securities rating agency, in an aggregate amount not to exceed $35 million
at any one time outstanding; and
(9) investments not otherwise permitted by the foregoing clauses (1)
through (8) in an amount not to exceed $5.0 million at any one time
outstanding.
'Permitted Liens' means the following types of Liens:
(1) Liens existing on the date of the Indenture;
(2) Liens on Bond Collateral securing Pari Passu Indebtedness incurred
pursuant to clause (1) of the definition of Permitted Indebtedness or any
refinancing Indebtedness in respect thereof or of the Notes incurred
pursuant to clause (11) of the definition of Permitted Indebtedness;
provided, however, that such Lien shall be equal in priority to the Lien on
the Bond Collateral securing the Notes;
(3) Liens on any property or assets of a Restricted Subsidiary granted
in favor of the Company or any other Restricted Subsidiary;
(4) Liens securing the Notes;
(5) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by the Company or any Restricted Subsidiary; provided, however, that such
Lien does not extend to any property or assets of the Company or any
Restricted Subsidiary other than the assets acquired in connection with the
incurrence of such Acquired Indebtedness;
(6) any interest or title of a lessor or a lender under any
Capitalized Lease Obligation or any Purchase Money Obligation, in each case
as permitted under clause (8) of the definition of 'Permitted
Indebtedness'; provided, however, that such interest or title shall not
extend to any property or assets other than the assets that are the subject
of such Capitalized Lease Obligation or Purchase Money Obligation;
(7) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in
the ordinary course of business of the Company or any Restricted Subsidiary
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made;
(8) Liens for taxes, assessments, government charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made;
(9) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts
for the payment of money);
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(10) easements, rights-of-way, encroachments and survey defects
restrictions and other similar charges or encumbrances incurred in the
ordinary course of business not interfering in any material respect with
the business of the Company or any Restricted Subsidiary;
(11) Liens arising by reason of any judgment, decree or order of any
court or arbitration proceeding so long as such Lien is adequately bonded
and any appropriate legal proceedings that may have been duly initiated for
the review of such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be initiated
shall not have expired;
(12) Liens securing obligations of the Company under Interest Rate
Agreements or Currency Agreements or any collateral (other than Bond
Collateral) for the Indebtedness to which such Interest Rate Agreements or
Currency Agreements relate;
(13) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(14) Liens securing reimbursement obligations of the Company or any
Restricted Subsidiary with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the
products and proceeds thereof so long as such Liens do not extend to Bond
Collateral;
(15) Liens on the satellites of the Company which are not one of the
first three satellites, or on contractual rights to acquire such
satellites, securing Indebtedness of the Company; provided, however, that
such Indebtedness shall not be secured by Bond Collateral; provided
further, however, that such Lien on the satellites of the Company which are
not one of the first three satellites, or on contractual rights to acquire
such satellites, may only secure up to $110 million of such Indebtedness
(plus the interest thereon and other amounts payable in respect thereof)
and such Indebtedness (a) shall not have an effective annual interest rate
greater than LIBOR + 600 basis points and (b) by its terms does not entitle
the holders of such Indebtedness to receive Common Stock or warrants
exercisable for Common Stock in an amount greater than 2.25% of the
Company's outstanding Common Stock on a fully diluted basis (after giving
pro forma effect to such offering of Common Stock or warrants exercisable
for Common Stock) and, in the event that such Indebtedness is in an amount
less that $110 million, the provisions of clause (b) of the immediately
preceding proviso shall be pro rated accordingly;
(16) any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (1) and (3) through (14);
provided, however, that any such extension, renewal or replacement shall be
no more restrictive in any material respect than the Lien so extended,
renewed or replaced and shall not extend to any additional property or
assets;
(17) Liens incurred in the ordinary course of business of the Company
or any Restricted Subsidiary with respect to obligations that do not exceed
$5 million at any one time outstanding; and
(18) Liens on cash, Cash Equivalents or U.S. Government Obligations
securing Indebtedness up to the Fair Market Value, on the date of
incurrence of such Indebtedness, of the cash, Cash Equivalents and U.S.
Government Obligations constituting the collateral securing such
Indebtedness on a perfected basis and dedicated for disbursement to the
payment of principal and/or interest on such Indebtedness.
'Person' means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
'Pledge Account' means an account established with the Trustee pursuant to
the terms of the Collateral Pledge Agreement for the deposit of the Pledged
Securities.
'Pledge Agreement' means the Amended and Restated Pledge Agreement dated as
of May 15, 1999 among the Company, the Collateral Agent, the Trustee and the
trustee for the Senior Discount Notes.
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'Pledged Securities' means the U.S. Government Obligations purchased by the
Company with a portion of the net proceeds from the Units offering to be
deposited in the Pledge Account.
'Preferred Stock' means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued after
the Issue Date, and including all classes and series of preferred or preference
stock of such Person.
'Purchase Money Obligations' means Indebtedness of the Company or any
Restricted Subsidiary
(1) issued to finance or refinance the purchase or construction of any
assets of the Company or any Restricted Subsidiary,
(2) issued to finance the construction of satellite dish antennas or
radio adapters to receive the Company's services or
(3) secured by a Lien on any assets of the Company or any Restricted
Subsidiary where the lender's sole recourse is to the assets so encumbered,
(a) in the case of clauses (1) or (3) above, to the extent the purchase or
construction prices for such assets are or should be included in 'addition to
property, plant or equipment' in accordance with GAAP and (b) in each case, if
the purchase or construction of such assets is not part of any acquisition of a
Person or business unit.
'Qualified Capital Stock' of any Person means any and all Capital Stock of
such person other than Redeemable Capital Stock.
'Redeemable Capital Stock' means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity; provided, however, that Redeemable Capital Stock shall not include any
Common Stock the holder of which has a right to put to the Company upon certain
terminations of employment; and provided further, however, that any class or
series of Capital Stock that would not constitute Redeemable Capital Stock but
for provisions thereof giving holders thereof the right to require the issuer of
such Capital Stock to repurchase or redeem such Capital Stock upon the
occurrence of an 'asset sale' or 'change of control' occurring prior to the
final Stated Maturity of the Notes shall not constitute Redeemable Capital Stock
if the 'asset sale' or 'change of control' provisions applicable to such class
or series of Capital Stock are no more favorable to the holders of such Capital
Stock in any material respect than the provisions of the 'Purchase of Notes Upon
a Change of Control' and 'Limitation on Sale of Assets' covenants and such class
or series of Capital Stock specifically provides that the issuer of such Capital
Stock will not repurchase or redeem any such stock pursuant to such provision
prior to the Company's repurchase of such Notes as are required to be purchased
pursuant to the 'Purchase of Notes Upon a Change of Control' or 'Limitation on
Sale of Assets' covenant, as applicable.
'Restricted Subsidiary' means a Subsidiary other than an Unrestricted
Subsidiary.
'S&P' means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc. and its successors.
'Sale and Leaseback Transaction' means an arrangement by the Company or a
Restricted Subsidiary with any lender or investor or to which such lender or
investor is a party providing for the leasing by the Company or such Restricted
Subsidiary of any property or asset of the Company or such Restricted Subsidiary
which has been or is being sold or transferred by the Company or such Restricted
Subsidiary not more than 270 days after the acquisition thereof to such lender
or investor or any Affiliate thereof or to any Person to whom funds have been or
are to be advanced by such lender or investor or any Affiliate thereof on the
security of such property or asset.
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'Securities Act' means the Securities Act of 1933, as amended.
'Series C Preferred Stock' means the 10 1/2% Series C Convertible Preferred
Stock of the Company.
'Stated Maturity' means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
'Subordinated Indebtedness' means Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes.
'Subsidiary' means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries.
'Total Consolidated Indebtedness' means, at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of the Company and the
Restricted Subsidiaries outstanding as of the date of determination.
'Total Incremental Equity' means, at any date of determination, the sum of,
without duplication,
(1) the aggregate cash proceeds received by the Company after the
Issue Date from the issuance or sale of Qualified Capital Stock of the
Company (excluding any proceeds received from the issuance of the Company's
9.2% Series B Junior Cumulative Convertible Preferred Stock but including
Capital Stock issued upon the conversion of convertible Indebtedness or
from the exercise of options, warrants or rights to purchase Qualified
Capital Stock of the Company) to any Person other than a Subsidiary; plus
(2) an amount equal to the sum of
(a) the net reduction in Investments in any Person (other than
Permitted Investments) resulting from the payment in cash of dividends,
repayments of loans or advances or other transfers of assets, in each
case to the Company or any Restricted Subsidiary after the Issue Date
from such Person and
(b) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of any
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary;
provided, however, that in the case of (a) or (b) above, the
foregoing sum shall not exceed the amount of Investments previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary and that
constitutes a Restricted Payment that has been deducted from Total
Incremental Equity pursuant to clause (3) below; minus
(3) the aggregate amount of all Restricted Payments declared or made
on or after the Issue Date; and minus
(4) the aggregate amount paid pursuant to clauses (1), (2), (3), (4),
(6) and (8) of the second paragraph of the 'Limitation on Restricted
Payments' covenant.
'Tranche A Credit Facility' means the term loan facility under the Credit
Agreement, dated as of June 30, 1998, among the Company, Bank of America
National Trust and Savings Association ('Bank of America') and other financial
institutions from time to time parties thereto and Bank of America, as
administrative agent, as the same may be amended, modified or supplemented from
time to time.
'Trust Indenture Act' means the Trust Indenture Act of 1939, as amended.
'Unrestricted Subsidiary' means
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(1) any Subsidiary that at the time of determination shall be an
Unrestricted Subsidiary (as designated by the Board of Directors, as
provided below) and
(2) any subsidiary of an Unrestricted Subsidiary;
provided, however, that in no event shall any Person that is a Subsidiary on the
Issue Date become an Unrestricted Subsidiary. The Board of Directors may
designate any newly acquired or newly formed Subsidiary to be an Unrestricted
Subsidiary so long as
(1) neither the Company nor any Restricted Subsidiary is directly or
indirectly liable for any Indebtedness of such Subsidiary,
(2) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any
other Indebtedness of the Company or any Restricted Subsidiary to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity,
(3) neither the Company nor any Restricted Subsidiary has a contract,
agreement, arrangement, understanding or obligation of any kind, whether
written or oral, with such Subsidiary other than those that might be
obtained at the time from persons who are not Affiliates of the Company and
(4) neither the Company nor any Restricted Subsidiary has any
obligation (a) to subscribe for additional shares of Capital Stock or other
equity interests in such Subsidiary or (b) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results.
Any such designation by the Board of Directors of the Company shall be evidenced
to the Trustee by filing a Board Resolution with the Trustee giving effect to
such designation. The Board of Directors may designate any Unrestricted
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
designation, there would be no Default or Event of Default under the Indenture
and the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the 'Limitation on Indebtedness' covenant.
'U.S. Government Obligations' means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
'Voting Stock' means, with respect to any Person, any class or classes of
Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not,
at the time, stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency).
BOOK-ENTRY, DELIVERY AND FORM
Except as described below, we will initially issue the exchange notes in
the form of one or more registered exchange notes in global form without
coupons. We will deposit each global note on the date of the closing of this
exchange offer with, or on behalf of, The Depository Trust Company in New York,
New York, and register the exchange notes in the name of The Depository Trust
Company or its nominee, or will leave these notes in the custody of the Trustee.
THE DEPOSITORY TRUST COMPANY'S PROCEDURES
For your convenience, we are providing you with a description of the
operations and procedures of The Depository Trust Company. The operations and
procedures of The Depository Trust Company are solely within the control of its
settlement system however and may change from time to time. We are not
responsible for these operations and procedures and urge you to contact The
Depository Trust Company or its participants directly to discuss these matters.
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The Depository Trust Company has advised us that it is a limited-purpose
trust company created to hold securities for its participating organizations and
to facilitate the clearance and settlement of transactions in those securities
between its participants through electronic book entry changes in the accounts
of these participants. These direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
Access to The Depository Trust Company's system is also indirectly available to
other entities that clear through or maintain a direct or indirect, custodial
relationship with a direct participant. The Depository Trust Company may hold
securities beneficially owned by other persons only through its participants and
the ownership interests and transfers of ownership interests of these other
persons will be recorded only on the records of the participants and not on the
records of The Depository Trust Company.
The Depository Trust Company has also advised us that, in accordance with
its procedures, (1) upon deposit of the global notes, it will credit the
accounts of the direct participants with an interest in the global notes, and
(2) it will maintain records of the ownership interests of these direct
participants in the global notes and the transfer of ownership interests by and
between direct participants. The Depository Trust Company will not maintain
records of the ownership interests of, or the transfer of ownership interests by
and between, indirect participants or other owners of beneficial interests in
the global notes. Both direct and indirect participants must maintain their own
records of ownership interests of, and the transfer of ownership interests by
and between, indirect participants and other owners of beneficial interests in
the global notes.
Investors in the global notes may hold their interests in the notes
directly through The Depository Trust Company if they are direct participants in
The Depository Trust Company or indirectly through organizations that are direct
participants in The Depository Trust Company. All interests in a global note may
be subject to the procedures and requirements of The Depository Trust Company.
The laws of some states require that some persons take physical delivery in
definitive certificated form of the securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a global note to these
persons. Because The Depository Trust Company can act only on behalf of direct
participants, which in turn act on behalf of indirect participants and others,
the ability of a person having a beneficial interest in a global note to pledge
its interest to persons or entities that are not direct participants in The
Depository Trust Company or to otherwise take actions in respect of its
interest, may be affected by the lack of physical certificates evidencing the
interests.
Except as described below, owners of interests in the global notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders of these notes under the indenture for any purpose.
Payments with respect to the principal of and interest on any notes
represented by a global note registered in the name of The Depository Trust
Company or its nominee on the applicable record date will be payable by the
trustee to or at the direction of The Depository Trust Company or its nominee in
its capacity as the registered holder of the global note representing these
notes under the indenture. Under the terms of the indenture, we and the trustee
will treat the person in whose names the notes are registered, including notes
represented by global notes, as the owners of the notes for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal and interest on global notes registered in the name of
The Depository Trust Company or its nominee will be payable by the Trustee to
The Depository Trust Company or its nominee as the registered holder under the
indenture. Consequently, none of CD Radio, the Trustee or any of our agents, or
the trustee's agents has or will have any responsibility or liability for
(1) any aspect of The Depository Trust Company's records or any direct or
indirect participant's records relating to, or payments made on account of,
beneficial ownership interests in the global notes or for maintaining,
supervising or reviewing any of The Depository Trust Company's records or any
direct or indirect participant's records relating to the
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beneficial ownership interests in any global note or (2) any other matter
relating to the actions and practices of The Depository Trust Company or any of
its direct or indirect participants.
The Depository Trust Company has advised us that its current practice, upon
receipt of any payment in respect of securities such as the notes, including
principal and interest, is to credit the accounts of the relevant participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in the principal amount of beneficial interest in the
security as shown on its records, unless it has reasons to believe that it will
not receive payment on the payment date. Payments by the direct and indirect
participants to the beneficial owners of interests in the global note will be
governed by standing instructions and customary practice and will be the
responsibility of the direct or indirect participants and will not be the
responsibility of The Depository Trust Company, the Trustee or us.
Neither CD Radio nor the Trustee will be liable for any delay by The
Depository Trust Company or any direct or indirect participant in identifying
the beneficial owners of the notes and CD Radio and the Trustee may conclusively
rely on, and will be protected in relying on, instructions from The Depository
Trust Company for all purposes, including with respect to the registration and
delivery, and the respective principal amounts, of the notes.
Transfers between participants in The Depository Trust Company will be
effected in accordance with The Depository Trust Company's procedures, and will
be settled in same day funds.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more
participants to whose account The Depository Trust Company has credited the
interests in the global notes and only in respect of the portion of the
aggregate principal amount of the notes as to which the participant or
participants has or have given that direction. However, if there is an event of
default with respect to the notes, The Depository Trust Company reserves the
right to exchange the global notes for legended notes in certificated form and
to distribute them to its participants.
Although The Depository Trust Company has agreed to these procedures to
facilitate transfers of interests in the global notes among participants in The
Depository Trust Company, it is under no obligation to perform or to continue to
perform these procedures and may discontinue them at any time. None of CD Radio,
the Trustee or any of our or the Trustee's respective agents will have any
responsibility for the performance by The Depository Trust Company and its
direct or indirect participants of their respective obligations under the rules
and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A global note will be exchangeable for definitive notes in registered
certificated form if:
(1) The Depository Trust Company notifies us that it is unwilling or
unable to continue as depository for the global notes and we fail to
appoint a successor depository within 90 days,
(2) The Depository Trust Company ceases to be a clearing agency
registered under the Exchange Act,
(3) we elect to cause the issuance of the certificated notes upon a
notice of the Trustee,
(4) a default or event of default under the indenture for the notes
has occurred and is continuing, or
(5) a request to that effect is made but only upon prior written
notice given to the Trustee by or on behalf of The Depository Trust Company
in accordance with the indenture.
In all cases, certificated notes delivered in exchange for any global note
or beneficial interests in a global note will be registered in the name, and
issued in any approved denominations, requested by or on behalf of The
Depository Trust Company, in accordance with its customary procedures.
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EXCHANGE OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES
Initial notes issued in certificated form may be exchanged for beneficial
interests in the global note.
SAME DAY SETTLEMENT
We expect that the interests in the global notes will be eligible to trade
in The Depository Trust Company's Same-Day Funds Settlement System. As a result,
secondary market trading activity in these interests will settle in immediately
available funds, subject in all cases to the rules and procedures of The
Depository Trust Company and its participants. We expect that secondary trading
in any certificated notes will also be settled in immediately available funds.
PAYMENT
The indenture requires that payments in respect of the notes represented by
global notes, including principal and interest, be made by wire transfer of
immediately available funds to the accounts specified by the holder of the
global notes. With respect to notes in certificated form, we will make all
payments of principal and interest on the notes at our office or agency
maintained for that purpose within the city and state of New York. This office
will initially be the office of the paying agent maintained for that purpose. At
our option however, we may make these installments of interest by (1) check
mailed to the holders of notes at their respective addresses provided in the
register of holder of notes or (2) transfer to an account located in the United
States maintained by the payee.
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DESCRIPTION OF OTHER INDEBTEDNESS
15% SENIOR SECURED DISCOUNT NOTES DUE 2007
The Senior Discount Notes were originally issued on November 27, 1997, will
mature on December 1, 2007 and are secured by the Pledged Stock, which pledge
ranks equally with the pledge of the stock to secure CD Radio's obligations in
respect of the notes. The Senior Discount Notes accrue the original issue
discount at a rate of 15% per annum until December 1, 2002, and thereafter will
bear interest at the same rate, payable in cash semiannually in arrears. The
Senior Discount Notes Indenture does not provide for a sinking fund.
The Senior Discount Notes are not redeemable before December 1, 2002.
Thereafter, the Senior Discount Notes are redeemable, in whole or in part, at
our option, at the redemption prices described in the Senior Discount Notes
Indenture, plus accrued interest to the applicable redemption date.
Specifically, if redeemed during the 12-month period commencing on December 1 of
the years shown below, the redemption price will be that amount, expressed as a
percentage of the principal amount of the Senior Discount Notes, shown below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- -----
<S> <C>
2002..................................................... 112.5%
2003..................................................... 110.0%
2004..................................................... 107.5%
2005..................................................... 105.0%
2006..................................................... 102.5%
</TABLE>
If there is a Change of Control (as defined in the Senior Discount Notes
Indenture) or asset sales in specific circumstances, we will be required by the
terms of the Senior Discount Notes Indenture to make an offer to purchase the
outstanding Senior Discount Notes at a purchase price equal to 101% of the
accrued value of the Senior Discount Notes, plus accrued interest to the date of
purchase.
The indebtedness evidenced by the Senior Discount Notes ranks equally in
right of payment with all of our other existing and future unsubordinated
indebtedness (including the notes we are offering) and senior in right of
payment to all of our existing and future obligations expressly subordinated in
right of payment to the Senior Discount Notes.
The Senior Discount Notes Indenture contains a number of covenants
restricting our operations and the operations of our subsidiaries, including
those restricting the incurrence of indebtedness; the making of restricted
payments (in the form of the declaration or payment of some kinds of dividends
or distributions, the purchase, redemption or other acquisition of any of our
capital stock, the voluntary prepayment of equal or subordinated indebtedness
and the making of some kinds of investments, loans and advances); transactions
with affiliates; the issuance of liens; sale-leaseback transactions; the
transfer of assets; issuances and sales of capital stock of subsidiaries; the
issuance of guarantees by subsidiaries; dividend and other payment restrictions
affecting subsidiaries; and consolidation, merger or sale of substantially all
of our assets.
The events of default under the Senior Discount Notes Indenture include
provisions that are typical of senior debt financings, including a
cross-acceleration to a default by CD Radio or any material subsidiary on any
indebtedness that has an aggregate principal amount in excess of $5 million.
Upon the occurrence of an event of default, the trustee or the holders of not
less than 25% in principal amount at maturity of the outstanding Senior Discount
Notes may immediately accelerate the maturity of all the Senior Discount Notes
as provided in the Senior Discount Notes Indenture.
VENDOR FINANCING
Pursuant to the Tranche A Facility, Bank of America and other financial
institutions have committed to provide us a term loan facility in the aggregate
principal amount of up to $115 million. The proceeds of the loans are being used
by us to fund a portion of the progress
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payments required to be made under the Loral Satellite Contract for the purchase
of launch services and to pay interest, fees and other expenses related to the
Tranche A Facility. The loans are due on the earlier of February 29, 2000 and
ten days before the launch of our second satellite and bear interest, at our
option, at either (1) the London Interbank Offered Rate plus 1.75% or (2) the
higher of (a) the rate publicly announced by Bank of America as its reference
rate and (b) 0.50% per annum above the Federal Funds Rate then in effect. The
loans are secured by the grant of a security interest in the portion of the
Loral Satellite Contract relating to launch services. The Tranche A Facility
also contains covenants relating to financial information, the conduct of our
business, payments under the Loral Satellite Contract, maintenance of
governmental and other approvals, maintenance of existence and qualifications,
maintenance of books and records, maintenance of property and insurance,
compliance with laws and notice of defaults. In addition, the terms of the
Tranche A Facility require us to maintain a minimum net worth and sufficient
cash. As of December 31, 1998, we had borrowed $70.9 million under the
Tranche A Facility, substantially all of which was used to make progress
payments under the Loral Satellite Contract.
Loral assisted us in arranging the Tranche A Facility. Specifically, Loral
has agreed that at maturity of the loans (including maturity as a result of an
acceleration), upon the occurrence of a bankruptcy of CD Radio or upon the
occurrence of an event of default by Loral Space under its agreement with Bank
of America, Loral Space & Communications Ltd. will repurchase from Bank of
America and the other Lenders the loans at a price equal the principal amount of
the loans plus accrued and unpaid interest. In exchange for providing this
credit support, we pay Loral Space & Communications Ltd. a fee equal to 1.25%
per annum of the outstanding amount of the loans from time to time.
We have also entered into an agreement with Bank of America under which
Bank of America has agreed to attempt to arrange a syndicate of lenders to
provide a term loan facility in the aggregate principal amount of $225 million.
It is anticipated that a portion of the proceeds of these loans would be used on
or before the earlier of February 29, 2000 and ten days before the launch of our
second satellite to repay amounts outstanding under the Tranche A Facility and
for other general corporate purposes. Bank of America has not committed to
provide these loans and we cannot assure you that these loans will be arranged
or the terms of any these loans will be acceptable to us.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes some of the United States federal
income tax consequences that may be relevant to the exchange of initial notes
for exchange notes in accordance with the exchange offer, and the purchase of,
ownership and disposition of the exchange notes. The discussion is intended only
as a summary and does not purport to be a complete analysis or listing of all
potential tax considerations that may be relevant to holders of exchange notes.
The discussion does not include special rules that may apply to some holders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, holders whose functional currency is not the United States
dollar, and persons holding the notes as part of a 'straddle,' 'hedge,'
'constructive sale' or 'conversion transaction,' and investors who are not
United States Persons), and does not address the tax consequences of the law of
any state, locality or foreign jurisdiction. The discussion is based upon
currently existing provisions of the Internal Revenue Code of 1986 (the
'Internal Revenue Code'), existing and proposed Treasury regulations under the
Internal Revenue Code and current administrative rulings and court decisions.
Everything listed in the previous sentence may change and any change could
affect the continuing validity of this discussion. The discussion below assumes
that the initial notes or exchange notes, as applicable, are held as capital
assets within the meaning of Section 1221 of the Internal Revenue Code.
As used in this prospectus, 'United States Person' means a beneficial owner
of the notes who or that (1) is a citizen or resident of the United States, (2)
is a corporation, partnership or other entity created or organized in or under
the laws of the United States or political subdivision of the United States, (3)
is an estate the income of which is subject to U.S. federal income taxation
regardless of its source, (4) is a trust if (A) a U.S. court is able to exercise
primary supervision over the administration of the trust and (B) one or more
U.S. fiduciaries have authority to control all substantial decisions of the
trust, or (5) is otherwise subject to U.S. federal income tax on a net income
basis in respect of the notes.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. THE TAX TREATMENT
MAY VARY DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE
EXCHANGE OFFER AND THE OWNERSHIP OF THE INITIAL NOTES OR THE EXCHANGE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
TAXATION OF HOLDERS ON EXCHANGE
The exchange of initial notes for exchange notes in accordance with the
exchange offer will not be treated as an exchange or otherwise as a taxable
event to holders. Consequently, (1) no gain or loss will be realized by a holder
upon receipt of an exchange note, (2) the holding period of the exchange note
will include the holding period of the initial note exchanged for the exchange
note and (3) the adjusted tax basis of the exchange note will be the same as the
adjusted tax basis of the initial note exchanged for the exchange note
immediately before the exchange. Further, the tax consequences of ownership and
disposition of any exchange note should be the same as the tax consequences of
ownership and disposition of an initial note.
STATED INTEREST AND ORIGINAL ISSUE DISCOUNT
A holder of an exchange note will be required (absent the election
described below to treat all interest on the note as original issue discount
('OID') within the meaning of Section 1273(a) of the Internal Revenue Code) to
report as income for U.S. federal income tax purposes the portion of the stated
interest on the note that is 'qualified stated interest' ('QSI') in accordance
with the holder's method of accounting for tax purposes. QSI on a note is the
stated interest that is unconditionally payable at least annually at a single
fixed rate.
The exchange notes will have original issue discount for U.S. federal
income tax purposes. The amount of original issue discount on an exchange note
is the excess of its 'stated redemption price
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at maturity' (the sum of all payments to be made on the note other than QSI,
whether denominated as interest or principal) over its 'issue price.' Because
the exchange notes are treated for federal income tax purposes as if they were
the same as the initial notes, the amount of OID on an exchange note will be
calculated as if the exchange note and the initial note were a single note that
was issued at the time the initial note was issued, for an issue price equal to
the issue price of the initial note, and any accrued OID on the initial note at
the time of the exchange offer will carry over and be treated as accrued OID on
the exchange notes. The issue price of each initial note is $843.09, which is
the amount of the unit price that CD Radio allocated to the initial notes at the
time of the issuance of the units. See ' -- The Units.' Each holder of exchange
notes (whether a cash or accrual method taxpayer) will be required to include in
income OID as it accrues, in advance of the receipt of some or all of the
related cash payments.
The amount of OID includable in income by the holder of an exchange note is
the sum of the 'daily portions' of OID with respect to the note for each day
during the taxable year or portion of the taxable year on which the holder held
the note ('accrued OID'). The daily portion is determined by allocating to each
day in any 'accrual period' a proportionate portion of the OID allocable to that
accrual period. The accrual periods for a note will be periods that are each
selected by the holder of the note that are no longer than one year, provided
that each scheduled payment occurs either on the final day of an accrual period
or on the first day of an accrual period. The amount of OID allocable to any
accrual period other than the initial short accrual period (if any) and the
final accrual period is an amount equal to the excess of (a) the product of the
note's 'adjusted issue price' at the beginning of the accrual period and its
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of any payments of QSI allocable to the accrual period. The amount
of OID allocable to the final accrual period is the difference between the
amount payable at maturity (other than a payment of QSI) and the adjusted issue
price of the note at the beginning of the final accrual period. The amount of
OID allocable to any initial short accrual period may generally be computed
under any reasonable method. The 'yield to maturity' is the discount rate that,
when used in computing the present value of all payments to be made under the
notes, produces an amount equal to the issue price of the notes. The 'adjusted
issue price' of the note at the start of any accrual period is equal to its
issue price increased by the accrued OID for each prior accrual period and
reduced by any prior payments with respect to the note that were not QSI
payments. We are required to report the amount of OID accrued on exchange notes
held of record by persons other than corporations and other exempt holders of
notes, which may be based on accrual periods other than those chosen by the
holders of notes.
A holder of a note, with some limitations, may elect to include in gross
income for U.S. federal income tax purposes all interest that accrues on the
note by using the constant yield method described above. For purposes of the
election, interest includes all stated and unstated interest, acquisition
discount, OID, de minimis OID, market discount, and de minimis market discount,
as adjusted by any amortizable bond premium or acquisition premium (as discussed
below). In applying the constant yield method to a note with respect to which an
election is made, the issue price of the note will equal the electing holder's
adjusted basis in the note immediately after its acquisition, the issue date of
the note will be the date of its acquisition, and no payments on the note will
be treated as payments of QSI. This election is generally applicable only to the
note with respect to which it is made and may not be revoked without the consent
of the Internal Revenue Service. This election, if made in respect of a market
discount bond, will be treated as an election to include market discount in
income currently on all market discount bonds held by the holder during or after
the taxable year in which the note is acquired. See the discussion below under
'Market Discount.' If the election is made with respect to a note with
amortizable bond premium, the holder will be deemed to have elected to apply
amortizable bond premium against interest with respect to all debt instruments
with amortizable bond premium held by the electing holder during or after the
taxable year in which the note is acquired. See the discussion below under
'Acquisition Premium and Amortizable Bond Premium.'
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The tax basis of an exchange note in the hands of the holder of the note
will be increased by the amount of OID, if any, on the note that is included in
the holder's income under these rules, and will be decreased by the amount of
any payments (other than payments of QSI) made with respect to the note.
Applicable High Yield Discount Obligation. If the exchange notes are
treated as having 'significant original issue discount,' the notes will be
subject to the applicable high yield discount obligation ('AHYDO') rules of the
Internal Revenue Code. The notes will have 'significant original issue discount'
if the amount includible in gross income of a holder for periods before the
close of any accrual period ending after the date 5 years after the date of
issue exceeds the sum of (1) the aggregate cash interest paid before the close
of such accrual period and (2) the product of the issue price of the note and
its yield to maturity. If the notes are determined to be subject to the AHYDO
rules, our deductions with respect to original issue discount will be suspended
until these amounts are actually paid, and the 'disqualified portion' of the
original issue discount (defined as the portion that is attributable to the
yield on such note in excess of the applicable federal rate plus 600 basis
points) will be permanently nondeductible. These rules generally do not affect
the amount, timing or character of a holder's income; however, domestic
corporate holders may be eligible for a dividends-received deduction with
respect to their inclusion in income of the 'disqualified portion' if this
amount, if paid with respect to stock, would have been a dividend (i.e., would
have been out of earnings and profits). The availability of the
dividends-received deduction is subject to a number of complex limitations.
Market Discount. If an exchange note is acquired by a subsequent purchaser
at a 'market discount,' some or all of any gain realized upon a disposition
(including a sale or a taxable exchange) or payment at maturity of the note may
be treated as ordinary income. 'Market discount' with respect to a security is,
subject to a de minimis exception, the excess of (1) the issue price of the
security increased by all previously accrued original issue discount and
probably reduced (although the Internal Revenue Code does not expressly so
provide) by any cash payments in respect of the security over (2) the holder's
initial tax basis in the security. The amount of market discount treated as
having accrued will be determined either on a ratable basis, or, if the holder
so elects, on a constant interest method. Upon any subsequent disposition
(including a gift or payment at maturity) of the note (other than in connection
with some nonrecognition transactions), the lesser of any gain on the
disposition (or appreciation, in the case of a gift) or the portion of the
market discount that accrued while the note was held by the holder will be
treated as ordinary interest income at the time of the disposition. Instead of
including accrued market discount in income at the time of disposition, a holder
may elect to include market discount in income currently. Unless a holder so
elects, the holder may be required to defer a portion of any interest expense
that may otherwise be deductible on any indebtedness incurred or maintained to
purchase or carry the note until the holder disposes of the note. The election
to include market discount in income currently, once made, is irrevocable and
applies to all market discount obligations acquired on or after the first day of
the first taxable year to which the election applies and may not be revoked
without the consent of the Internal Revenue Service.
Acquisition Premium. If a subsequent holder's tax basis in an exchange note
(1) exceeds the adjusted issue price of the note, and (2) is less than or equal
to the stated redemption price at maturity (reduced by any payments made on the
note other than payments of QSI), the excess will be considered 'acquisition
premium.' The holder is permitted to reduce the amount of OID required to be
included in gross income by an amount equal to the OID otherwise includible
multiplied by a fraction, the numerator of which is the amount of acquisition
premium and the denominator of which is the excess of the sum of all amounts
payable on the notes after the purchase date (other than QSI payments) over the
adjusted issue price. Alternatively, a holder may elect to amortize acquisition
premium on a constant yield basis, treating the holder's purchase price as the
note's issue price.
Bond Premium. If a subsequent holder's tax basis in an exchange note
exceeds the sum of all amounts (other than QSI) payable on the note after the
acquisition date, the excess would be treated as 'amortizable bond premium.' The
holder may elect to amortize the excess over the
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period from the acquisition date of the note to the maturity date. Amortizable
bond premium allocable to a period may be offset against QSI on the related
security to the extent QSI for the period exceeds the holder's yield for the
period (the yield being the discount rate that, when used in computing the
present value of all remaining payments to be made (including QSI), produces an
amount equal to the holder's basis in the note). Additional amortizable premium
for a period may be treated as a bond premium deduction to the extent that the
holder's total interest inclusions on the note in prior periods exceed the total
amount treated by the holder as a bond premium deduction on the note in prior
periods. Any excess over the total interest inclusions is carried forward to the
next accrual period. A holder that elects to amortize bond premium must reduce
its adjusted basis in the note by the amount of allowable amortization. An
election to amortize bond premium applies to the amortizable bond premium on all
taxable bonds held during or after the holder's taxable year for which the
election is made and may be revoked only with the consent of the Internal
Revenue Service.
Disposition of Notes. A holder of exchange notes will recognize gain or
loss upon the sale, redemption, retirement or other disposition of notes; this
gain or loss will generally be equal to the difference between (1) the amount of
cash and the fair market value of property received and (2) the holder's
adjusted tax basis (including any accrued OID or market discount previously
included in income by the holder and reduced by any previous payments (other
than payments of QSI) with respect to the notes and any amortizable bond premium
applied to reduce interest on the notes). Subject to the market discount rules
discussed above, gain or loss recognized will be capital gain or loss and will
be long term capital gain or loss if the holder has held the notes (or is
treated as having held the notes) for longer than one year. Net capital gains of
individuals are subject to tax at lower rates than items of ordinary income. The
deductibility of capital losses is subject to limitations.
Reporting Requirements. We will provide annual information statements to
holders of the exchange notes and to the Internal Revenue Service, setting forth
the amount of original issue discount and QSI determined to be attributable to
the notes for that year.
BACKUP WITHHOLDING
Under some circumstances, the failure of a holder of exchange notes to
provide sufficient information to establish that the holder is exempt from the
backup withholding provisions of the Internal Revenue Code will subject the
holder to backup withholding at a rate of 31 percent on payments of principal
and interest on the notes, and the proceeds from a disposition of the exchange
notes. In general, backup withholding applies if a noncorporate holder fails to
furnish a correct taxpayer identification number, fails to report dividend and
interest income in full, or fails to certify that the holder has provided a
correct taxpayer identification number and that the holder is not subject to
withholding. An individual's taxpayer identification number is the individual's
Social Security number. Any amount withheld from a payment to a holder under the
backup withholding rules will be allowed as a credit against the holder's U.S.
federal income tax liability and may entitle the holder to a refund, provided
the required information is furnished to the Internal Revenue Service.
THE ABOVE SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF EXCHANGE NOTES OR INITIAL NOTES
IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH
HOLDER OF NOTES SHOULD CONSULT THEIR TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES TO THE HOLDER OF THE EXCHANGE OFFER AND THE OWNERSHIP OF THE
INITIAL NOTES OR THE EXCHANGE NOTES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT REVISIONS OF THESE TAX
LAWS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer in exchange for initial notes acquired by such
broker-dealer as a result of market making or other trading activities may be
deemed to be an 'underwriter' within the meaning of the Securities Act and,
therefore, must deliver a prospectus meeting the requirements of the Securities
Act in connection with any resales, offers to resell or other transfers of the
exchange notes received by it in connection with the exchange offer.
Accordingly, each such broker-dealer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such exchange notes. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an 'underwriter' within the
meaning of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for initial notes where such
initial notes were acquired as a result of market-making activities or other
trading activities.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
'underwriter' within the meaning of the Securities Act and any profit of any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an 'underwriter' within the meaning of the Securities Act.
LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York, has passed
upon specific legal matters, including specific tax matters, with respect to the
notes. Certain regulatory matters arising under the Communications Act are being
passed upon by Wiley, Rein & Fielding, Washington, D.C.
EXPERTS
Our consolidated financial statements as of December 31, 1997 and 1998, and
for each of the three years in the period ended December 31, 1998, and for the
period from May 17, 1990 (date of inception) to December 31, 1998, included in
this prospectus have been so included in reliance on the report (which contains
an explanatory paragraph relating to the Company's ability to continue as a
going concern, as described in Note 2 to the financial statements) of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
WHERE YOU CAN OBTAIN ADDITIONAL AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Commission. You may read and copy the materials we file
with the Commission at the Commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
in Chicago, Illinois and New York, New York. Please call the Commission at
1-800-SEC-0330 for further information on the operation of the public reference
109
<PAGE>
rooms. The Commission also maintains an Internet site that contains reports,
proxy and information statements and other information regarding issuers that
file with the Commission, including us. The site's address is
http://www.sec.gov. You can request copies of those documents, upon payment of a
duplicating fee, by writing to the Commission.
INCORPORATION BY REFERENCE
The Commission allows us to 'incorporate by reference' in this prospectus
other information we file with them, which means that we can disclose important
information to you by referring you to those documents. This prospectus
incorporates important business and financial information about us that is not
included in or delivered with this prospectus. The information that we file
later with the SEC will automatically update and supersede the information
included in and incorporated by reference in this prospectus. We incorporate by
reference the documents listed below and any future filings made with the
Commission under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act until
the expiration of this exchange offer.
1. Our Annual Report on Form 10-K for the year ended December 31,
1998, filed with the Commission on March 31, 1999, as amended by
the amendment to it on Form 10-K/A filed with the Commission on
April 30, 1999.
2. Our Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999.
3. Our Current Reports on Form 8-K filed on February 4, 1999, April 9,
1999, April 16, 1999, May 3, 1999, May 25, 1999 and June 15, 1999.
We have filed each of these documents with the Commission and they are
available from the Commission's Internet site and public reference rooms
described under 'Where You Can Obtain Additional Available Information' above.
You may also request a copy of these filings, at no cost, by writing or calling
us at the following address or telephone number:
Patrick L. Donnelly
Senior Vice President, General Counsel and Secretary
CD Radio Inc.
1221 Avenue of the Americas
New York, New York 10020
(212) 584-5100
110
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1998 and for the
period May 17, 1990 (date of inception) to
December 31, 1998......................................... F-3
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-4
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1998 and
for the period May 17, 1990 (date of inception) to
December 31, 1998......................................... F-5
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1998 and for the
period May 17, 1990 (date of inception) to
December 31, 1998......................................... F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
CD RADIO INC.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of CD
Radio Inc. and subsidiary (a Development Stage Enterprise) (collectively, the
'Company') at December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, and for the period May 17, 1990 (the date of inception) to December 31,
1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is expected to incur significant operating
losses before it commences operations and is obligated to make substantial
capital expenditures through December 31, 1999 for which it currently does not
have the financial resources. This raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to this matter are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
New York, New York
February 5, 1999
F-2
<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,
1996 1997 1998 1998
----------- ------------ ------------ -------------------
<S> <C> <C> <C> <C>
Revenue.............................. $ -- $ -- $ -- $ --
Operating expenses:
Legal, consulting and regulatory
fees.......................... (1,582,000) (3,236,000) (4,064,000) (14,549,000)
Other general and
administrative................ (1,231,000) (3,572,000) (9,311,000) (20,416,000)
Research and development........ (117,000) (57,000) (22,000) (1,995,000)
Special charges................. -- -- (25,682,000) (27,682,000)
----------- ------------ ------------ -------------
Total operating expenses... (2,930,000) (6,865,000) (39,079,000) (64,642,000)
----------- ------------ ------------ -------------
Other income (expense):
Interest and investment
income........................ 112,000 4,074,000 7,250,000 11,652,000
Interest expense, net........... (13,000) (1,946,000) (14,272,000) (16,384,000)
----------- ------------ ------------ -------------
99,000 2,128,000 (7,022,000) (4,732,000)
----------- ------------ ------------ -------------
Income (loss) before income taxes.... (2,831,000) (4,737,000) (46,101,000) (69,374,000)
Income taxes:
Federal......................... -- -- (1,982,000) (1,982,000)
State........................... -- -- (313,000) (313,000)
----------- ------------ ------------ -------------
Net loss............................. (2,831,000) (4,737,000) (48,396,000) (71,669,000)
----------- ------------ ------------ -------------
Preferred stock dividend............. -- (2,338,000) (19,380,000) (21,718,000)
Preferred stock deemed dividend...... -- (51,975,000) (11,676,000) (63,651,000)
Accretion of dividends in connection
with the issuance of warrants on
preferred stock.................... -- -- (6,501,000) (6,501,000)
----------- ------------ ------------ -------------
Net loss applicable to common
stockholders....................... $(2,831,000) $(59,050,000) $(85,953,000) $(163,539,000)
----------- ------------ ------------ -------------
----------- ------------ ------------ -------------
Net loss per share applicable to
common stockholders (basic and
diluted)........................... $(0.29) $(5.08) $(4.79)
----------- ------------ ------------
----------- ------------ ------------
Weighted average common shares
outstanding (basic and diluted).... 9,642,000 11,626,000 17,932,000
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 900,000 $204,753,000
Marketable securities, at market........................ 169,482,000 60,870,000
Prepaid expense and other............................... 928,000 166,000
------------ ------------
Total current assets................................ 171,310,000 265,789,000
------------ ------------
Property and equipment, at cost:
Satellite construction in process....................... 49,400,000 188,849,000
Launch construction in process.......................... 10,885,000 87,492,000
Terrestrial repeater network in process................. -- 1,990,000
Broadcast studio in process............................. -- 5,168,000
Technical equipment and other........................... 389,000 156,000
------------ ------------
60,674,000 283,655,000
Less accumulated depreciation............................... (243,000) (21,000)
------------ ------------
60,431,000 283,634,000
Other assets:
FCC license............................................. 83,346,000 83,368,000
Debt issue cost, net.................................... 8,617,000 9,313,000
Deposits and other...................................... 104,000 1,776,000
------------ ------------
Total other assets.................................. 92,067,000 94,457,000
------------ ------------
Total assets........................................ $323,808,000 $643,880,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................... $ 416,000 $ 5,481,000
Satellite construction payable.......................... -- 8,479,000
Short-term notes payable................................ -- 70,863,000
------------ ------------
Total current liabilities........................... 416,000 84,823,000
Long-term notes payable and accrued interest................ 131,387,000 153,033,000
Deferred satellite payments and accrued interest............ -- 31,324,000
Deferred income taxes....................................... -- 2,237,000
------------ ------------
Total liabilities................................... 131,803,000 271,417,000
------------ ------------
Commitments and contingencies
10 1/2% Series C Convertible Preferred Stock, no par value:
2,025,000 shares authorized, 1,846,799 and 1,467,416
shares issued and outstanding at December 31, 1997 and
1998, respectively (liquidation preferences of
$184,679,900 and $146,741,600), at net carrying value
including accrued dividends............................... 176,025,000 156,755,000
9.2% Series A Junior Cumulative Convertible Preferred Stock,
$.001 par value: 4,300,000 shares authorized, 1,350,000
shares issued and outstanding at December 31, 1998
(liquidation preference of $135,000,000), at net carrying
value including accrued dividends......................... -- 137,755,000
9.2% Series B Junior Cumulative Convertible Preferred Stock,
$.001 par value: 2,100,000 shares authorized, no shares
issued or outstanding..................................... -- --
Stockholders' equity:
Preferred stock, $.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, $.001 par value; 200,000,000 shares
authorized, and 16,048,691 and 23,208,949 shares issued
and outstanding at December 31, 1997 and 1998,
respectively........................................... 16,000 23,000
Additional paid-in capital.............................. 39,237,000 149,599,000
Deficit accumulated during the development stage........ (23,273,000) (71,669,000)
------------ ------------
Total stockholders' equity.......................... 15,980,000 77,953,000
------------ ------------
Total liabilities and stockholders' equity.......... $323,808,000 $643,880,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<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 $ 55,000 -- $ -- -- $ --
Initial issuance of
common stock in
satisfaction of amount
due to related party,
$5.00 per share........ 28,920 145,000 -- -- -- --
Conversion of no par
value common stock to
Class A and Class B
no par value common
stock.................. (40,000) (200,000) 2,000,000 169,000 360,000 31,000
Sale of Class B common
stock, $0.4165 per
share.................. -- -- -- -- 442,000 184,000
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.4165 per share...... -- -- -- -- 24,000 10,000
Net loss................. -- -- -- -- -- --
--------- ---------- ---------- --------- ---------- -----------
Balance, December 31,
1990................... -- -- 2,000,000 169,000 826,000 225,000
<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........... $ -- $ -- $ -- $ 55,000
Initial issuance of
common stock in
satisfaction of amount
due to related party,
$5.00 per share........ -- -- -- 145,000
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.................. -- -- -- 184,000
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.4165 per share...... -- -- -- 10,000
Net loss................. -- (839,000) -- (839,000)
---------- ----------- -------- -----------
Balance, December 31,
1990................... -- (839,000) -- (445,000)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sale of
Class B common stock,
$0.50 per share........ -- -- -- -- 610,000 305,000
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.50 per share........ -- -- -- -- 300,000 150,000
Net loss................. -- -- -- -- -- --
--------- ---------- ---------- --------- ---------- -----------
Balance, December 31,
1991................... -- -- 2,000,000 169,000 1,736,000 680,000
Sale of Class B common
stock, $0.50 per
share.................. -- -- -- -- 200,000 100,000
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.50 per share........ -- -- -- -- 209,580 105,000
Conversion of note
payable to related
party to Class B common
stock, $0.4165......... -- -- -- -- 303,440 126,000
Conversion of Class A
and Class B common
stock to no par value
common stock........... 4,449,020 1,180,000 (2,000,000) (169,000) (2,449,020) (1,011,000)
<CAPTION>
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
Sale of
Class B common stock,
$0.50 per share........ -- -- -- 305,000
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.50 per share........ -- -- -- 150,000
Net loss................. -- (575,000) -- (575,000)
---------- ----------- -------- -----------
Balance, December 31,
1991................... -- (1,414,000) -- (565,000)
Sale of Class B common
stock, $0.50 per
share.................. -- -- -- 100,000
Issuance of Class B
common stock in
satisfaction of amount
due to related party,
$0.50 per share........ -- -- -- 105,000
Conversion of note
payable to related
party to Class B common
stock, $0.4165......... -- -- -- 126,000
Conversion of Class A
and Class B common
stock to no par value
common stock........... -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sale of
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.................. -- (3,174,000) -- -- -- --
Sale of $.001 par value
common stock, $5.00 per
share.................. 315,000 -- -- -- -- --
Net loss................. -- -- -- -- -- --
--------- ---------- ---------- --------- ---------- -----------
Balance, December 31,
1992................... 6,364,020 6,000 -- -- -- --
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ 1,029,000 1,000 -- -- -- --
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 -- -- -- -- --
Common stock issued in
satisfaction of
commissions payable,
$5.00 per share........ 4,000 -- -- -- -- --
Net loss................. -- -- -- -- -- --
--------- ---------- ---------- --------- ---------- -----------
Balance, December 31,
1993................... 7,457,020 7,000 -- -- -- --
<CAPTION>
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
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.................. 3,174,000 -- -- --
Sale of $.001 par value
common stock, $5.00 per
share.................. 1,575,000 -- -- 1,575,000
Net loss................. -- (1,551,000) -- (1,551,000)
---------- ----------- -------- -----------
Balance, December 31,
1992................... 4,749,000 (2,965,000) -- 1,790,000
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ 4,882,000 -- -- 4,883,000
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.................. 300,000 -- -- 300,000
Common stock issued in
satisfaction of
commissions payable,
$5.00 per share........ 20,000 -- -- 20,000
Net loss................. -- (6,568,000) -- (6,568,000)
---------- ----------- -------- -----------
Balance, December 31,
1993................... 10,031,000 (9,533,000) -- 505,000
</TABLE>
(continued)
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ 250,000 -- -- -- -- --
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 2,000 -- -- -- --
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 9,000 -- -- -- --
Common stock issued for
services rendered,
between $3.028 and
$3.916 per share....... 107,000 -- -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- --
Net loss................. -- -- -- -- -- --
---------- ------- ----- ----- ----- -----
Balance, December 31,
1995................... 9,305,960 9,000 -- -- -- --
Exercise of stock
warrants at $6.00 per
share.................. 791,931 1,000 -- -- -- --
Exercise of stock options
by Company officers,
between $1.00 and $5.00
per share.............. 135,000 -- -- -- -- --
Common stock issued for
services rendered,
between $5.76 and
$12.26 per share....... 67,500 -- -- -- -- --
Common stock options
granted for services
rendered, to
purchase 60,000 shares
at $4.50 per share..... -- -- -- -- -- --
<CAPTION>
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
Sale of $.001 par value
common stock, $5.00 per
share, net of
commissions............ 1,159,000 -- -- 1,159,000
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............... 4,834,000 -- -- 4,836,000
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................ 113,000 -- -- 113,000
Amortization of deferred
compensation........... -- -- 883,000 883,000
Net loss................. -- (4,065,000) -- (4,065,000)
----------- ------------ ------------ ------------
Balance, December 31,
1994................... 17,660,000 (13,598,000) (640,000) 3,431,000
Common stock issued for
services rendered,
between $3.028 and
$3.916 per share....... 347,000 -- -- 347,000
Amortization of deferred
compensation........... -- -- 320,000 320,000
Net loss................. -- (2,107,000) -- (2,107,000)
----------- ------------ ------------ ------------
Balance, December 31,
1995................... 18,007,000 (15,705,000) (320,000) 1,991,000
Exercise of stock
warrants at $6.00 per
share.................. 4,588,000 -- -- 4,589,000
Exercise of stock options
by Company officers,
between $1.00 and $5.00
per share.............. 155,000 -- -- 155,000
Common stock issued for
services rendered,
between $5.76 and
$12.26 per share....... 554,000 -- -- 554,000
Common stock options
granted for services
rendered, to
purchase 60,000 shares
at $4.50 per share..... 120,000 -- -- 120,000
</TABLE>
<PAGE>
<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>
Amortization of deferred
compensation........... -- -- -- -- -- --
Net loss................. -- -- -- -- -- --
---------- ------- ----- ----- ----- -----
Balance, December 31,
1996................... 10,300,391 10,000 -- -- -- --
Exercise of stock options
between $1.00 and $2.00
per share.............. 43,000 -- -- -- -- --
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 2,000 -- -- -- --
Exchange of 5% Preferred
Stock into 10 1/2%
Preferred Stock........ -- -- -- -- -- --
Conversion of 5%
Preferred Stock into
$.001 par value common
stock.................. 749,812 1,000 -- -- -- --
Public offering of $.001
par value common stock
at $18.00 per share,
net of expenses........ 3,050,000 3,000 -- -- -- --
Dividends on preferred
stock.................. -- -- -- -- -- --
Issuance of fully vested
in the money stock
options................ -- -- -- -- -- --
Net loss................. -- -- -- -- -- --
---------- ------- ----- ----- ----- -----
Balance, December 31,
1997................... 16,048,691 $16,000 -- $-- -- $--
<CAPTION>
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
Amortization of deferred
compensation........... -- -- 320,000 320,000
Net loss................. -- (2,831,000) -- (2,831,000)
----------- ------------ ------------ ------------
Balance, December 31,
1996................... 23,424,000 (18,536,000) -- 4,898,000
Exercise of stock options
between $1.00 and $2.00
per share.............. 56,000 -- -- 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........ 24,393,000 -- -- 24,395,000
Exchange of 5% Preferred
Stock into 10 1/2%
Preferred Stock........ (63,450,000) -- -- (63,450,000)
Conversion of 5%
Preferred Stock into
$.001 par value common
stock.................. 10,280,000 -- -- 10,281,000
Public offering of $.001
par value common stock
at $18.00 per share,
net of expenses........ 46,424,000 -- -- 46,427,000
Dividends on preferred
stock.................. (2,338,000) -- -- (2,338,000)
Issuance of fully vested
in the money stock
options................ 448,000 -- -- 448,000
Net loss................. -- (4,737,000) -- (4,737,000)
----------- ------------ ------------ ------------
Balance, December 31,
1997................... $39,237,000 $(23,273,000) $ -- $ 15,980,000
</TABLE>
(continued)
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------------------------
CLASS A CLASS A CLASS B CLASS B
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sale of $.001 par value
common stock, $20.00,
net of expenses........ 5,000,000 5,000 -- -- -- --
Exercise of stock options
between $2.00 and $4.50
per share.............. 44,850 -- -- -- -- --
Conversion of 10 1/2%
Preferred Stock into
$.001 par value common
stock.................. 2,107,666 2,000 -- -- -- --
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 7,742 -- -- -- -- --
Compensation expense in
connection with quick
vesting of stock
options................ -- -- -- -- -- --
Value of beneficial
conversion feature on
Series A Junior
Preferred Stock........ -- -- -- -- -- --
Value of option on Series
B Junior Preferred
Stock.................. -- -- -- -- -- --
Accretion of deemed
dividend............... -- -- -- -- -- --
Dividends on preferred
stock.................. -- -- -- -- -- --
Net loss................. -- -- -- -- -- --
---------- ------- ----- ----- ----- -----
Balance, December 31,
1998................... 23,208,949 $23,000 -- $-- -- $--
---------- ------- ----- ----- ----- -----
---------- ------- ----- ----- ----- -----
<CAPTION>
DEFICIT DEFERRED
ACCUMULATED COMPENSATION
ADDITIONAL DURING THE ON STOCK
PAID-IN DEVELOPMENT OPTIONS
CAPITAL STAGE GRANTED TOTAL
------- ----- ------- -----
<S> <C> <C> <C> <C>
Sale of $.001 par value
common stock, $20.00,
net of expenses........ 97,995,000 -- -- 98,000,000
Exercise of stock options
between $2.00 and $4.50
per share.............. 140,000 -- -- 140,000
Conversion of 10 1/2%
Preferred Stock into
$.001 par value common
stock.................. 37,654,000 -- -- 37,656,000
Issuance of $.001 par
value common stock in
connection with
employee benefit
plan................... 214,000 -- -- 214,000
Compensation expense in
connection with quick
vesting of stock
options................ 950,000 -- -- 950,000
Value of beneficial
conversion feature on
Series A Junior
Preferred Stock........ 10,884,000 -- -- 10,884,000
Value of option on Series
B Junior Preferred
Stock.................. (6,600,000) -- -- (6,600,000)
Accretion of deemed
dividend............... (11,495,000) -- -- (11,495,000)
Dividends on preferred
stock.................. (19,380,000) -- -- (19,380,000)
Net loss................. -- (48,396,000) -- (48,396,000)
------------ ------------ --------- ------------
Balance, December 31,
1998................... $149,599,000 $(71,669,000) $ -- $ 77,953,000
------------ ------------ --------- ------------
------------ ------------ --------- ------------
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-7
<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,
1996 1997 1998 1998
----------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Cash flows from development stage activities:
Net loss................................. $(2,831,000) $ (4,737,000) $ (48,396,000) $ (71,669,000)
Adjustments to reconcile net loss to net
cash provided by (used in) development
stage activities:
Depreciation expense................. 53,000 30,000 49,000 303,000
Amortization of debt issue costs..... -- 73,000 1,354,000 1,427,000
Unrealized (gain) loss on marketable
securities......................... -- (624,000) 391,000 (233,000)
(Gain) loss on disposal of assets.... -- -- 105,000 105,000
Special charges...................... -- -- 23,557,000 25,557,000
Accretion of note payable charged as
interest expense................... -- 1,868,000 25,998,000 27,866,000
Sales (purchases) of marketable
securities, net.................... -- (168,858,000) 108,221,000 (60,637,000)
Compensation expense in connection
with issuance of stock options..... 440,000 448,000 -- 2,284,000
Common stock issued for services
rendered........................... 554,000 -- 150,000 1,052,000
Increase (decrease) in cash and cash
equivalents resulting from changes in
assets and liabilities:
Prepaid expense and other............ (1,000) (919,000) 762,000 (166,000)
Due to related party................. -- -- -- 351,000
Deposits and other assets............ -- -- (3,722,000) (4,026,000)
Accounts payable and accrued
expenses........................... 85,000 270,000 5,080,000 5,556,000
Accrued interest and other
liabilities........................ (20,000) (21,000) (18,000) (4,000)
Deferred taxes....................... -- -- 2,237,000 2,237,000
----------- ------------- ------------- -------------
Net cash provided by (used in)
development stage activities... (1,720,000) (172,470,000) 115,768,000 (69,997,000)
----------- ------------- ------------- -------------
Cash flows from investing activities:
Purchase of FCC license.................. -- (83,346,000) (22,000) (83,368,000)
Payments for satellite construction...... -- (49,300,000) (99,646,000) (148,946,000)
Payments for launch services............. -- (6,292,000) (103,563,000) (109,855,000)
Capital expenditures..................... -- (7,000) (7,301,000) (7,700,000)
Acquisition of Sky-Highway Radio Corp.... -- -- -- (2,000,000)
----------- ------------- ------------- -------------
Net cash used in investing
activities..................... -- (138,945,000) (210,532,000) (351,869,000)
----------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of notes
payable................................ -- -- 70,863,000 70,863,000
Proceeds from issuance of common stock,
net.................................... -- 70,822,000 98,064,000 183,443,000
Proceeds from issuance of preferred
stock, net............................. -- 120,518,000 129,550,000 250,068,000
Proceeds from exercise of stock options
and warrants........................... 4,744,000 56,000 140,000 4,940,000
Proceeds from issuance of promissory note
and Units.............................. -- 116,335,000 -- 116,535,000
Proceeds from issuance of promissory
notes to related parties............... -- -- -- 2,965,000
Repayment of promissory notes............ (240,000) -- -- (2,635,000)
Loan from officer........................ -- -- -- 440,000
----------- ------------- ------------- -------------
Net cash provided by financing
activities..................... 4,504,000 307,731,000 298,617,000 626,619,000
----------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents................................ 2,784,000 (3,684,000) 203,853,000 204,753,000
Cash and cash equivalents at the beginning of
period..................................... 1,800,000 4,584,000 900,000 --
----------- ------------- ------------- -------------
Cash and cash equivalents at the end of
period..................................... $ 4,584,000 $ 900,000 $ 204,753,000 $ 204,753,000
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest............................... $ 43,000 $ -- $ 2,383,000 $ 2,466,000
Cash paid during the period for taxes.... $ -- $ -- $ 58,000 $ 58,000
Supplemental disclosure of non-cash investing
and financing activities:
Deferred satellite payments, including
accrued interest....................... $ -- $ -- $ 31,324,000 $ 31,324,000
Common stock issued in satisfaction of
notes payable
and amounts due to related parties,
including
accrued interest....................... $ -- $ -- $ -- $ 1,407,000
Exchange of 5% Preferred Stock for
10 1/2% Series C Preferred Stock....... $ -- $ 173,687,000 $ -- $ 173,687,000
Exchange of 10 1/2% Series C Preferred
Stock for common stock................. $ -- $ -- $ 37,656,000 $ 37,656,000
Accrual of dividends on preferred
stock.................................. $ -- $ 2,338,000 $ 19,380,000 $ 21,718,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
CD Radio Inc. (the 'Company'), a Delaware corporation, 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 broadcast licenses with a
winning bid of $83.3 million. The Company paid the bid amount during 1997 and
was awarded an FCC license on October 10, 1997.
2. ACCOUNTING POLICIES
Basis of presentation: The consolidated financial statements include the
accounts of CD Radio Inc. and its wholly owned subsidiary. 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 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. 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.'
The Company's financial statements for the year ended December 31, 1998
have been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company expects to incur additional substantial expenditures to
complete the construction of its satellite system, to plan and implement its
service and to sustain its operations until it generates positive cash flow from
operations. The Company's working capital at December 31, 1998 will not be
sufficient to meet these objectives as presently structured. Management
recognizes that it must generate additional resources or consider modifications
to its programs to enable it to continue operations with its available
resources. Management's plans to raise additional financing include the sale of
debt or equity securities or a combination thereof. Management expects to
complete the sale of such securities, however, no assurance can be given that
such financings will be completed on terms acceptable to the Company. If the
Company is unable to obtain additional financing, management will be required to
sharply curtail its satellite program and to curtail its operations. The
financial statements do not include any adjustments relating to the
recoverability of assets and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
Risks and uncertainties: As a development stage enterprise, the Company has
a limited operating history and its prospects are subject to the risks, expenses
and uncertainties frequently encountered by companies in new and rapidly
evolving markets for satellite products and services. These risks include the
failure of the Company to have: (1) a successful and timely construction and
deployment of its satellite system; (2) the development and manufacture by one
or more consumer electronics manufacturers of devices capable of receiving CD
Radio broadcasts and antennas; and (3) the successful marketing and consumer
acceptance of the Company's service, as well as other risks and uncertainties.
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,
F-9
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
among other things, various future factors which are difficult to predict and
are beyond the control of the Company. Actual amounts could differ from these
estimates.
Cash equivalents: The Company considers all highly liquid investments
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
obligations of agencies of the U.S. government and in commercial paper issued by
major U.S. corporations with high credit ratings. The Company has not
experienced any losses on its investments.
Property and equipment: All costs incurred related to activities necessary
to prepare the CD Radio satellite system for use are capitalized, including
interest on funds borrowed to finance construction. To date, such costs consist
of satellite construction in process, launch construction in process, broadcast
studio construction in process, terrestrial repeater network in process,
capitalized interest (totaling $16.2 million at December 31, 1998) and the cost
to acquire the FCC license at auction. Charges to operations for depreciation
and amortization of these items will begin upon commencement of commercial
broadcasting, which is projected to be in 2000. The Company anticipates that it
will depreciate satellite and launch costs over a period not to exceed 15 years
and amortize the FCC license costs over 40 years. Depreciation of technical and
other equipment, primarily satellite communications equipment, is computed on
the straight-line method based on estimated useful lives ranging from 4 to 10
years.
Long-lived assets: The Company evaluates the recoverability of long-lived
assets, utilizing qualitative and quantitative 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 market prices where applicable or by
discounting remaining cash flows at the current market rate.
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.
Redeemable convertible preferred stock: The Company records redeemable
convertible preferred stock on the date of issuance by allocating a portion of
the proceeds that represents a beneficial conversion feature to additional
paid-in capital. The beneficial conversion feature (discount) is amortized using
the effective interest method and is recognized as a deemed dividend over the
shortest period of conversion. The carrying value of the stock accretes to its
liquidation value over the mandatory redemption period. The periodic accretion
increases the net loss applicable to common stockholders.
Net loss per share: Effective December 31, 1997, the Company adopted SFAS
No. 128, 'Earnings Per Share,' which requires the presentation of basic earnings
(loss) per share and diluted earnings per share. Basic earnings (loss) 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
(loss) per share is the
F-10
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
same as basic earnings per share because the effects of such items were
anti-dilutive. Earnings (loss) per share for all periods presented conform to
SFAS No. 128.
The following is a reconciliation of net loss per common share before
preferred stock dividend requirements to net loss per share applicable to common
stockholders:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Per common shares (basic and diluted):
Net loss.................................................. $(0.29) $(0.41) $(2.70)
Preferred stock dividend requirements..................... -- (4.67) (1.73)
Accretion of dividends in connection with the issuance of
warrants on preferred stock............................. -- -- (0.36)
------ ------ ------
Net loss applicable to common stockholders................ $(0.29) $(5.08) $(4.79)
------ ------ ------
------ ------ ------
</TABLE>
Comprehensive income: In 1997, the Financial Accounting Standards Board
('the FASB') issued SFAS No. 130, 'Reporting Comprehensive Income.' SFAS No. 130
requires additional reporting with respect to certain changes in assets and
liabilities that previously were included in stockholders' equity. Presently,
the Company has no comprehensive income items to report.
Recent accounting pronouncements: The FASB has issued SFAS No. 131,
'Disclosures about Segments of an Enterprise and Related Information,' which
requires financial and descriptive information with respect to operating
segments of an entity based on the way management disaggregates the entity for
internal operating decisions. There is no impact to the Company's 1998 financial
statements from the adoption of this standard.
Reclassifications: Certain amounts in the prior year's financial statements
have been reclassified to conform to the current presentation.
3. MARKETABLE SECURITIES
Marketable securities consist of fixed income securities and are stated at
market value. Marketable securities are defined as trading securities under the
provision of SFAS No. 115, 'Accounting for Certain Investments in Debt and
Equity Securities' and unrealized holding gains and losses are reflected in
earnings. Unrealized holding gains were $624,000 and $232,000 at December 31,
1997 and 1998, respectively.
4. NOTES PAYABLE
SHORT-TERM
The Company has entered into a credit agreement with Bank of America
('BofA') and a group of financial institutions (together with BofA, the
'Lenders') pursuant to which the Lenders provide the Company a term loan
facility in an aggregate principal amount of up to $115 million. The proceeds of
the facility are being used to fund progress payments for the purchase of launch
services and to pay interest, fees and other related expenses. The contract
under which the launch vehicles are being constructed has been pledged to the
Lenders as collateral. The terms of the credit agreement require the Company to
maintain minimum levels of consolidated net worth and place limitations on asset
disposals. The amounts advanced under the credit agreement are due on September
30, 1999 and bear interest at a variable rate selected by the Company. The
weighted average borrowing rate for 1998 was 9%. Loral Space & Communications
Ltd. ('Loral Space') has guaranteed the amounts outstanding under the credit
agreement.
F-11
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM
In November 1997, the Company received net proceeds of $116 million from
the issuance of 12,910 units consisting of $20,000 principal amount at maturity
of 15% Senior Secured Discount Notes due 2007 (the 'Notes') and a warrant to
purchase an additional $3,000 principal amount at maturity of Notes for no
additional consideration. 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 $297 million. The Notes mature on December 1, 2007 and the
first cash interest payment is deferred until June 2003. Cash interest of $22.3
million will be due on each June 1 and December 1 of the remaining years of the
Notes. 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 and
1998, the Company had accrued interest relating to the Notes of $1,869,000 and
$27,867,000, respectively. At December 31, 1998, the Notes had a fair value of
$157 million. 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 secured by a lien on all of the issued
and outstanding common stock of Satellite CD Radio, Inc. ('SCDR'). SCDR conducts
no business activities and its only asset is the FCC license.
The Company incurred $8.7 million of costs in connection with the issuance
of the Notes. Debt issuance costs have been deferred and are amortized over the
10 year life of the Notes. Accumulated amortization of debt issuance costs was
$73,000 and $952,000 at December 31, 1997 and 1998, respectively.
5. DEFERRED SATELLITE PAYMENTS
Under an amended and restated contract (the 'Loral Satellite Contract')
with Space Systems/Loral, Inc. ('SS/L'), SS/L has agreed to defer certain
amounts due under the Loral Satellite Contract. The amounts deferred, which
approximate fair value, bear interest at 10% per year and are due in quarterly
installments beginning in June 2002. The Company has the right to prepay any
deferred payments together with accrued interest, without penalty.
6. CAPITAL STOCK
COMMON STOCK, PAR VALUE $.001 PER SHARE
On September 29, 1994, the Company completed its initial public offering by
issuing 1,491,940 shares of Common Stock for net proceeds of $4.8 million. On
August 5, 1997, the Company sold 1.9 million shares of Common Stock to 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 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. In November 1998, the Company
issued 5 million shares of Common Stock to Prime 66 Partners, L.P. for net
proceeds of $98 million.
In 1995, the Company adopted the 1995 Stock Compensation Plan from which up
to 175,000 shares of 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 Plan.
As of December 31, 1998, 33.4 million shares of Common Stock were reserved
in connection with convertible preferred stock, warrants and incentive stock
plans.
F-12
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The 5% Preferred Stock was immediately convertible at a discount
to the fair market value of Common Stock and accordingly, the Company recorded
approximately $52 million as a deemed dividend in determining 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 stockholder 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 may 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%
Preferred Stock at the Liquidation Preference plus any accrued and unpaid
dividends, provided the price of the 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 and 1998, the Company accrued dividends payable relating to the 10 1/2%
Preferred Stock totaling $2,338,000 and $18,179,000, respectively. At
December 31, 1998, the 10 1/2% Preferred Stock had a fair value of $279 million.
On December 23, 1998, the Company and Apollo Investment Fund IV, L.P., a
Delaware limited partnership ('AIF IV'), and Apollo Overseas Partners IV, L.P.,
a Cayman Islands limited partnership ('AOP IV' and, together with AIF IV, the
'Apollo Investors') completed a transaction pursuant to which the Company sold
to the Apollo Investors 1,350,000 shares of its 9.2% Series A Junior Cumulative
Convertible Preferred Stock, par value $.001 per share (the 'Series A Preferred
Stock'), for an aggregate purchase price of $135 million. Each share of Series A
Preferred Stock is convertible into a number of shares of Common Stock
calculated by dividing the $100 per share liquidation preference (the 'Series A
Liquidation Preference') by a conversion price of $30. This conversion price is
subject to adjustment for certain corporate events. Dividends on the Series A
Preferred Stock are payable annually commencing on November 15, 1999 and may be
paid with cash or additional shares of Series A Preferred Stock, at the option
of the Company. From and after November 15, 2001 and prior to November 15, 2003,
the Company may redeem the Series A Preferred Stock at the Series A Liquidation
Preference, plus any unpaid dividends, provided the price of the Common Stock is
at least $60 per share during a specified period. From and after November 15,
2003, the Company's right to redeem the Series A Preferred Stock is not
restricted by the market price of its Common Stock. The Company is required to
redeem all outstanding shares of the Series A Preferred Stock at a price equal
to the Series A Liquidation Preference plus any unpaid dividends on November 15,
2011. On the date of issuance, the Series A Preferred Stock was immediately
convertible at a discount to the then fair market value of the Common Stock and,
accordingly, the Company recorded approximately $11 million as a deemed dividend
in net loss applicable to common stockholders. At December 31, 1998, the Series
A Preferred Stock fair value approximates book value and accrued dividends
payable relating to this stock totaled $1,565,000.
F-13
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Apollo Investors have also granted the Company an option to sell the
Apollo Investors an additional 650,000 shares of its 9.2% Series B Junior
Cumulative Convertible Preferred Stock, par value $.001 per share (the 'Series B
Preferred Stock'), for an aggregate purchase price of $65 million. The Company
may exercise its option to require the Apollo Investors to purchase the Series B
Preferred Stock at any time prior to September 23, 1999. The terms of the Series
B Preferred Stock are similar to those of the Series A Preferred Stock. The
Company recorded the value of the Series B Preferred Stock option at fair value
and recorded approximately $180,000 of deemed dividends related primarily to the
amortization of the value of the option.
WARRANTS
In connection with the Company's initial public offering in 1994, the
Company issued warrants to purchase 745,970 shares of Common Stock.
Additionally, the Company issued to the underwriters as consideration warrants
to purchase 123,560 shares of the Company's Common Stock. In September 1996, the
Company received proceeds of $4,589,000 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 at a
purchase price of $6.00 per share 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 November 1997 issuance of the 10 1/2% Preferred
Stock, the Company granted 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. This warrant is convertible at a discount to the then fair market
value of the Common Stock and accordingly, the Company will record, over the
life of the warrant, $1.6 million as a deemed dividend in connection with the
issuance of warrants on preferred stock. During 1998, the Company accreted
dividends of $428,000 related to this warrant. In addition, the Company granted
to an investor warrants to purchase 1,800,000 shares of common stock at $50 per
share during the period from June 15, 1998 until June 15, 2005, subject to
certain conditions. After June 15, 2000, the Company may redeem all of these
warrants, provided that the price of its Common Stock is at least $75 per share
during a specified period. During 1998, the Company accreted dividends of
$6,073,000 related to these warrants.
7. EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS
In February 1994, the Company adopted its 1994 Stock Option Plan (the '1994
Plan') and its 1994 Directors' Nonqualified Stock Option Plan (the 'Directors'
Plan'). Options granted under the 1994 Plan generally vest over a four-year
period and generally are exercisable for a period of ten years from the date of
grant. The aggregate number of shares of Common Stock available for issuance
pursuant to the 1994 Plan and the Directors' Plan is 3,100,000.
F-14
<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 December 31, 1995... 637,500 $ 3.61 105,000 $ 3.39 350,000 $4.00
Granted....................... 545,000 $ 8.10 40,000 $ 6.88 --
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
Granted....................... 559,500 $28.53 100,000 $25.88 --
Exercised..................... (19,850) $ 3.25 (25,000) $ 3.00 --
Cancelled..................... (70,625) $18.55 -- --
--------- ------- --------
Outstanding at December 31, 1998... 2,038,525 $13.35 215,000 $14.50 200,000 $6.25
--------- ------- --------
--------- ------- --------
Exercisable at December 31, 1998... 1,207,650 $ 6.56 188,334 $12.89 200,000 $6.25
--------- ------- --------
--------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
1994 PLAN DIRECTORS' PLAN OTHER
--------- --------------- -----
<S> <C> <C> <C>
As of December 31, 1998:
Range of exercise prices............................. $1.00 - $38.38 $ 2.13 - $25.88 $6.25
Weighted average remaining contractual life for
options outstanding (years)........................ 8.11 7.99 4.39
</TABLE>
The weighted average fair value of options granted during 1997 and 1998 was
$4.37 and $18.22, respectively. As of December 31, 1998, 729,000 shares of
Common Stock are available for grant pursuant to either the 1994 Plan or the
Directors' Plan.
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 had elected to recognize
compensation cost for the option grants in accordance with SFAS 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>
1997 1998
---- ----
<S> <C> <C>
Net loss -- as reported................................... $(4,737,000) $(48,396,000)
Net loss -- pro-forma..................................... $(6,254,000) $(51,028,000)
Net loss per share -- as reported......................... $ (0.41) $ (2.70)
Net loss per share -- pro-forma........................... $ (0.54) $ (2.85)
</TABLE>
F-15
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
1997 1998
---- ----
<S> <C> <C>
Risk-free interest rate..................................... 6.11% 4.72%
Expected life of options -- years........................... 3.11 4.36
Expected stock price volatility............................. 75% 75%
Expected dividend yield..................................... N/A N/A
</TABLE>
401(k) SAVINGS PLAN
During 1998, the Company adopted the CD Radio 401(k) Savings Plan (the
'401(k) Plan'). The 401(k) Plan allows eligible employees to contribute from 1%
to 12% of their pretax pay subject to certain defined limits. Employees are 100%
vested in their contributions at all times. In addition, the Company matches
100% of the employees' contribution, in the form of the Company's Common Stock.
The Company matching contribution is 33 1/3% vested each year and is fully
vested after three years of employment with the Company. Contribution expense to
the 401(k) Plan was $104,000 in 1998.
8. 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,
--------------------------
1997 1998
---- ----
<S> <C> <C>
Capitalized start-up costs................................ $ 7,919,000 $ 13,066,000
Accrual to cash adjustments............................... 316,000 6,427,000
Net operating loss carryforwards.......................... 335,000 6,205,000
Other..................................................... 656,000 (1,581,000)
----------- ------------
9,226,000 24,117,000
Valuation allowance....................................... (9,226,000) (26,354,000)
----------- ------------
Net deferred tax liability................................ $ -- $ (2,237,000)
----------- ------------
----------- ------------
</TABLE>
Realization of deferred tax assets at the balance sheet date is dependent
upon future earnings, which are uncertain. Accordingly, a full valuation
allowance was recorded against the assets.
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $15 million 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, 1998 are $32 million. 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 $13 million includes
$169,000 which, when realized, would not affect financial statement income but
will be recorded directly to stockholders' equity.
F-16
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SPECIAL CHARGES
During 1998, the Company decided to enhance its satellite delivery system
to include a third in-orbit satellite and to terminate certain launch and orbit
related contracts. The Company recorded special charges totaling $25,682,000
related primarily to the termination of such contracts.
10. RELATED PARTIES
Since inception, the Company has relied upon related parties for certain
consulting, legal and management services. The Company has paid for these
services with cash and with the issuance of Common Stock. Total cash expenses
incurred in transactions with related parties during the years ended
December 31, 1996, 1997 and 1998 and the period from May 17, 1990 (date of
inception) to December 31, 1998 were $272,000, $279,000, $127,000 and
$2,446,000, respectively. The Company has also issued Common Stock in lieu of
cash in settlement of other related party liabilities. Total related party
expenses settled with the issuance of Common Stock during the years ended
December 31, 1996, 1997 and 1998 and the period from May 17, 1990 (date of
inception) to December 31, 1998 were $554,000, $- , $- and $1,311,000,
respectively.
11. LEASES AND RENTALS
As of December 31, 1998, minimum rental commitments under operating leases
were $4,467,000, $4,467,000, $4,467,000, $4,467,000 and $4,467,000 for 1999,
2000, 2001, 2002 and 2003, respectively. For the remaining years, such
commitments totaled $52,052,000, aggregating total minimum lease payments of
$74,387,000.
Total rent expense for the years ended December 31, 1996, 1997 and 1998 and
the period May 17, 1990 (date of inception) to December 31, 1998 was $302,000,
$278,000, $1,985,000 and $3,468,000, respectively.
12. COMMITMENTS AND CONTINGENCIES
SATELLITE CONSTRUCTION AND LAUNCH SERVICES
To build and launch the satellites necessary for the operations of CD
Radio, on July 28, 1998, the Company entered into the Loral Satellite Contract
with SS/L. The Loral Satellite Contract provides for SS/L to construct, launch
and deliver three satellites in-orbit and checked-out, to construct for the
Company a fourth satellite for use as a ground spare and to become the Company's
launch services provider. The Company is committed to make aggregate payments of
approximately $718 million under the Loral Satellite Contract. Approximately
half of these payments are contingent upon SS/L meeting specified milestones in
the construction of the satellites. SS/L has agreed to defer $50 million total
of payments due in 1999 and 2000 until 2002 and 2003. As of December 31, 1998,
$221 million of this commitment has been satisfied. Future payments are due as
follows: $218 million in 1999, $229 million in 2000, $25 million in 2002 and $25
million in 2003.
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 one
of the first three satellites 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.
F-17
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTEGRATED CIRCUITS
During 1998, the Company signed an agreement with Lucent Technologies, Inc.
('Lucent') pursuant to which Lucent has agreed to use commercially reasonable
efforts to deliver commercial quantities of integrated circuits ('chip sets'),
which will be used in consumer electronic devices capable of receiving the
Company's broadcasts, by December 1999. The Company agreed to pay Lucent the
costs of the chip set development work totaling $9 million. On February 1, 1999,
the Company and Lucent amended and restated this agreement due to the design and
development of the chip sets requiring more engineering resources than
originally estimated. Lucent will now use commercially reasonable efforts to
deliver commercial quantities of chip sets by June 2000. The estimates of the
development work in this amended contract total $27 million.
F-18
<PAGE>
________________________________________________________________________________
[Logo]
EXCHANGE OFFER FOR $200,000,000 OF ITS
14 1/2% SENIOR SECURED NOTES DUE 2009
---------------------------
PROSPECTUS
, 1999
---------------------------
No person has been authorized to give any information or to make any
representation other than those contained in this prospectus, and, if given
or made, any information or representations must not be relied upon as having
been authorized. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy
these securities in any circumstances in which this offer or solicitation is
unlawful. Neither the delivery of this prospectus nor any sale made under this
prospectus shall, under any circumstances, create any implication that there
has been no change in the affairs of CD Radio since the date of this
prospectus or that the information contained in this prospectus is correct as
of any time subsequent to its date.
________________________________________________________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a
corporation to indemnify its directors, officers, employees and agents against
certain liabilities they may incur in such capacities, including liabilities
under the Securities Act, provided they act in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation. The Company's Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws require the Company to indemnify its officers and
directors to the full extent permitted by Delaware law.
Section 102 of the Delaware General Corporation Law authorizes a
corporation to limit or eliminate its directors' liability to the corporation or
its stockholders for monetary damages for breaches of fiduciary duties, other
than for (i) breaches of the duty of loyalty, (ii) acts or omissions involving
bad faith, intentional misconduct or knowing violations of the law, (iii)
unlawful payments of dividends, stock purchases or redemptions, or (iv)
transactions from which a director derives an improper personal benefit. The
Company's Amended and Restated Certificate of Incorporation contains provisions
limiting the liability of the directors to the Company and to its stockholders
to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law authorizes a
corporation to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation against any
liability asserted against him and incurred by him or her in any such capacity,
or arising out of his or her status as such. The Company's Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws provide that the
Company may, to the full extent permitted by law, purchase and maintain
insurance on behalf of any director, officer, employee or agent of the Company
against any liability that may be asserted against him or her and the Company
currently maintains such insurance. The Company has acquired $10 million of
liability insurance covering its directors and officers for claims asserted
against them or incurred by them in such capacity, including claims brought
under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The Exhibit Index beginning on page E-1 is hereby incorporated by
reference.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-1
<PAGE>
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on July 2, 1999.
CD RADIO INC.
By /S/ ANDREW J. GREENEBAUM
.........................
ANDREW J. GREENEBAUM
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
II-3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below hereby constitutes and appoints Andrew J. Greenebaum or Patrick L.
Donnelly or either of them his true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to (i) act on, sign
and file with the Securities and Exchange Commission any and all amendments
(including post-effective amendments) to this registration statement together
with all schedules and exhibits thereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, together with all schedules and exhibits thereto, (ii) act on, sign and
file such certificates, instruments, agreements and other documents as may be
necessary or appropriate in connection therewith, (iii) act on and file any
supplement to any prospectus included in this registration statement or any such
amendment or any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and (iv) take any and
all actions which may be necessary or appropriate in connection therewith,
granting unto such agent, proxy and attorney-in-fact full power and authority to
do and perform each and every act and thing necessary or appropriate to be done,
as fully for all intents and purposes as he might or could do in person, hereby
approving, ratifying and confirming all that such agents, proxies and
attorneys-in-fact or any of their substitutes may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/S/ DAVID MARGOLESE Chairman and Chief Executive Officer July 2, 1999
......................................... (Principal Executive Officer)
DAVID MARGOLESE
/S/ ANDREW J. GREENEBAUM Senior Vice President and Chief July 2, 1999
......................................... Financial Officer (Principal
ANDREW J. GREENEBAUM Financial Officer)
/S/ JOHN T. MCCLAIN Vice President and Controller July 2, 1999
......................................... (Principal Accounting Officer)
JOHN T. MCCLAIN
/S/ ROBERT D. BRISKMAN Director July 2, 1999
.........................................
ROBERT D. BRISKMAN
/S/ LAWRENCE F. GILBERTI Director July 2, 1999
.........................................
LAWRENCE F. GILBERTI
/S/ JOSEPH V. VITTORIA Director July 2, 1999
.........................................
JOSEPH V. VITTORIA
/S/ RALPH V. WHITWORTH Director July 2, 1999
.........................................
RALPH V. WHITWORTH
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <S>
4.1.1 -- Form of Certificate for Shares of Common Stock
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-1 (File No. 33-74782)).
4.1.2 -- 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 Company's Registration Statement on Form
8-A, filed with the Commission on October 30, 1997 (the
'Form 8-A')).
4.1.3 -- Form of Certificate of Designations of Series B Preferred
Stock (incorporated by reference to Exhibit A to
Exhibit 1 to the Form 8-A).
4.1.4 -- Form of Right Certificate (incorporated by reference to
Exhibit B to Exhibit 1 to the Form 8-A).
4.1.5 -- Amendment to the Rights Agreement, dated as of
October 22, 1997, between the Company and Continental
Stock Transfer & Trust Company, as rights agent, dated as
of October 13, 1998 (incorporated by reference to
Exhibit 99.2 to the Company's Current Report on Form 8-K
filed on October 13, 1998).
4.1.6 -- Amendment to the Rights Agreement, dated as of
October 22, 1997, between the Company and Continental
Stock Transfer & Trust Company, as rights agent, dated as
of November 13, 1998 (incorporated by reference to
Exhibit 99.7 to the Company's Current Report on Form 8-K
filed on November 17, 1998).
4.1.7 -- Amended and Restated Amendment to Rights Agreement, dated
as of December 22, 1997, between the Company and
Continental Stock Transfer & Trust Company, as rights
agent, dated as of December 22, 1998 (incorporated by
reference to Exhibit 6 to the Amendment No. 1 to the
Form 8-A, filed with the Commission on January 6, 1999).
4.1.8* -- Amendment to the Rights Agreement, dated as of October
22, 1997, between the Company and Continental Stock
Transfer & Trust Company, as rights agent, dated as of
June 11, 1999.
4.1.9 -- Form of 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)).
4.1.10 -- Certificate of Correction to Series C Certificate of
Designations (incorporated by reference to Exhibit 3.5.2
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998).
4.1.11 -- Certificate of Increase of 10 1/2% Series C Convertible
Preferred Stock (incorporated by reference to Exhibit
3.5.3 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1998).
4.1.12 -- Exhibit A to the Stock Purchase Agreement (Form of
Certificate of Designation of the Series A Junior
Preferred Stock) (incorporated by reference to
Exhibit 99.2 to the Company's Current Report on Form 8-K
filed on November 17, 1998).
4.1.13 -- Exhibit B to the Stock Purchase Agreement (Form of
Certificate of Designation of the Series B Junior
Preferred Stock) (incorporated by reference to
Exhibit 99.3 to the Company's Current Report on Form 8-K
filed on November 17, 1998).
4.2.1 -- 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 '1997 Units Registration Statement')).
4.2.2 -- Form of Note (incorporated by reference to Exhibit 4.2 to
the 1997 Units Registration Statement).
4.2.3 -- 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 1997 Units Registration Statement).
4.2.4 -- Form of Warrant (incorporated by reference to Exhibit 4.4
to the 1997 Units Registration Statement).
4.3.1 -- Form of Preferred Stock Warrant Agreement, dated as of
April 9, 1997, between the Company and each warrantholder
thereof (incorporated by reference to Exhibit 4.12 to the
Company's 1997 Annual Report on Form 10-K (the '1997
Form 10-K')).
4.3.2 -- 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 (incorporated by reference
to Exhibit 4.11 to the 1997 Form 10-K).
4.4.1* -- Notes Registration Rights Agreement among CD Radio Inc.
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Lehman Brothers Inc., Bear, Stearns &
Co. Inc., NationsBanc Montgomery Securities LLC, U.S.
Bancorp Libra, dated as of May 13, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <S>
4.4.2* -- Indenture between the Company and United States Trust
Company of New York, as trustee, dated as of May 15, 1999,
regarding the Company's 14 1/2% Senior Secured Notes due
2009.
4.4.3* -- Form of the Company's 14 1/2% Senior Secured Notes due
2009 (included in Exhibit 4.4.2 to this Registration
Statement).
4.4.4* -- Warrant Agreement between the Company and United States
Trust Company of New York, as warrant agent, dated as of
May 15, 1999.
4.4.5* -- Amended and Restated Pledge Agreement among the Company,
as pledgor, IBJ Whitehall Bank & Trust Company, as
trustee, United States Trust Company of New York, as
trustee, and IBJ Whitehall Bank & Trust Company, as
collateral agent, dated as of May 15, 1999.
4.4.6* -- Collateral Pledge and Security Agreement between the
Company, as pledgor, and United States Trust Company of
New York, as trustee, dated as of May 15, 1999.
4.4.7* -- Intercreditor Agreement, dated May 15, 1999, by and
between IBJ Whitehall Bank & Trust Company, as trustee,
and United States Trust Company of New York, as trustee.
4.5.1* -- Common Stock Purchase Warrant granted by the Company to
Ford Motor Company, dated June 11, 1999.
5.1* -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re
legality.
8.1* -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re
tax matters.
12.1* -- Statement Regarding Computation of Ratios of Earnings to
Fixed Charges.
23.1* -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consents of Paul, Weiss, Rifkind, Wharton & Garrison
(included in Exhibit 5.1 and Exhibit 8.1).
23.3* -- Consent of Wiley, Rein & Fielding.
24.1* -- Power of Attorney (included on signature page).
25.1* -- Statement of Eligibility of United States Trust Company
of New York, as trustee, on Form T-1 with respect to the
Indenture between the Company and United States Trust
Company of New York, as trustee, with respect to the
Company's 14 1/2% Senior Secured Notes due 2009.
99.1* -- Form of Letter of Transmittal for Exchange Offer.
</TABLE>
- ------------
* Filed with this prospectus.
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as ........................'SS'
<PAGE>
EXHIBIT 4.1.8
AMENDMENT TO RIGHTS AGREEMENT
AMENDMENT, dated June 11, 1999 (this "Amendment"), by and
between CD RADIO INC., a Delaware corporation (the "Company"), and CONTINENTAL
STOCK TRANSFER & TRUST COMPANY (the "Rights Agent").
RECITALS
WHEREAS, the Company and the Rights Agent are parties to a
Rights Agreement, dated as of October 22, 1997 (as heretofore amended, the
"Rights Agreement");
WHEREAS, the Company proposes to issue to Ford Motor Company
("Ford"), a warrant or warrants (the "Warrants") entitling Ford to purchase from
the Company, on the terms and subject to conditions specified therein, up to an
aggregate of 4,000,000 Common Shares (as such term is defined in the Rights
Agreement); and
WHEREAS, under the terms of the Rights Agreement, unless the
Rights Agreement is amended, Ford would become an "Acquiring Person," as defined
in Section 1(a) of the Rights Agreement, upon the acquisition of the Warrant;
and
WHEREAS, the Board of Directors of the Company deems it
desirable and in the best interests of the Company and its stockholders to amend
the Rights Agreement to exclude Ford and any of Ford's Affiliates and Associates
who would otherwise be deemed Beneficial Owners (as defined in the Rights
Agreement) as a result of such transaction from such definition of "Acquiring
Person."
Accordingly, the parties agree as follows:
<PAGE>
2
1. AMENDMENT OF SECTION 1(a). The definition of "Acquiring
Person" set forth in Section 1(a) of the Rights Agreement is amended by adding
the following clause at the end of such definition:
"; and provided, further, that Ford Motor Company, a Delaware
corporation (hereinafter referred to as "Ford"), and any of
the Affiliates or Associates of Ford that otherwise would be
deemed to be Beneficial Owners of the Company's common stock
purchase warrants issued on June 11, 1999 (collectively, the
"Warrant") (such Affiliates and Associates, together with
Ford, are hereinafter referred to as the "Ford Investors")
shall not be, or be deemed to be, an Acquiring Person solely
by reason of the issuance by the Company and the acquisition
by Ford of the Warrant pursuant to Section 5.01 of the
Agreement dated as of June 11, 1999 between the Company and
Ford."
2. MISCELLANEOUS. This Amendment shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes shall
be governed by and construed in accordance with the laws of such state
applicable to contracts to be made and performed entirely within such state.
This Amendment may be executed in any number of counterparts, each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument. If any
provision, covenant or restriction of this Amendment is held by a court of
competent jurisdiction or other authority to
<PAGE>
3
be invalid, illegal or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Amendment shall remain in full force and
effect and shall in no way be effected, impaired or invalidated.
EXECUTED as of the date set forth above.
CD RADIO INC.
By: /s/ Patrick L. Donnelly
--------------------------------------
Name: Patrick L. Donnelly
Title: Executive Vice President, General
Counsel and Secretary
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
By: /s/ William F. Seegraber
--------------------------------------
Name: William F. Seegraber
Title: Vice President
<PAGE>
EXHIBIT 4.4.1
EXECUTION COPY
================================================================================
NOTES REGISTRATION RIGHTS AGREEMENT
among
CD RADIO INC.
and
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
U.S. BANCORP LIBRA
The Initial Purchasers
Dated as of May 13, 1999
================================================================================
<PAGE>
THIS NOTES REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is made and entered into as of May 13, 1999, by
and among CD Radio Inc., a Delaware corporation (the
"Company"), and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers
Inc., Bear, Stearns & Co. Inc., NationsBanc Montgomery
Securities LLC and U.S. Bancorp Libra, a division of U.S.
Bancorp Investments, Inc. (collectively, the "Initial
Purchasers").
WHEREAS, this Agreement is made pursuant to the Purchase
Agreement dated as of May 13, 1999 among the Company and the Initial Purchasers
(the "Purchase Agreement"), which provides for the sale by the Company to the
Initial Purchasers of 200,000 units (the "Units" or the "Securities"), each Unit
consisting of $1,000 principal amount of the Company's 14-1/2% Senior Secured
Notes due 2009 (the "Notes") and three warrants (collectively, the "Warrants"),
each Warrant entitling the holder thereof to purchase 3.65 shares of common
stock, par value $0.001 per share (the "Common Stock"), of the Company. In order
to induce the Initial Purchasers to enter into the Purchase Agreement, the
Company has agreed to provide to the Initial Purchasers and their direct and
indirect transferees and assigns the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
closing of the transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties
hereto agree as follows:
Article I
Definitions
As used in this Agreement, the defined terms shall have the
following meanings:
"1933 Act" shall mean the Securities Act of 1933, and the
rules and regulations of the SEC promulgated thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the SEC promulgated
thereunder.
<PAGE>
2
"Agreement" shall have the meaning set forth in the first
introductory paragraph hereto.
"Closing Time" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the first
introductory paragraph hereto and also includes the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Company; provided, however, that any such
depositary must have an address in the City of New York.
"Exchange Notes" shall mean the 14-1/2% Senior Secured Notes
due 2009 issued by the Company under the Indenture containing terms identical to
the Notes (except that (a) interest thereon shall accrue from the last date on
which interest was paid on the Notes or, if no such interest has been paid, from
May 15, 1999, (b) the transfer restrictions thereon shall be eliminated and (c)
certain provisions relating to payment of additional interest thereon shall be
eliminated) to be offered to Holders of Notes in exchange for Notes pursuant to
the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company
of Exchange Notes for Notes pursuant to Article II(a) hereof.
"Exchange Offer Registration" shall mean a registration under
the 1933 Act effected pursuant to Article II(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Holder" or "Holders" shall mean the Initial Purchasers, for
so long as they own any Registrable Notes, and each of their successors, assigns
and direct and indirect transferees who become registered owners of Registrable
Notes under the Indenture.
"Indenture" shall mean the Indenture pursuant to which the
Notes are being issued, dated as of May 15, 1999, between the Company and United
States Trust Company of New
<PAGE>
3
York, as trustee, as the same may be amended or supplemented from time to time
in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the
first introductory paragraph hereto.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of Registrable Notes outstanding; provided that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the Company
or any of its affiliates (as such term is defined in Rule 405 under the 1933
Act) (other than the Initial Purchasers or subsequent holders of Registrable
Notes if such subsequent holders are deemed to be such affiliates solely by
reason of their holding of such Registrable Notes or other non-voting securities
issued by the Company) shall be disregarded in determining whether such consent
or approval was given by the Holders of such required percentage or amount.
"Notes" shall have the meaning set forth in the second
introductory paragraph hereto.
"Person" shall mean an individual, trustee, partnership,
limited liability company, corporation, trust, unincorporated organization, a
government or agency or political subdivision thereof or other legal entity.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Notes covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein (it being understood that filings made pursuant to the 1934 Act which
become incorporated by reference in a prospectus do not constitute amendments or
supplements to such prospectus that would require redistribution to the selling
Holders).
"Purchase Agreement" shall have the meaning set forth in the
second introductory paragraph hereto.
"Registrable Notes" shall mean the Notes; provided, however,
that the Notes shall cease to be Registrable Notes when (a) a Registration
Statement with respect to such Notes shall have been declared effective
<PAGE>
4
under the 1933 Act and such Notes shall have been disposed of pursuant to such
Registration Statement, (b) such Notes shall have been sold to the public
pursuant to Rule 144 (or any similar provision then in force, but not Rule 144A)
under the 1933 Act, (c) such Notes shall have ceased to be outstanding or (d)
such Notes have been exchanged for Exchange Notes upon consummation of the
Exchange Offer.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Company with this Agreement,
including: (a) all SEC, stock exchange or National Association of Securities
Dealers, Inc. ("NASD") registration and filing fees; (b) all fees and expenses
incurred in connection with compliance with state or other securities or blue
sky laws and compliance with the rules of the NASD (including reasonable fees
and disbursements of one counsel for any underwriters and Holders in connection
with state or other securities or blue sky qualification of any of the Exchange
Notes or Registrable Notes); (c) all expenses of any Persons in preparing, or
assisting in preparing, word processing, printing and distributing any
Registration Statement, any Prospectus, any amendments or supplements thereto,
any underwriting agreements, securities sales agreements, certificates
representing the Exchange Notes and other documents relating to the performance
of and compliance with this Agreement; (d) all rating agency fees, if any, (e)
all fees and expenses incurred in connection with the listing, if any, of any of
the Registrable Notes on any securities exchange or exchanges; (f) all fees and
disbursements relating to the qualification of the Indenture under applicable
securities laws; (g) the fees and disbursements of counsel for the Company and
its subsidiaries and, in the case of a Shelf Registration Statement, the
reasonable fees and disbursements (including the expenses of preparing and
distributing any underwriting or securities sales agreement) of one counsel for
the Holders (which counsel shall be selected in writing by the Majority
Holders); (h) the fees and expenses of the independent public accountants of the
Company and any of its subsidiaries, including the expenses of any special
audits or "cold comfort" letters required by or incident to such performance and
compliance; (i) the fees and expenses of a "qualified independent underwriter"
as defined by Conduct Rule 2720 of the NASD, if required by the NASD rules, in
connection with the offering of the Registrable Notes; (j) the fees and expenses
of the Trustee, including its counsel, and any escrow agent or custodian; and
(k) any fees and disbursements (including any advertising expenses) of the
underwriters customarily required to be paid by issuers or sellers of securities
and the reasonable fees and expenses of any experts retained by
<PAGE>
5
the Company in connection with any Registration Statement, but excluding in each
case above (as applicable) fees and expenses of counsel to the underwriters or
the Holders and underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Registrable Notes by a Holder.
"Registration Statement" shall mean any registration statement
of the Company which covers any of the Exchange Notes or Registrable Notes
pursuant to the provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected
pursuant to Article II(b) hereof.
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of Article
II(b) hereof which covers all of the then Registrable Notes on an appropriate
form under Rule 415 under the 1933 Act, or any similar rule that may be adopted
by the SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Trustee" shall mean the trustee with respect to the Notes
under the Indenture.
Article II
Registration Under the 1933 Act
(a) Exchange Offer Registration. The Company shall (i) file
within 90 calendar days after the Closing Time an Exchange Offer Registration
Statement covering the offer by the Company to the Holders to exchange all of
the Registrable Notes for Exchange Notes, (ii) use its best efforts to cause
such Exchange Offer Registration Statement to be declared effective by the SEC
within 150 calendar days after the Closing Time and (iii) use its best efforts
to consummate the Exchange Offer within 30 calendar days following the effective
date of the Exchange Offer
<PAGE>
6
Registration Statement. The Exchange Notes will be issued under the Indenture.
Upon the effectiveness of the Exchange Offer Registration Statement, the Company
shall promptly commence the Exchange Offer, it being the objective of such
Exchange Offer to enable each Holder (other than Participating Broker-Dealers
(as defined in Article III(f) hereof) eligible and electing to exchange
Registrable Notes for Exchange Notes (assuming that such Holder (i) is not an
affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (ii)
acquires the Exchange Notes in the ordinary course of such Holder's business and
(iii) has no arrangements or understandings with any Person to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes) to trade
such Exchange Notes from and after their receipt without any limitations or
restrictions under the 1933 Act and without material restrictions under the
securities laws of a substantial portion of the several states of the United
States.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus (without
the materials incorporated by reference therein) forming part of the
Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 20
business days after the date notice thereof is mailed to the Holders
(or longer if required by applicable law);
(iii) use the services of the Depositary for the Exchange
Offer with respect to Notes evidenced by global certificates;
(iv) permit Holders to withdraw tendered Registrable Notes at
any time prior to the close of business, New York City time, on the
last business day on which the Exchange Offer shall remain open, by
sending to the institution specified in the notice, a telegram, telex,
facsimile transmission or letter setting forth the name of such Holder,
the principal amount of Registrable Notes delivered for exchange, and a
statement that such Holder is withdrawing its election to have such
Notes exchanged; and
(v) otherwise comply in all respects with all applicable
laws relating to the Exchange Offer.
<PAGE>
7
As soon as practicable after the close of the Exchange Offer,
the Company shall:
(i) accept for exchange Registrable Notes duly tendered and
not validly withdrawn pursuant to the Exchange Offer in accordance with
the terms of the Exchange Offer Registration Statement and the letter
of transmittal which is an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation, or direct the Trustee to cancel, all Registrable Notes so
accepted for exchange by the Company; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Notes (which may be in global form) to each Holder of
Registrable Notes equal in amount to the Registrable Notes of such
Holder so accepted for exchange.
Interest will accrue on each Exchange Note exchanged for a
Note in either case from the last date on which interest was paid on the Notes
surrendered in exchange therefor, or if no interest has been paid on the Notes,
from May 15, 1999. The Exchange Offer shall not be subject to any conditions,
other than that (A) the Exchange Offer, or the making of any exchange by a
Holder, does not violate applicable law or any applicable interpretation of the
staff of the SEC, (B) no action or proceeding shall have been instituted or
threatened in any court or before any governmental agency with respect to the
Exchange Offer which, in the Company's judgment, might impair the ability of the
Company to proceed with the Exchange Offer or, (C) there shall not have been
adopted or enacted any law, statute, rule or regulation which, in the Company's
judgment, would materially impair the ability of the Company to proceed with the
Exchange Offer, (D) there shall not have been any law, rule or regulation or
applicable interpretations of the staff of the SEC issued or promulgated which,
in the good faith determination of the Company, do not permit the Company to
effect the Exchange Offer and (E) there shall not have occurred any change in
the current interpretation by the staff of the SEC which permits the Exchange
Notes issued pursuant to the Exchange Offer in exchange for Notes to be offered
for resale, resold and otherwise transferred by holders thereof (other than any
such holder that is a broker-dealer or an "affiliate" of the Company within the
meaning of Rule 405 under the 1933 Act) without compliance with the registration
and prospectus delivery provisions of the 1933 Act provided that such Exchange
Notes are acquired in the ordinary course of such
<PAGE>
8
holders' business and such holders have no arrangement with any person to
participate in the distribution of such Exchange Notes. Each Holder of Notes
(other than Participating Broker-Dealers) who wishes to exchange such Notes for
Exchange Notes in the Exchange Offer shall have represented that (i) any
Exchange Notes to be received by it were acquired in the ordinary course of
business, (ii) at the time of the commencement of the Exchange Offer it had no
arrangement or understanding with any Person to participate in the distribution
(within the meaning of the 1933 Act) of the Exchange Notes, (iii) it is not an
affiliate (as defined in Rule 405 under the 1933 Act) of the Company or, if it
is such an affiliate, it will comply with the registration and prospectus
delivery requirements of the 1933 Act to the extent applicable and (iv) it shall
have made such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to render the use of Form
S-4 or another appropriate form under the 1933 Act available. The Company shall
inform the Initial Purchasers of the names and addresses of the Holders to whom
the Exchange Offer is made, to the extent available, and the Initial Purchasers
shall have the right to contact such Holders and otherwise facilitate the tender
of Registrable Notes in the Exchange Offer.
(b) Shelf Registration. (i) If, because of any change in law
after the date of this Agreement or applicable interpretations thereof by the
staff of the SEC, the Company is not permitted to effect the Exchange Offer as
contemplated by Article II(a) hereof, or (ii) if for any other reason the
Exchange Offer is not consummated within 180 calendar days following the date
hereof, or (iii) if any Holder (other than an Initial Purchaser) is not eligible
to participate in the Exchange Offer or (iv) upon the request of any Initial
Purchaser (with respect to any Registrable Notes which it acquired from the
Company) following the consummation of the Exchange Offer if any such Initial
Purchaser shall hold Registrable Notes which it acquired directly from the
Company and if such Initial Purchaser is not permitted, in the opinion of
counsel to such Initial Purchaser, pursuant to applicable law or applicable
interpretation of the staff of the SEC, to participate in the Exchange Offer,
the Company shall, at its own cost:
(A) as promptly as practicable, file with the SEC a Shelf
Registration Statement relating to the offer and sale of the
then-outstanding Registrable Notes by the Holders from time to time in
accordance with the methods of distribution elected by the Majority
Holders of such Registrable Notes and set forth in such Shelf
Registration Statement, and use its best efforts to
<PAGE>
9
cause such Shelf Registration Statement to be declared effective by the
SEC by the 180th calender day after the Closing Time (or promptly in
the event of a request by any Initial Purchaser pursuant to clause (iv)
above). In the event that the Company is required to file a Shelf
Registration Statement upon the request of any Holder (other than an
Initial Purchaser) not eligible to participate in the Exchange Offer
pursuant to clause (iii) above or upon the request of any Initial
Purchaser pursuant to clause (iv) above, the Company shall file and use
its best efforts to have declared effective by the SEC both an Exchange
Offer Registration Statement pursuant to Article II(a) hereof with
respect to all Registrable Notes and a Shelf Registration Statement
(which may be a Registration Statement combined with the Exchange Offer
Registration Statement) with respect to offers and sales of Registrable
Notes held by such Holder or such Initial Purchaser after completion of
the Exchange Offer;
(B) use its best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of two years
after its effective date (or until one year after the effective date of
the Shelf Registration Statement if such Shelf Registration Statement
is filed upon the request of any Initial Purchaser pursuant to clause
(iv) above) or such shorter period which will terminate when all of the
Registrable Notes covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement; and
(C) notwithstanding any other provisions hereof, use its best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any
supplement thereto complies in all material respects with the 1933 Act,
(ii) any Shelf Registration Statement and any amendment thereto does
not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and
(iii) any Prospectus forming part of any Shelf Registration Statement,
and any supplement to such Prospectus (as amended or supplemented from
time to time), does not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
<PAGE>
10
The Company further agrees, if necessary, to supplement or
amend the Shelf Registration Statement if requested by the Majority Holders with
respect to information relating to the Holders and otherwise as required by
Article III(b) below, to use all reasonable efforts to cause any such amendment
to become effective and such Shelf Registration to become usable as soon as
practicable thereafter and to furnish to the Holders of Registrable Notes copies
of any such supplement or amendment promptly after its being used or filed with
the SEC.
(c) Expenses. The Company shall pay all Registration Expenses
in connection with the registration pursuant to Articles II(a) and II(b) hereof
and, in the case of an Exchange Offer Registration Statement, will reimburse the
Initial Purchasers, as applicable, for the reasonable fees and disbursements of
one counsel in connection therewith. Each Holder shall pay all expenses of its
counsel other than as set forth in the preceding sentence, including
underwriting discounts, commissions and transfer taxes, if any, relating to the
sale or disposition of such Holder's Registrable Notes pursuant to the Shelf
Registration Statement.
(d) Effective Registration Statement. (i) The Company will be
deemed not to have used its best efforts to cause a Registration Statement to
become, or to remain, effective during the requisite periods set forth herein if
the Company voluntarily takes any action that could reasonably be expected to
result in any such Registration Statement not being declared effective or in the
Holders of Registrable Notes covered thereby not being able to exchange or offer
and sell such Registrable Notes during that period unless (A) such action is
required by applicable law or (B) such action is taken by the Company in good
faith and for valid business reasons (but not including avoidance of the
Company's obligations hereunder), including a material corporate transaction, so
long as the Company promptly complies with the requirements of Article III(k)
hereof, if applicable.
(ii) An Exchange Offer Registration Statement pursuant to
Article II(a) hereof or a Shelf Registration Statement pursuant to Article II(b)
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has been declared
effective, the offering of Registrable Notes pursuant to a Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to
<PAGE>
11
have been effective during the period of such interference, until the offering
of Registrable Notes pursuant to such Registration Statement may legally resume.
(e) Accrual and Payment of Additional Interest. In the event
that (i) the Exchange Offer Registration Statement is not filed with the SEC on
or prior to the 90th calendar day following the Closing Time, (ii) the Exchange
Offer Registration Statement is not declared effective on or prior to the 150th
calendar day following the Closing Time, (iii) the Exchange Offer is not
consummated, or, if required, a Shelf Registration Statement with respect to the
Notes is not declared effective, on or prior to the 180th calendar day following
the Closing Time or (iv) the Exchange Offer Registration Statement or the Shelf
Registration Statement is declared effective but thereafter ceases to be
effective or usable (each event referred to in clauses (i) through (iv) above, a
"Registration Default"), then the Company shall pay additional interest in cash
on the Notes on each Interest Payment Date (as defined in the Indenture) in an
amount equal to one-half of one percent (0.5%) per annum of the principal amount
of the Notes, with respect to the first 90-day period following such
Registration Default. The amount of such additional interest will increase by an
additional one-half of one percent (0.5%) to a maximum of one and one-half
percent (1.5%) per annum for each subsequent 90-day period until such
Registration Default has been cured. Upon (w) the filing of the Exchange Offer
Registration Statement after the 90-day period described in clause (i) above,
(x) the effectiveness of the Exchange Offer Registration Statement after the
150-day period described in clause (ii) above, (y) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 180-day period described in clause (iii) above, or (z)
the cure of any Registration Default described in clause (iv) above, such
additional interest shall cease to accrue on the Notes from the date of such
filing, effectiveness, consummation or cure, as the case may be, if the Company
is otherwise in compliance with this paragraph; provided, however, that if,
after any such additional interest ceases to accrue, a different event specified
in clause (i), (ii), (iii) or (iv) above occurs, such additional interest shall
begin to accrue again pursuant to the foregoing provisions.
(f) Specific Enforcement. Without limiting the remedies
available to the Initial Purchasers and the Holders, the Company acknowledges
that any failure by the Company to comply with its respective obligations under
Articles II(a) and (b) hereof may result in material irreparable injury to the
Initial Purchasers or the Holders
<PAGE>
12
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchasers or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Articles II(a)
and (b) hereof.
Article III
Registration Procedures
In connection with the obligations of the Company with respect
to the Registration Statements pursuant to Articles II(a) and (b) hereof, the
Company shall:
(a) prepare and file with the SEC a Registration Statement,
within the time period specified in Article II hereof, on the
appropriate form under the 1933 Act, which form (i) shall be selected
by the Company, (ii) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Notes by the selling Holders
thereof and (iii) shall be appropriately responsive in all material
respects with the requirements of the applicable form required by the
SEC and include or incorporate by reference all financial statements
required by the SEC to be filed therewith, and use its best efforts to
cause such Registration Statement to become effective and remain
effective in accordance with Article II hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary under applicable law to keep such Registration Statement
effective for the applicable period; cause each Prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the 1933 Act; and
comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by each Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify, or direct
that a notice be issued by the Trustee to, each Holder of Registrable
Notes, at least five days prior to filing, that a Shelf Registration
Statement with respect to the Registrable Notes is
<PAGE>
13
being filed and advise such Holders that the distribution of
Registrable Notes will be made in accordance with the method elected by
the Majority Holders, (ii) furnish to each Holder of Registrable Notes,
to counsel for the Initial Purchasers, to counsel for the Holders and
to each underwriter of an underwritten offering of Registrable Notes,
if any, without charge, as many copies of each Prospectus (without the
materials incorporated therein by reference), including each
preliminary Prospectus, and any amendment or supplement thereto and
such other documents as such Holder or underwriter may reasonably
request, including financial statements and schedules and, if the
Holder so reasonably requests, all materials incorporated therein by
reference and exhibits (including those incorporated by reference) in
order to facilitate the public sale or other disposition of the
Registrable Notes and (iii) subject to the last paragraph of Article
III, hereby consent to the use of the Prospectus, including each
preliminary Prospectus, or any amendment or supplement thereto by each
of the selling Holders of Registrable Notes in connection with the
offering and sale of the Registrable Notes covered by the Prospectus or
any amendment or supplement thereto;
(d) use its reasonable efforts to register or qualify the
Registrable Notes under all applicable state securities or "blue sky"
laws of such jurisdictions as any Holder of Registrable Notes covered
by a Registration Statement and each underwriter of an underwritten
offering of Registrable Notes shall reasonably request by the time the
applicable Registration Statement is declared effective by the SEC, to
cooperate with the Holders in connection with any filings required to
be made with the NASD, keep each such registration or qualification
effective during the period such Registration Statement is required to
be effective and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate
the disposition in each such jurisdiction of such Registrable Notes
owned by such Holder; provided, however, that the Company shall not be
required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required
to qualify but for this Article III(d) or (ii) take any action which
would subject it to general service of process or taxation in any such
jurisdiction if it is not then so subject;
<PAGE>
14
(e) in the case of a Shelf Registration, notify, or direct
that a notice be issued by the Trustee to, each Holder of Registrable
Notes and counsel for such Holders promptly and, if requested by such
Holder or counsel, confirm such advice in writing promptly (i) when a
Shelf Registration Statement has become effective and when any
post-effective amendments and supplements thereto become effective,
(ii) of any request by the SEC or any state securities authority for
post-effective amendments and supplements to a Shelf Registration
Statement and Prospectus or for additional information after the Shelf
Registration Statement has become effective, (iii) of the issuance by
the SEC or any state securities authority of any stop order suspending
the effectiveness of a Shelf Registration Statement or the initiation
of any proceedings for that purpose, (iv) if, during the period a
Registration Statement is effective, the representations and warranties
of the Company contained in any underwriting agreement, securities
sales agreement or other similar agreement, if any, relating to such
offering cease to be true and correct in all material respects, (v) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Notes for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose, (vi) of the happening of any event or the discovery of
any facts during the period a Shelf Registration Statement is effective
which makes any statement made in such Shelf Registration Statement or
the related Prospectus untrue in any material respect or which requires
the making of any changes in such Shelf Registration Statement or
Prospectus in order to make the statements therein not misleading and
(vii) of any determination by the Company that a post-effective
amendment to a Registration Statement would be appropriate;
(f) (A) in the case of an Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus that is included in the Exchange
Offer Registration Statement by broker-dealers who have exchanged their
Registrable Notes for Exchange Notes for the resale of such Exchange
Notes, (ii) furnish to each broker-dealer who desires to participate in
the Exchange Offer, without charge, as many copies of each Prospectus
(without the materials incorporated therein by reference) included in
the Exchange Offer Registration Statement, including any preliminary
prospectus, any amendment or supplement thereto and
<PAGE>
15
copies of the materials incorporated by reference in such Prospectus,
as such broker-dealer may reasonably request, (iii) include in the
Exchange Offer Registration Statement a statement that any
broker-dealer who holds Registrable Notes acquired for its own account
as a result of market-making activities or other trading activities (a
"Participating Broker-Dealer"), and who receives Exchange Notes for
Registrable Notes pursuant to the Exchange Offer, may be a statutory
underwriter and must deliver a prospectus meeting the requirements of
the 1933 Act in connection with any resale of such Exchange Notes, (iv)
subject to the last paragraph of Article III hereof, hereby consent to
the use of the Prospectus forming part of the Exchange Offer
Registration Statement or any amendment or supplement thereto, by any
broker-dealer in connection with the sale or transfer of the Exchange
Notes covered by the Prospectus or any amendment or supplement thereto,
and (v) include in the transmittal letter or similar documentation to
be executed by an exchange offeree in order to participate in the
Exchange Offer (x) the following provision:
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to
engage in, a distribution of Exchange Notes. If the
undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Registrable Notes,
it represents that the Registrable Notes to be exchanged for
Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and
acknowledges that it will deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of
such Exchange Notes pursuant to the Exchange Offer; however,
by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the 1933 Act;"
and (y) a statement to the effect that a broker-dealer, by making the
acknowledgment described in subclause (x) and by delivering a
Prospectus in connection with the exchange of Registrable Securities,
will not be deemed to admit that it is an underwriter within the
meaning of the 1933 Act; and
(B) to the extent any Participating Broker-Dealer participates
in the Exchange Offer, the Company shall use its best efforts to cause
to be delivered at the
<PAGE>
16
request of an entity representing the Participating Broker-Dealers
(which entity shall be one of the Initial Purchasers, unless it elects
not to act as such representative) only one, if any, "cold comfort"
letter with respect to the Prospectus in the form existing on the last
date for which exchanges are accepted pursuant to the Exchange Offer
and with respect to each subsequent amendment or supplement, if any,
effected during the period specified in clause (C) below; and
(C) to the extent any Participating Broker-Dealer participates
in the Exchange Offer, the Company shall use its best efforts to
maintain the effectiveness of the Exchange Offer Registration Statement
for a period of 120 calendar days following the closing of the Exchange
Offer; and
(D) the Company shall not be required to amend or supplement
the Prospectus contained in the Exchange Offer Registration Statement
as would otherwise be contemplated by Article III(b) hereof, or take
any other action as a result of this Article III(f), for a period
exceeding 180 calendar days after the last date for which exchanges are
accepted pursuant to the Exchange Offer (as such period may be extended
by the Company) and Participating Broker-Dealers shall not be
authorized by the Company to, and shall not, deliver such Prospectus
after such period in connection with resales contemplated by this
Article III.
(g) (A) in the case of an Exchange Offer, furnish counsel for
the Initial Purchasers and (B) in the case of a Shelf Registration,
furnish counsel for the Holders of Registrable Notes, copies of any
request by the SEC or any state securities authority for amendments or
supplements to a Registration Statement and Prospectus or for
additional information;
(h) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the
earliest possible moment and provide notice promptly to each Holder of
the withdrawal of any such order;
(i) in the case of a Shelf Registration, furnish to each
selling Holder of Registrable Notes, and to each underwriter, if any,
without charge, at least one conformed copy of each Registration
Statement and any post-effective amendment thereto (without documents
incorporated therein by reference or exhibits thereto, unless
requested);
<PAGE>
17
(j) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Notes to facilitate the timely
preparation and delivery of certificates (which may be in global form
if requested) representing Registrable Notes to be sold and not bearing
any restrictive legends; and cause such Registrable Notes to be in a
form eligible for deposit with the Depositary, in such denominations
(consistent with the provisions of the Indenture) and registered in
such names as the selling Holders or the underwriters, if any, may
reasonably request at least three business days prior to the closing of
any sale of Registrable Notes;
(k) in the case of a Shelf Registration, promptly upon the
occurrence of any event or the discovery of any facts, each as
contemplated by Article III(e)(vi) hereof, use its best efforts to
prepare a supplement or post-effective amendment to a Registration
Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Notes, such
Prospectus will not contain at the time of such delivery any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading. During any 365-day-period, the
Company will have the ability to suspend the availability of such Shelf
Registration Statement for up to three periods of up to 30 consecutive
days, but no more than an aggregate 60 days during any 365-day period,
if any event shall occur as a result of which it shall be necessary, in
the good faith determination of the Board of Directors, to amend the
Shelf Registration Statement or to amend or supplement any prospectus
or prospectus supplement thereunder in order that each such document
not include any untrue statement of fact or omit to state a material
fact necessary to make the statements therein not misleading in light
of the circumstances under which such statements were made. The Company
agrees to notify, or direct that a notice be issued by the Trustee to,
each Holder to suspend use of the Prospectus as promptly as practicable
after the occurrence of such an event, and each Holder hereby agrees to
suspend use of the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission.
At such time as such public disclosure is otherwise made or the Company
determines that such disclosure is not necessary, in each case to
<PAGE>
18
correct any misstatement of a material fact or to include any omitted
material fact, the Company agrees promptly to notify each selling
Holder of such determination and to furnish each selling Holder such
number of copies of the Prospectus (without the information
incorporated therein by reference), as amended or supplemented, as such
Holder may reasonably request;
(l) obtain CUSIP numbers for all Exchange Notes, or
Registrable Notes, as the case may be, not later than the effective
date of a Registration Statement, and provide the Trustee with global
certificates (or, if requested, physical certificates) for the Exchange
Notes or the Registrable Notes, as the case may be, in a form eligible
for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Notes, or Registrable Notes, as the case
may be, (ii) cooperate with the Trustee and the Holders to effect such
changes to the Indenture as may be required for the Indenture to be so
qualified in accordance with the terms of the TIA and (iii) execute,
and use its reasonable efforts to cause the Trustee to execute, all
documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable the
Indenture to be so qualified in a timely manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements, if applicable) and take all other
customary and appropriate actions (including those reasonably requested
by the Majority Holders) in order to expedite or facilitate the
disposition of such Registrable Notes, and in such connection, whether
or not an underwriting agreement is entered into and whether or not the
registration is an underwritten registration:
(i) make such representations and warranties to the
Holders of such Registrable Notes and the underwriters, if
any, in form, substance and scope as are customarily made by
issuers to underwriters in similar underwritten offerings as
may be reasonably requested by them;
(ii) obtain opinions of counsel to the Company and
its subsidiaries and updates thereof (which counsel and
opinions (in form, scope and
<PAGE>
19
substance) shall be reasonably satisfactory to the managing
underwriters, if any, and the holders of a majority in
principal amount of the Registrable Notes being sold)
addressed to each selling Holder and the underwriters, if any,
to the effect provided to the Initial Purchasers on the
Closing Date and covering the matters customarily covered in
opinions requested in sales of securities or underwritten
offerings and such other matters as may be reasonably
requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates
thereof from the Company's independent certified public
accountants addressed to the underwriters, if any, and use its
reasonable efforts to have such letters addressed to the
selling Holders of Registrable Notes, such letters to be in
customary form and covering matters of the type customarily
covered in "cold comfort" letters to underwriters in
connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with
the selling Holders and an agent of the selling Holders
providing for, among other things, the appointment of such
agent for the selling Holders for the purpose of soliciting
purchases of Registrable Notes, which agreement shall be in
form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into,
cause the same to set forth indemnification provisions and
procedures substantially equivalent to the indemnification
provisions and procedures set forth in Article V hereof with
respect to the underwriters and all other parties to be
indemnified pursuant to said Article; and
(vi) deliver such documents and certificates as are
customarily delivered in similar offerings and as may be
reasonably requested by the Holders of a majority in principal
amount of the Registrable Notes being sold and the managing
underwriters, if any.
The above shall be done at (i) the effectiveness of such Shelf
Registration Statement (and, if appropriate, each post-effective
amendment thereto) and (ii) each closing under any underwriting or
similar agreement as
<PAGE>
20
and to the extent required thereunder. In the case of any underwritten
offering, the Company shall cause to be sent a written notice to the
Holders of all Registrable Notes of such underwritten offering at least
20 calendar days prior to the filing of a prospectus supplement for
such underwritten offering. Such notice shall (x) offer each such
Holder the right to participate in such underwritten offering, (y)
specify a date, which shall be no earlier than 10 calendar days
following the date of such notice, by which such Holder must inform the
Company of its intent to participate in such underwritten offering and
(z) include the instructions such Holder must follow in order to
participate in such underwritten offering;
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the selling Holders of the Registrable
Notes and any underwriters participating in any disposition pursuant to
a Shelf Registration Statement and any counsel or accountant retained
by such Holders or underwriters, all financial and other records,
pertinent corporate documents and properties of the Company reasonably
requested by any such persons, and cause the respective officers,
directors, employees, and any other agents of the Company to supply all
information reasonably requested by any such representative,
underwriter, special counsel or accountant in connection with such
Shelf Registration Statement.
(p) (i) in the case of an Exchange Offer, a reasonable time
prior to the filing of any Exchange Offer Registration Statement, any
Prospectus (except for the materials incorporated therein by reference)
forming a part thereof, any amendment to an Exchange Offer Registration
Statement or amendment or supplement to a Prospectus, provide copies of
such document to the Initial Purchasers, and make such changes in any
such document prior to the filing thereof as any of the Initial
Purchasers or their counsel may reasonably request; (ii) in the case of
a Shelf Registration, a reasonable time prior to filing any Shelf
Registration Statement, any Prospectus (except for the materials
incorporated therein by reference) forming a part thereof, any
amendment to such Shelf Registration Statement or amendment or
supplement to such Prospectus, provide copies of such document to the
selling Holders of Registrable Notes, to the Initial Purchasers, to
counsel on behalf of the selling Holders and to the underwriter or
underwriters of an underwritten offering of Registrable Notes, if any,
and
<PAGE>
21
make such changes in any such document prior to the filing thereof as
the selling Holders of Registrable Notes, the Initial Purchasers on
behalf of such Holders, their counsel and any underwriter may
reasonably request; and (iii) cause the representatives of the Company
and its subsidiaries to be available for discussion of such document as
shall be reasonably requested by the selling Holders of Registrable
Notes, the Initial Purchasers on behalf of such Holders or any
underwriter and not at any time make any filing of any such document of
which such Holders, the Initial Purchasers on behalf of such Holders,
their counsel or any underwriter shall not have previously been advised
and furnished a copy or to which such Holders, the Initial Purchasers
on behalf of such Holders, their counsel or any underwriter shall
reasonably object;
(q) in the case of a Shelf Registration, use its reasonable
efforts to cause all Registrable Notes to be listed on any securities
exchange on which similar debt securities issued by the Company are
then listed if requested by the Majority Holders or by the underwriter
or underwriters of an underwritten offering of Registrable Notes, if
any;
(r) in the case of a Shelf Registration, unless the rating in
effect for the Notes applies to the Exchange Notes and the Notes to be
sold pursuant to a Shelf Registration, use its reasonable efforts to
cause the Registrable Notes to be rated by an appropriate rating
agency, if so requested by the Majority Holders or by the underwriter
or underwriters of an underwritten offering of Registrable Notes, if
any, unless the Registrable Notes are already so rated;
(s) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering at least 12 months which shall satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;
and
(t) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation
by any underwriter and its counsel (including, any "qualified
independent underwriter" that is required to be retained in accordance
with the rules and regulations of the NASD).
<PAGE>
22
In the case of a Shelf Registration Statement, the Company may
(as a condition to a selling Holder's participation in the Shelf Registration)
require each selling Holder of Registrable Notes to furnish to the Company (1) a
notice that such Holder wishes to sell Registrable Notes and (2) such
information regarding such Holder, securities of the Company beneficially owned
by such Holder and the proposed distribution by such Holder of such Registrable
Notes as the Company may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event or the discovery of any facts, each of the kind described in Article
III(e)(ii)- (vii) hereof, such Holder will forthwith discontinue disposition of
Registrable Notes pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus (without the
information incorporated therein by reference) contemplated by Article III(k)
hereof, and, if so directed by the Company, such Holder will deliver to the
Company (at its expense) all copies in its possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Notes current at the time of receipt of such notice. If the Company
shall give any such notice to suspend the disposition of Registrable Notes
pursuant to a Shelf Registration Statement as a result of the happening of any
event or the discovery of any facts, each of the kind described in Article
III(e)(vi) hereof, the Company shall be deemed to have used its best efforts to
keep the Shelf Registration Statement effective during such period of suspension
provided that the Company shall use its best efforts to file and to have
declared effective (in the case of an amendment) as soon as practicable an
amendment or supplement to the Shelf Registration Statement and shall extend the
period during which the Shelf Registration Statement shall be maintained
effective pursuant to this Agreement by the number of days during the period
from and including the date of the giving of such notice to and including the
date when the selling Holders shall have received copies of the supplemented or
amended Prospectus (without the information incorporated therein by reference)
necessary to resume such dispositions.
<PAGE>
23
Article IV
Underwritten Registration
If any of the Registrable Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering will
be selected by the holders of a majority in principal amount of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Company.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the persons entitled thereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
Article V
Indemnification and Contribution
(a) The Company shall indemnify and hold harmless each Initial
Purchaser, each Holder, including Participating Broker-Dealers, each underwriter
who participates in an offering of Registrable Notes, their respective
affiliates, and their respective directors, officers, employees, agents and each
Person, if any, who controls any of such parties within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act (the "indemnified parties") as
follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which
Exchange Notes or Registrable Notes were registered under the 1933 Act,
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the
<PAGE>
24
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Article V(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including fees and disbursements of counsel chosen by any indemnified
party), reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any court or
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under subparagraph (i) or (ii) of this Article
V(a);
provided, however, that this indemnity shall not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by the Initial
Purchasers or any Holder, including Participating Broker-Dealers, or any
underwriter expressly for use in the Registration Statement (or any amendment or
supplement thereto) or the Prospectus (or any amendment or supplement thereto);
and provided further, that the Company will not be liable to an indemnified
party with respect to any preliminary Prospectus to the extent the Company shall
sustain the burden of proving that any such loss, liability, claim, damage or
expense resulted from the fact that such indemnified party, in contravention of
a requirement of this Agreement or applicable law, sold Registrable Notes to a
person to whom such indemnified party failed to send or give, at or prior to the
Closing Time, a copy of the final Prospectus, as then amended or supplemented
if: (A) the Company has previously furnished copies thereof (sufficiently in
advance of the Closing Time to allow for distribution by the Closing Time) to
the Initial Purchaser and the loss, liability, claim, damage or expense of such
indemnified party resulted from a misstatement or omission of a material fact
contained in or omitted from the
<PAGE>
25
preliminary Prospectus which was corrected in the final Prospectus as, if
applicable, amended or supplemented prior to the Closing Time and such final
Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person and (B) such failure to give or send such
final Prospectus by the Closing Time to the party or parties asserting such
loss, liability, claim, damage or expense would have constituted the sole
defense to the claim asserted by such person.
(b) In the case of a Shelf Registration, each selling Holder
agrees, severally and not jointly, to indemnify and hold harmless the Company,
each Initial Purchaser, each underwriter who participates in an offering of
Registrable Note and the other selling Holders and each of their respective
directors and officers (including each officer of the Company who signed the
Shelf Registration Statement) and each Person, if any, who controls the Company,
any Initial Purchaser, any underwriter or any other selling Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any
and all loss, liability, claim, damage and expense whatsoever described in the
indemnity contained in Article V(a) hereof, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Shelf Registration Statement (or any amendment thereto) or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Holder, as
the case may be, expressly for use in the Shelf Registration Statement (or any
amendment thereto), or the Prospectus (or any amendment or supplement thereto);
provided, however, that no such Holder shall be liable for any claims hereunder
in excess of the amount of net proceeds received by such Holder from the sale of
Registrable Notes pursuant to such Shelf Registration Statement.
(c) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to either paragraph (a) or
paragraph (b) above, such indemnified party shall give notice as promptly as
reasonably practicable to each person against whom such indemnity may be sought
(the "indemnifying party"), but failure to so notify an indemnifying party shall
not relieve such indemnifying party from any liability hereunder to the extent
it is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity. An indemnifying party may participate at its own expense in the
defense of such action; provided, however, that counsel to the indemnifying
party shall not (except
<PAGE>
26
with the consent of the indemnified party) also be counsel to the indemnified
party. In no event shall the indemnifying party or parties be liable for the
fees and expenses of more than one counsel (in addition to any local counsel)
for all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded (based upon advice of counsel) that there may be one
or more legal defenses available to it and/or other indemnified parties which
are different from or additional to those available to the indemnifying party,
the indemnifying party shall not have the right to direct the defense of such
action on behalf of such indemnified party or parties and such indemnified party
or parties shall have the right to select separate counsel to defend such action
on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party under this Article V for any subsequent legal or other
expenses incurred pursuant to such action, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, selected by any indemnified party in
the case of Article V(a), representing the indemnified parties under such
paragraph (a) who are parties to such action or actions) or (ii) the
indemnifying party does not promptly retain counsel satisfactory to the
indemnified party or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such indemnified
<PAGE>
27
party, the indemnifying party will not be liable for the costs and expenses of
any settlement of such action effected by such indemnified party without the
consent of the indemnifying party. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Article V hereof (whether or not the
indemnified parties are actual or potential parties thereof), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Except with respect to fees and expenses not required to
be reimbursed pursuant to the assumption of the defense of an action in
accordance with Article V(c) above, if at any time an indemnified party shall
have requested an indemnifying party to reimburse the indemnified party for fees
and expenses of counsel, such indemnifying party agrees that it shall be liable
for any settlement of the nature contemplated by Article V(a)(ii) hereof
effected without its written consent if (i) such settlement is entered into more
than 45 calendar days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice of the terms of
such settlement at least 30 calendar days prior to such settlement being entered
into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) If the indemnification provided for in any of the
indemnity provisions set forth in this Article V is for any reason unavailable
to or insufficient to hold harmless an indemnified party in respect of any
losses, liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, in such proportion as is appropriate to reflect the relative fault of
such indemnifying party or parties on the one hand, and such indemnified party
or parties on the other hand, in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party or parties on the
<PAGE>
28
one hand, and such indemnified party or parties on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by such indemnifying party
or parties and such indemnified party or parties and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Initial Purchasers and the Holders
of the Registrable Notes agree that it would not be just and equitable if
contribution pursuant to this Article V were determined by pro rata allocation
(even if the Initial Purchasers were treated as one entity, and the Holders were
treated as one entity, for such purpose) or by another method of allocation
which does not take into account the equitable considerations referred to above
in Article V. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Article
V shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by an governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresenta tion. For purposes of this Article V,
each Person, if any, who controls an Initial Purchaser or Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as such Initial Purchaser or Holder, and each
director of the Company, each officer of the Company who signed the Registration
Statement, and each Person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company.
6.Miscellaneous. (a) Rule 144 and Rule 144A. For so long as
the Company is subject to the reporting requirements of Section 13 or 15(d) of
the 1934 Act, the Company covenants that it will file the reports required to be
filed by it under Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder, that if it ceases to be so required
to file such reports, it will upon the request of any Holder of Registrable
Notes (i) make publicly available such information as is necessary to permit
sales pursuant to Rule 144 under the 1933 Act, (ii) deliver such information to
a prospective purchaser as is
<PAGE>
29
necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will
take such further action as any Holder of Registrable Notes may reasonably
request, and (iii) take such further action that is reasonable in the
circumstances, in each case, to the extent required from time to time to enable
such Holder to sell its Registrable Notes without registration under the 1933
Act within the limitation of the exemptions provided by (x) Rule 144 under the
1933 Act, as such Rule may be amended from time to time, (y) Rule 144A under the
1933 Act, as such Rule may be amended from time to time, or (z) any similar
rules or regulations hereafter adopted by the SEC. Upon the written request of
any Holder of Registrable Notes, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
(b) No Conflicting Agreements. The Company has not entered
into nor will the Company on or after the date of this Agreement enter into any
agreement which conflicts with the rights granted to the Holders of Registrable
Notes in this Agreement. The rights granted to the Holders hereunder do not in
any way conflict with the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Notes affected by such amendment, modification, supplement, waiver
or departure; provided, however, that no amendment, modification, supplement or
waiver or consent to any departure from the provisions of Article V hereof shall
be effective as against any Holder of Registrable Notes unless consented to in
writing by such Holder.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telecopier, or any courier guaranteeing overnight delivery (i)
if to a Holder (other than an Initial Purchaser), at the most current address
set forth on the records of the Registrar under the Indenture, (ii) if to an
Initial Purchaser, at the most current address given by such Initial Purchaser
to the Company by means of a notice given in accordance with the provisions of
this Article VI(d), which address initially is the address set forth in the
Purchase Agreement, and (iii) if to the Company, initially
<PAGE>
30
at the address set forth in the Purchase Agreement and thereafter at such other
address, notice of which is given in accordance with the provisions of this
Article VI(d) .
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt is acknowledged, if telecopied; and on the next business day if
timely delivered to a courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the Person giving the same to the Trustee, at
the address specified in the Indenture.
(e) Successors and Assign. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Notes in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Registrable Notes, in
any manner, whether by operation of law or otherwise, such Registrable Notes
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Notes, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.
(f) Third Party Beneficiaries. The Holders shall be third
party beneficiaries to the agreements made hereunder between the Company, on the
one hand, and the Initial Purchasers, on the other hand, and shall have the
right to enforce such agreements directly to the extent they deem such
enforcement necessary or advisable to protect their rights.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate 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.
<PAGE>
31
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of
[The rest of this page has been left intentionally blank]
<PAGE>
32
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
CD RADIO INC.
by ______________________________
Name:
Title:
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
U.S. BANCORP LIBRA
by MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
by ______________________________________
Name:
Title:
<PAGE>
32
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
CD RADIO INC.
by /s/ Patrick L. Donnelly
-------------------------------
Name: Patrick L. Donnelly
Title: Executive Vice
President & General
Counsel
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
U.S. BANCORP LIBRA
by MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
by /s/ Marcey Becker
--------------------------------------------
Name: Marcey Becker
Title: Vice President
<PAGE>
EXHIBIT 4.4.2
================================================================================
INDENTURE
Between
CD RADIO INC.
and
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
--------------------
$200,000,000 principal amount
14 1/2% Senior Secured
Notes
due 2009
Dated as of May 15, 1999
================================================================================
<PAGE>
[RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
'SS' 310(a)(1) ..................................6.07
(a)(2) ..................................6.07
(b) ..................................6.07, 6.08
'SS' 312(c) ..................................7.01
'SS' 314(a) ..................................7.03
(a)(4) ..................................10.08(a)
(c)(1) ..................................1.02
(c)(2) ..................................1.02
(e) ..................................1.02
'SS' 315(b) ..................................6.01
'SS' 316(a)(last
sentence) ..................................1.01 ("Outstanding")
(a)(1)(A) ..................................5.02, 5.12
(a)(1)(B) ..................................5.13
(b) ..................................5.08
(c) ..................................1.04(d)
'SS' 317(a)(1) ..................................5.03
(a)(2) ..................................5.04
(b) ..................................10.03
'SS' 318(a) ..................................1.11
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 1.01. Definitions.......................................................2
SECTION 1.02. Compliance Certificates and Opinions.............................35
SECTION 1.03. Form of Documents Delivered to Trustee...........................36
SECTION 1.04. Acts of Holders..................................................36
SECTION 1.05. Notices, Etc., to Trustee and Company............................38
SECTION 1.06. Notice to Holders; Waiver........................................38
SECTION 1.07. Effect of Headings and Table of Contents.........................39
SECTION 1.08. Successors and Assigns...........................................39
SECTION 1.09. Separability Clause..............................................39
SECTION 1.10. Benefits of Indenture............................................39
SECTION 1.11. Governing Law....................................................39
SECTION 1.12. Legal Holidays...................................................40
ARTICLE II
Note Forms
SECTION 2.01. Form of Note and Trustee's Certificate of Authentication.........40
ARTICLE III
The Notes
SECTION 3.01. Title and Terms..................................................41
SECTION 3.02. Denominations....................................................41
SECTION 3.03. Execution, Authentication, Delivery and Dating...................41
SECTION 3.04. Temporary Notes..................................................43
SECTION 3.05. Registration, Registration of Transfer and Exchange..............43
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Notes......................45
SECTION 3.07. Payment of Interest; Interest Rights Preserved...................45
SECTION 3.08. Persons Deemed Owners............................................47
SECTION 3.09. Cancelation......................................................47
SECTION 3.10. Computation of Interest..........................................48
SECTION 3.11. CUSIP Number.....................................................48
</TABLE>
<PAGE>
2
<TABLE>
<S> <C> <C>
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. ................................................................48
SECTION 4.02. Application of Trust Money......................................50
ARTICLE V
Remedies
SECTION 5.01. Events of Default...............................................50
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment..............52
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee.........................................54
SECTION 5.04. Trustee May File Proofs of Claim................................55
SECTION 5.05. Trustee May Enforce Claims Without Possession of Notes..........56
SECTION 5.06. Application of Money Collected..................................56
SECTION 5.07. Limitation on Suits.............................................56
SECTION 5.08. Unconditional Right of Holders to Receive Principal,
Premium and Interest...............................57
SECTION 5.09. Restoration of Rights and Remedies..............................57
SECTION 5.10. Rights and Remedies Cumulative..................................58
SECTION 5.11. Delay or Omission Not Waiver....................................58
SECTION 5.12. Control by Holders..............................................58
SECTION 5.13. Waiver of Past Defaults.........................................59
SECTION 5.14. Waiver of Stay or Extension Laws................................59
ARTICLE VI
The Trustee
SECTION 6.01. Notice of Defaults..............................................59
SECTION 6.02. Certain Rights of Trustee.......................................61
SECTION 6.03. Trustee Not Responsible for Preamble or Issuance of Notes.......63
SECTION 6.04. May Hold Notes..................................................63
SECTION 6.05. Money Held in Trust.............................................63
SECTION 6.06. Compensation and Reimbursement..................................64
SECTION 6.07. Corporate Trustee Required; Eligibility;
Conflicting Interests..............................65
SECTION 6.08. Resignation and Removal; Appointment of Successor...............65
SECTION 6.09. Acceptance of Appointment by Successor..........................66
</TABLE>
<PAGE>
3
<TABLE>
<S> <C> <C>
SECTION 6.10. Merger, Conversion, Consolidation or Succession to Business....67
ARTICLE VII
Holders Lists and Reports by Trustee and Company
SECTION 7.01. Disclosure of Names and Addresses of Holders...................68
SECTION 7.02. Reports by Trustee.............................................68
SECTION 7.03. Reports by Company.............................................68
ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms...........69
SECTION 8.02. Successor Substituted..........................................71
SECTION 8.03. Notes To Be Secured in Certain Events..........................72
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of Holders.............72
SECTION 9.02. Supplemental Indentures with Consent of Holders................74
SECTION 9.03. Execution of Supplemental Indentures...........................75
SECTION 9.04. Effect of Supplemental Indentures..............................75
SECTION 9.05. Conformity with Trust Indenture Act............................76
SECTION 9.06. Reference in Notes to Supplemental Indentures..................76
SECTION 9.07. Notice of Supplemental Indentures..............................76
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium, if any, and Interest............76
SECTION 10.02. Maintenance of Office or Agency................................76
SECTION 10.03. Money for Note Payments To Be Held in Trust....................77
SECTION 10.04. Corporate Existence............................................79
SECTION 10.05. Payment of Taxes and Other Claims..............................79
</TABLE>
<PAGE>
4
<TABLE>
<S> <C> <C>
SECTION 10.06. Maintenance of Properties.......................................79
SECTION 10.07. Insurance.......................................................80
SECTION 10.08. Statement by Officers as to Default.............................81
SECTION 10.09. Provision of Financial Statements...............................82
SECTION 10.10. Purchase of Notes upon Change in Control........................82
SECTION 10.11. Limitation on Indebtedness......................................83
SECTION 10.12. Limitation on Restricted Payments...............................84
SECTION 10.13. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries.....................................88
SECTION 10.14. Limitation on Transactions with Affiliates......................88
SECTION 10.15. Limitation on Liens.............................................89
SECTION 10.16. Limitation on Sale of Assets....................................89
SECTION 10.17. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries..............92
SECTION 10.18. Waiver of Certain Covenants.....................................93
SECTION 10.19. Required Stock Ownership........................................93
SECTION 10.20. Further Assurances..............................................93
SECTION 10.21. Limitation on Subsidiary Business Activities....................93
SECTION 10.22. Limitation on Sale-Leaseback Transactions.......................93
ARTICLE XI
Redemption of Notes
SECTION 11.01. Right of Redemption.............................................94
SECTION 11.02. Applicability of Article........................................95
SECTION 11.03. Election to Redeem; Notice to Trustee...........................95
SECTION 11.04. Selection by Trustee of Notes To Be Redeemed....................95
SECTION 11.05. Notice of Redemption............................................96
SECTION 11.06. Deposit of Redemption Price.....................................97
SECTION 11.07. Notes Payable on Redemption Date................................97
SECTION 11.08. Notes Redeemed in Part..........................................97
ARTICLE XII
Security and Pledge of Collateral
SECTION 12.01. Collateral Documents............................................98
SECTION 12.02. Trustee May Perform.............................................98
SECTION 12.03. Collateral Trust Arrangements...................................98
SECTION 12.04. Certificates and Opinions.......................................99
</TABLE>
<PAGE>
5
<TABLE>
<S> <C> <C>
ARTICLE XIII
Defeasance and Covenant Defeasance
SECTION 13.01. Company's Option to Effect Defeasance or Covenant Defeasance....99
SECTION 13.02. Defeasance and Discharge........................................99
SECTION 13.03. Covenant Defeasance............................................100
SECTION 13.04. Conditions to Defeasance or Covenant Defeasance................100
SECTION 13.05. Deposited Money and U.S. Government Obligations To Be Held
in Trust: Other Miscellaneous Provisions...................103
SECTION 13.06. Reinstatement..................................................104
</TABLE>
Rule 144 A Appendix
- Exhibit 1 - Form of Initial Note
Exhibit A - Form of Exchange Note
Exhibit B - Form of Trustee Certificate of Authentication
<PAGE>
INDENTURE, dated as of May 15, 1999, between CD RADIO
INC., a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"),
having its principal office at 1221 Avenue of the Americas,
New York, NY 10020, and UNITED STATES TRUST COMPANY OF NEW
YORK, a bank duly organized and existing under the laws of
the State of New York, Trustee (herein called the
"Trustee").
The Company has duly authorized the creation of an issue of 14 1/2%
Senior Secured Notes due 2009 (herein called the "Initial Notes") and, if and
when issued pursuant to a registered exchange for Initial Notes, the 14 1/2%
Senior Secured Notes due 2009 (herein called the "Exchange Notes", together with
the Initial Notes, the "Notes") of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
The Notes have been issued as part of 200,000 Units, each unit
consisting of $1,000 principal amount of Notes and three Warrants to purchase
3.65 shares of the Company's Common Stock (the "Warrants").
The Company has determined to secure its obligations in respect of the
Notes and duly authorized the execution and delivery of the Collateral Documents
(as defined herein) to which it is a party.
This Indenture is subject to the provisions of the Trust Indenture Act
of 1939, as amended, that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.
All things necessary have been done to make the Notes, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms.
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually
<PAGE>
covenanted and agreed, for the equal and proportionate benefit of all Holders of
the Notes, as follows:
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 1.01. Definitions. For all purposes of this Indenture, except
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to
them in this Article I, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with United States generally
accepted accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with respect
to any computation required or permitted hereunder shall mean such
accounting principles as are generally accepted at the date of such
computation; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Acquired Indebtedness" means Indebtedness of a Person (1) existing at
the time such Person becomes a Restricted Subsidiary or (2) assumed in
connection with the acquisition of assets from such Person, in each case, other
than Indebtedness incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or such acquisition; provided that, for
purposes of Section 10.11, such Indebtedness shall be deemed to be incurred on
the date of the related acquisition of assets
-2-
<PAGE>
from any Person or the date the acquired Person becomes a Restricted Subsidiary.
"Act", when used with respect to any Holder, has the meaning specified
in Section 1.04.
"Adjusted Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest four fiscal quarters for which consolidated
financial statements of Company are available, taken as a whole. For purposes of
calculating "Consolidated Operating Cash Flow" for any four fiscal quarter
period for purposes of this definition,
(1) all Restricted Subsidiaries of the Company on the date of the
transaction giving rise to the need to calculate "Adjusted Consolidated
Operating Cash Flow" (the "Transaction Date") shall be deemed to have been
Restricted Subsidiaries at all times during such four fiscal quarter period
and
(2) any Unrestricted Subsidiary on the Transaction Date shall be
deemed to have been an Unrestricted Subsidiary at all times during such
four fiscal quarter period.
In addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated Operating Cash Flow" shall be calculated after giving
effect on a pro forma basis for the applicable four fiscal quarter period to,
without duplication,
(1) any Asset Sales or Asset Acquisitions (including any Asset
Acquisition giving rise to the need to make such calculation as a result of
the Company or a Restricted Subsidiary (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness) occurring
during the period commencing on the first day of such four fiscal quarter
period to and including the Transaction Date (the "Reference Period"), as
if such Asset Sale or Asset Acquisition occurred on the first day of the
Reference Period and
(2) any incurrence or repayment, retirement or permanent reduction of
any Indebtedness of the Company or any Restricted Subsidiary during the
Reference Period, as if such incurrence, repayment, retirement or reduction
occurred on the first day of the Reference Period.
-3-
<PAGE>
"Affiliate" means, with respect to any specified Person, (1) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (2) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Voting
Stock or any executive officer or director of any such specified Person or other
Person or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control", when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Acquisition" means (1) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary in any other Person, or any acquisition or purchase of
Capital Stock of any other Person by the Company or any Restricted Subsidiary,
in either case pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged with or into the Company or any Restricted
Subsidiary or (2) any acquisition by the Company or any Restricted Subsidiary of
the assets of any Person which constitute substantially all of an operating unit
or line of business of such Person or which is otherwise outside of the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer
or lease (that has the effect of a disposition and is not for security purposes)
or other disposition (that is not for security purposes) to any Person other
than the Company or a Restricted Subsidiary in one transaction or a series of
related transactions, of
(1) any Capital Stock of any Restricted Subsidiary,
(2) any material license or other authorization of the Company or any
Restricted Subsidiary,
(3) any assets of the Company or any Restricted Subsidiary which
constitute substantially all of an operating unit or line of business of
the Company and the Restricted Subsidiaries or
-4-
<PAGE>
(4) any other property or asset of the Company or any Restricted
Subsidiary outside of the ordinary course of business.
For the purposes of this definition, the term "Asset Sale" shall not include
(1) any disposition of properties and assets of the Company that is
governed by the provisions of Article VIII,
(2) sales of property or equipment that have become worn out, obsolete
or damaged or otherwise unsuitable for use in connection with the business
of the Company or any Restricted Subsidiary, as the case may be,
(3) sales of accounts receivable by the Company for cash in an amount
at least equal to the fair market value of such accounts receivable,
(4) for purposes of Section 10.16 any sale, conveyance, transfer,
lease or other disposition of any property or asset, whether in one
transaction or a series of related transactions, involving assets with a
Fair Market Value not in excess of $250,000 in any 12-month period and
(5) sales of rights to the Company's transmissions outside the
continental United States and outside the ordinary course of the Company's
business if (a) after giving effect to such sale and for a six-month
period thereafter, the Company and the Restricted Subsidiaries shall have
no Indebtedness outstanding under any Bank Credit Agreement, (b) the
consideration received by the Company for such sale is at least 80% cash or
Cash Equivalents and (c) the proceeds of such sale are used by the Company
for working capital or as provided Section 10.16(b)(1) or (2).
"Attributable Indebtedness" means with respect to an operating lease
included in any Sale and Leaseback Transaction at the time of determination, the
present value (discounted at the interest rate implicit in the lease or, if not
known, at the Company's incremental borrowing rate) of the obligations of the
lessee of the property subject to such lease for rental payments during the
remaining term of the lease included in such transaction, including any period
for which such lease has been extended or may, at the option of the lessor, be
extended, or until the earliest date on
-5-
<PAGE>
which the lessee may terminate such lease without penalty or upon payment of
penalty (in which case the rental payments shall include such penalty), after
excluding from such rental payments all amounts required to be paid on account
of maintenance and repairs, insurance, taxes, assessments, water, utilities and
similar charges.
"Average Life" means, as of the date of determination with respect to
any Indebtedness, the quotient obtained by dividing (1) the sum of the products
of (a) the number of years from the date of determination to the date or dates
of each successive scheduled principal payment (including any sinking fund
requirements) of such Indebtedness multiplied by (b) the amount of each such
principal payment by (2) the sum of all such principal payments.
"Bank Credit Agreement" means any one or more credit agreements (which
may include or consist of revolving credit agreements or similar arrangements)
between the Company or any Restricted Subsidiary and one or more banks or other
financial institutions providing financing for the business of the Company and
its Restricted Subsidiaries.
"Bankruptcy Law" means Title 11 of the United States Code, as amended,
or any similar United States Federal or state law, or any similar law of any
other jurisdiction, relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or any amendment
to, succession to or change in any such law.
"Board of Directors" means the Board of Directors of the Company or
any duly authorized committee thereof.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Bond Collateral" means (1) shares of Satellite CD Radio, Inc. or (2)
any license owned by Satellite CD Radio, Inc. that is required to operate a CD
Radio Business.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
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"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations, rights in or other
equivalents (however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the Issue Date.
"Capitalized Lease Obligation" of any Person means any obligation of
such Person and its subsidiaries on a consolidated basis under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of this Indenture, the amount of
such obligation at any date shall be the capitalized amount thereof at such
date, determined in accordance with GAAP.
"Cash Equivalents" means
(1) any evidence of Indebtedness with a maturity of 365 days or less
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the full
faith and credit of the United States of America is pledged in support
thereof);
(2) certificates of deposit or acceptances with a maturity of 365 days
or less of any financial institution that is a member of the Federal
Reserve System, in each case having combined capital and surplus and
undivided profits of not less than $500,000,000;
(3) commercial paper with a maturity of 270 days or less issued by a
corporation that is not an Affiliate of the Company and is organized under
the laws of any state of the United States or the District of Columbia and
rated at least A-1 by S&P or at least P-1 by Moody's; and
(4) any money market mutual fund organized under the laws of the
United States or any state thereof whose assets consist solely of cash or
the foregoing instruments.
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"CD Radio Assets" means all assets, rights, services and properties,
whether tangible or intangible, used or intended for use in connection with a CD
Radio Business, including satellites, terrestrial repeating stations, uplink
facilities, musical libraries and other recorded programming, furniture,
fixtures and equipment and telemetry, tracking, monitoring and control
equipment.
"CD Radio Business" means the business of transmitting digital radio
programming throughout the United States by satellite to be received by paying
subscribers, including any business in which the Company was engaged on the date
of this Indenture, and any business reasonably related thereto.
"Change of Control" means the occurrence of any of the following
events:
(1) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than a Permitted Holder, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 40% of the total outstanding
Voting Stock of the Company;
(2) the Company consolidates with, or merges with or into another
Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates
with or merges with or into the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is
converted into or exchanged for cash, securities or other property, other
than any such transaction where
(a) the outstanding Voting Stock of the Company is not converted
or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or is
converted into or exchanged for (i) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation
or (ii) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation and cash, securities and other
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property (other than Capital Stock of the Surviving Entity) in an
amount that could be paid by the Company as a Restricted Payment as
described under Section 10.12 and
(b) immediately after such transaction, no "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act) is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than
40% of the total outstanding Voting Stock of the surviving or
transferee corporation;
(3) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Company, was
approved by a vote of 66-2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office; or
(4) the Company is liquidated or dissolved or a special resolution is
passed by the shareholders of the Company approving the plan of liquidation
or dissolution other than in a transaction which complies with the
provisions of Article VIII.
"Collateral Agent" means initially IBJ Whitehall Bank & Trust Company
and thereafter any successor Collateral Agent that is a financial institution in
the State of New York selected by the Trustee, acting as the agent and designee
of the Trustee pursuant to the Intercreditor Agreement, that
(a) is a financial intermediary (not a clearing corporation) within
the meaning of Section 8-313(4) of the Uniform Commercial Code from time to
time in effect in the State of New York carrying on business in the State
of New York;
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(b) issues (or whose parent issues) commercial paper or certificates
of deposit rated as described in clause (c) of the definition of Cash
Equivalents;
(c) has combined capital and surplus and undivided profits of not less
than $50,000,000; and
(d) enters into the Intercreditor Agreement.
"Collateral Documents" means the Indenture, the Intercreditor
Agreement, the Pledge Agreement and the Collateral Pledge Agreement.
"Collateral Pledge Agreement" means the Collateral Pledge and Security
Agreement dated as of May 15, 1999 between the Company and the Trustee,
governing the disbursement of funds from the Pledge Account.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such Person's common stock or ordinary
shares, whether outstanding at the date of this Indenture or thereafter issued,
and includes all series and classes of such common stock or ordinary shares.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its Chief Executive Officer,
its President, any Vice President, its Treasurer or an Assistant Treasurer, and
delivered to the Trustee.
"Consolidated Income Tax Expense" means, with respect to any period,
the provision for United States corporation, local, foreign and other income
taxes of the
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Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of
(1) the interest expense of the Company and the Restricted
Subsidiaries for such period, including
(a) amortization of original issue discount,
(b) the net cost of Interest Rate Agreements (including
amortization of discounts),
(c) the interest portion of any deferred payment obligation,
(d) accrued interest,
(e) the consolidated amount of any interest capitalized by the
Company and
(f) all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing,
plus
(2) the interest component of Capitalized Lease Obligations of the
Company and the Restricted Subsidiaries paid, accrued or scheduled to be
paid or accrued during such period, in each case as determined on a
consolidated basis in accordance with GAAP, plus
(3) cash and noncash dividends paid on Redeemable Capital Stock by the
Company and any Restricted Subsidiary (to any Person other than the Company
and any Restricted Subsidiary), in each case as determined on a
consolidated basis in accordance with GAAP minus
(4) to the extent included in the calculation of interest expense, the
amortization of underwriting discounts and commissions and fees related to
the issuance of the Units and the Discount Notes;
provided, however, that the Consolidated Interest Expense attributable to
interest on any Indebtedness computed on a pro forma basis and (A) bearing a
floating interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at
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the option of the Company, a fixed or floating rate of interest, shall be
computed by applying, at the option of the Company, either the fixed or the
floating rate.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and all Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding, without
duplication,
(1) any net after-tax extraordinary gains or losses (less all fees and
expenses relating thereto),
(2) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to asset dispositions other than in the
ordinary course of business,
(3) the portion of net income (or loss) of any Person (other than the
Company or a Restricted Subsidiary), including Unrestricted Subsidiaries,
in which the Company or any Restricted Subsidiary has an ownership
interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any Restricted Subsidiary in
cash dividends or distributions during such period,
(4) net income (or loss) of any Person combined with the Company or
any Restricted Subsidiary on a "pooling of interests" basis attributable to
any period prior to the date of combination,
(5) the net income of any Restricted Subsidiary, to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary is not at the date of determination permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary or its
stockholders and
(6) any non-cash items of the Company and any Restricted Subsidiary
(including monetary corrections) increasing or decreasing Consolidated Net
Income for such period (other than items that will result in the receipt or
payment of cash).
"Consolidated Net Worth" means, at any date, the stockholders' equity
of the Company or any Surviving Entity
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less the amount of such stockholders' equity attributable to Redeemable Capital
Stock or treasury stock of the Company, such Surviving Entity and any Restricted
Subsidiary, as determined on a consolidated basis in accordance with GAAP.
"Consolidated Operating Cash Flow" means, with respect to any period,
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period increased by (in each case to the extent included in computing
consolidated Net Income) the sum of
(1) the Consolidated Income Tax Expense of the Company and its
Restricted Subsidiaries accrued according to GAAP for such period (other
than taxes attributable to extraordinary, unusual or nonrecurring gains or
losses);
(2) Consolidated Interest Expense for such period;
(3) depreciation of the Company and its Restricted Subsidiaries for
such period; and
(4) amortization of the Company and its Restricted Subsidiaries for
such period, including amortization of capitalized debt issuance costs for
such period, all determined on a consolidated basis in accordance with
GAAP.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered which office at the date of execution of this Indenture is
located at 114 West 47th Street, New York, New York 10036, except that with
respect to presentation of Notes for payment or for registration of transfer or
exchange, such term shall mean the office or agency of the Trustee at which, at
any particular time, its corporate agency business shall be conducted.
"Cumulative Available Cash Flow" means, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on December 1, 1997 and ending on the last day of
the most recent fiscal quarter immediately preceding the date of determination
for which consolidated financial information of the Company is available or, if
such cumulative Consolidated Operating Cash Flow for such period is negative,
the negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
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"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement entered into by a
Person that is designed to protect such Person against fluctuations in currency
values.
"Default" means any event that after notice or passage of time or both
would be an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.07.
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Discount Notes Indenture" means the indenture dated as of November
26, 1997, between the Company and the trustee of the Discount Notes.
"Discount Notes" means the Company's 15% Senior Secured Discount Notes
due 2007.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under this Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act or any offering or placement of Qualified Capital Stock
of the Company, in each case resulting in gross proceeds equal to or greater
than $50 million.
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the
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United States, consistently applied, that were in effect on November 26, 1997.
"guarantee" means, as applied to any obligation, (1) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (2) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or any
part of such obligation, including the payment of amounts drawn down by letters
of credit.
"Holder" or "Noteholder" means a Person in whose name a Note is
registered in the Note Register.
"Indebtedness" means, with respect to any Person, without duplication,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent,
(1) all liabilities of such Person for borrowed money (including
overdrafts) or for the deferred purchase price of property or services,
excluding any trade payables and other accrued current liabilities
(including outstanding disbursements) incurred in the ordinary course of
business (whether or not evidenced by a note), but including all
obligations, contingent or otherwise, of such Person in connection with any
letters of credit and acceptances issued under letter of credit facilities,
acceptance facilities or other similar facilities,
(2) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments,
(3) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), but excluding trade accounts
payable arising in the ordinary course of business,
(4) all Capitalized Lease Obligations of such Person,
(5) all Indebtedness referred to in (but not excluded from) the
preceding clauses of other Persons
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and all dividends of other Persons, the payment of which is secured by (or
for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien upon or with respect to property
(including accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness (the amount of such obligation being deemed to be the lesser
of the value of such property or asset or the amount of the obligation so
secured),
(6) all guarantees by such Person of Indebtedness referred to in this
definition of any other Person,
(7) all Redeemable Capital Stock of such Person valued at the greater
of its voluntary or involuntary maximum fixed repurchase price plus accrued
and unpaid dividends,
(8) all obligations of such Person under or in respect of Interest
Rate Agreements or Currency Agreements and
(9) all Attributable Indebtedness of such Person.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to this Indenture, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock. For purposes of
Section 10.11 and Section 10.12 and the definitions of "Events of Default" and
"Permitted Indebtedness", in determining the principal amount of any
Indebtedness to be incurred by the Company or a Restricted Subsidiary or which
is outstanding at any date, (x) the principal amount of any Indebtedness which
provides that an amount less than the principal amount at maturity thereof shall
be due upon any declaration of acceleration thereof shall be the accreted value
thereof at the date of determination for purposes of determining the amount that
would be payable thereon in the event of the occurrence of an event of default
(or similar) event under such Indebtedness, (y) the sum of the principal amount
of any Indebtedness and the principal amount of any other Indebtedness to the
extent incurred to refinance such
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Indebtedness shall be reduced by an amount equal to the Fair Market Value, on
the date of incurrence of such Indebtedness, of cash, Cash Equivalents or U.S.
Government Obligations constituting the collateral securing such Indebtedness on
a perfected basis, and dedicated for disbursement to the payment of principal of
or interest on such Indebtedness and (z) effect shall be given to the impact of
any Currency Agreement with respect to such Indebtedness. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability of any guarantees at such date; provided, however, that for purposes
of calculating the amount of Discount Notes outstanding at any date, the amount
of Discount Notes shall be the accreted value thereof as of such date, unless
cash interest has commenced to accrue pursuant to the terms of the Discount
Notes and the Discount Notes Indenture, in which case the amount of such
Discount Notes outstanding at such date shall be the aggregate principal amount
thereof at Stated Maturity and provided further, however, that for purposes of
calculating the amount of noninterest bearing or other discount security (other
than the Discount Notes), such Indebtedness shall be deemed to be the principal
amount thereof that would be shown on the balance sheet of the Person dated such
date prepared in accordance with GAAP but that such security shall be deemed to
have been incurred only on the date of the original issuance thereof.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Intercreditor Agreement" means the agreement between the Trustee, the
trustee for the Discount Notes and the Collateral Agent that provides for the
holding of the Bond Collateral in accordance with the terms of the Indenture and
the other Secured Debt.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Interest Rate Agreements" means any interest rate protection
agreement and other types of interest rate hedging agreements or arrangements
(including interest rate swaps, caps, floors, collars and similar agreements)
designed to protect against or manage exposure to fluctuations in interest rates
in respect of Indebtedness.
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"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued or owned by any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP. In addition, the Fair Market Value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary shall be deemed to be an "Investment"
made by the Company in such Unrestricted Subsidiary at such time. "Investments"
shall exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices.
"Issue Date" means the date on which the Notes are originally issued.
"LIBOR" means, on any date of determination, for purposes of
calculating the effective annual interest rate on any Indebtedness referred to
in clause (o) of the definition of Permitted Liens, the rate appearing on Page
3750 of the Telerate Service (or on any successor or substitute page of such
Service, or any successor to or substitute for such Service, providing rate
quotations comparable to those currently provided on such page of such Service
for purposes of providing quotations of interest rates applicable to dollar
deposits in the London interbank market) at approximately 11:00 a.m., London
time, as the rate for dollar deposits with a maturity comparable to such
Indebtedness.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired. A Person shall be deemed to own subject to a Lien
any property which such Person has acquired or holds subject to the interest of
a vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Loral Satellite Contract" means the Amended and Restated Contract No.
SS/L-TP93002-01, dated as of June 30,
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1998, between the Company and Space Systems/Loral, Inc., as amended, modified or
supplemented from time to time.
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means,
(1) with respect to any Asset Sale, the proceeds thereof in the form
of cash or Cash Equivalents including payments in respect of deferred
payment obligations or escrowed funds, but only when received in the form
of, or stock or other assets when disposed for, cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary), net of
(a) brokerage commissions and other fees and expenses (including
fees and expenses of legal counsel, accountants, consultants and
investment banks) related to such Asset Sale,
(b) provisions for all taxes payable as a result of such Asset
Sale,
(c) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject of
such Asset Sale or becomes due and payable as a result thereof,
(d) amounts required to be paid to any Person (other than the
Company or any Restricted Subsidiary) owning a beneficial interest in
the assets subject to the Asset Sale and
(e) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in
accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary,
as the case may be, after such Asset Sale, including pension and other
post-
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employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers'
Certificate delivered to the Trustee and
(2) with respect to any capital contribution or issuance or sale of
Capital Stock as referred to under Section 10.12, the proceeds of such
capital contribution, issuance or sale in the form of cash or Cash
Equivalents, including payments in respect of deferred payment obligations
when received in the form of, or stock or other assets when disposed for,
cash or Cash Equivalents (except to the extent that such obligations are
financed or sold with recourse to the Company or any Restricted
Subsidiary), net of attorney's fees, accountant's fees and brokerage,
consulting, financial, advisory, underwriting and other fees and expenses
actually incurred in connection with such capital contribution, issuance or
sale and net of taxes paid or payable as a result thereof.
"Notes" has the meaning stated in the preamble of this Indenture and
more particularly means any Notes authenticated and delivered under this
Indenture.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 3.05.
"Officers' Certificate" means a certificate signed by the Chairman,
the Chief Executive Officer, the President or a Vice President, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancelation;
(ii) Notes, or portions thereof, for whose payment or redemption money
in the necessary amount has
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been theretofore deposited with the Trustee or any Paying Agent (other than
the Company) in trust or set aside and segregated in trust by the Company
(if the Company shall act as its own Paying Agent) for the Holders of such
Notes; provided that, if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
(iii) Notes, except to the extent provided in Sections 13.02 and
13.03, with respect to which the Company has effected defeasance or
covenant defeasance as provided in Article XIII; and
(iv) Notes which have been paid pursuant to Section 3.06 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in respect
of which there shall have been presented to the Trustee proof satisfactory
to it that such Notes are held by a bona fide purchaser in whose hands the
Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in making
such calculation or in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee knows to be
so owned shall be so disregarded. Notes so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or such other obligor.
"Pari Passu Indebtedness" means Indebtedness of the Company that is
pari passu in right of payment to the Notes.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Notes on behalf of the Company.
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"Permitted Holder" means Loral Space & Communications Ltd., and its
successors.
"Permitted Indebtedness" means any of the following:
(a) Pari Passu Indebtedness of the Company or any Restricted
Subsidiary in an aggregate principal amount which, when taken together with
the then outstanding principal amount of (x) Pari Passu Indebtedness
incurred pursuant to this clause (a), (y) the Notes and (z) any refinancing
of such Pari Passu Indebtedness or the Notes pursuant to clause (k) below,
does not exceed the sum of (1) $350 million and (2) an amount equal to 125%
of Total Incremental Equity as of the date of such incurrence;
(b) Indebtedness of the Company or any Restricted Subsidiary incurred
pursuant to the Tranche A Credit Facility in an amount which, after giving
effect to the incurrence thereof, the aggregate principal amount of
Indebtedness incurred under this clause (b) and any refinancings thereof
pursuant to clause (k) below and then outstanding, does not exceed $115
million;
(c) Indebtedness of the Company pursuant to the Notes or of any
Restricted Subsidiary pursuant to a guarantee of the Notes;
(d) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date, including amounts not yet advanced on the
Issue Date but which the Company is entitled to defer or incur under the
Loral Satellite Contract;
(e) Indebtedness of the Company owing to any Restricted Subsidiary;
provided that any Indebtedness of the Company owing to any such Restricted
Subsidiary is subordinated in right of payment to the Notes from and after
such time as the Notes shall become due and payable (whether at Stated
Maturity, acceleration or otherwise) to the payment and performance of the
Company's obligations under the Notes; provided further that any
disposition, pledge or transfer of any such Indebtedness to a Person (other
than a disposition, pledge or transfer to the Company or another Restricted
Subsidiary) shall be deemed to be an incurrence of such
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Indebtedness by the Company not permitted by this clause (e);
(f) Indebtedness of a Restricted Subsidiary owing to the Company or to
a Restricted Subsidiary; provided that any disposition, pledge or transfer
of any such Indebtedness to a Person (other than a disposition, pledge or
transfer to the Company or a Restricted Subsidiary) shall be deemed to be
an incurrence of such Indebtedness by such Restricted Subsidiary not
permitted by this clause (f);
(g) obligations of the Company entered into in the ordinary course of
business (i) pursuant to bona fide Interest Rate Agreements designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates in respect of Indebtedness of the Company or any Restricted
Subsidiary, which obligations do not exceed the aggregate principal amount
of such Indebtedness, and (ii) pursuant to bona fide Currency Agreements
entered into by the Company or any of its Restricted Subsidiaries and
designed to protect such Person against fluctuation in currency values in
respect of its assets or obligations;
(h) Capitalized Lease Obligations and Purchase Money Obligations of
the Company, the aggregate value (in the case of Capitalized Lease
Obligations) or principal amount (in the case of Purchase Money
Obligations) of which (including any refinancings (as defined in clause (k)
below) thereof) does not exceed $20 million at any one time outstanding;
(i) unsecured Subordinated Indebtedness of the Company incurred to
finance the operation of CD Radio Assets or the construction, expansion,
development or acquisition of music libraries and other recorded music
programming, furniture, fixtures and equipment if such Indebtedness has an
Average Life longer than the Average Life of the Notes and has a final
Stated Maturity of principal after the final Stated Maturity of principal
of the Notes;
(j) in addition to the items referred to in clauses (a) through (i)
above, Indebtedness of the Company having an aggregate principal amount not
to exceed $15 million at any time outstanding; and
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(k) Indebtedness of the Company or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing, refunding or
extension of outstanding Indebtedness of the Company or any Restricted
Subsidiary incurred or outstanding pursuant to clauses (a), (b), (c), (d),
(h), and (i) of this definition or the proviso of Section 10.11; provided,
however, that (i) Indebtedness of the Company may not be replaced, renewed,
refinanced, refunded or extended to such extent under this clause (k) with
Indebtedness of any Restricted Subsidiary and (ii) any such replacement,
renewal, refinancing, refunding or extension (a) shall not result in a
lower Average Life of such Indebtedness as compared with the Indebtedness
being replaced, renewed, refinanced, refunded or extended, (b) shall not
exceed the sum of the principal amount (or, (x) if such Indebtedness
provides for a lesser amount to be due and payable upon a declaration of
acceleration thereof, an amount no greater than such lesser amount or (y),
in the case of Indebtedness the principal amount of which was calculated
pursuant to clause (y) of the last paragraph of the definition of
Indebtedness, the face amount of such Indebtedness) of the Indebtedness
being replaced, renewed, refinanced, refunded or extended plus the amount
of accrued interest thereon and the amount of any reasonably determined
prepayment premium necessary to accomplish such replacement, renewal,
refinancing, refunding or extension and the reasonable fees and expenses
incurred in connection therewith, and (c) in the case of any replacement,
renewal, refinancing, refunding or extension by the Company of Pari Passu
Indebtedness, the Notes or Subordinated Indebtedness, such new Indebtedness
is made pari passu with or subordinate to the Notes, at least to the same
extent as the Indebtedness being replaced, renewed, refinanced or extended.
"Permitted Investments" means
(1) Cash Equivalents;
(2) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
other similar deposits;
(3) loans and advances to employees made in the ordinary course of
business;
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(4) Interest Rate Agreements and Currency Agreements;
(5) bonds, notes, debentures or other securities received as a result
of Asset Sales permitted under Section 10.16; provided, however, that the
Company or the Restricted Subsidiaries, as the case may be, have received
at least 80% of the aggregate consideration therefrom in cash or Cash
Equivalents;
(6) Investments by the Company or any Restricted Subsidiary in another
Person, if as a result of such Investment (i) such other Person becomes a
Restricted Subsidiary or (ii) such other Person is merged or consolidated
with or into, or transfers or conveys all or substantially all of its
assets to, the Company or a Restricted Subsidiary;
(7) Investments in the Company or in any Restricted Subsidiary;
(8) Investments in preferred stock of corporations (x) organized and
validly existing under the laws of any state of the United States of
America, (y) conducting business principally in the State of New York and
(z) whose long term unsecured debt rating is rated one of the four highest
rating categories by S&P, Moody's or another nationally recognized
securities rating agency, in an aggregate amount not to exceed $35 million
at any one time outstanding; and
(9) Investments not otherwise permitted by the foregoing clauses (1)
through (8) in an amount not to exceed $5.0 million at any one time
outstanding.
"Permitted Liens" means the following types of Liens:
(a) Liens existing on the date of this Indenture;
(b) Liens on Bond Collateral securing Pari Passu Indebtedness incurred
pursuant to clause (a) of the definition of Permitted Indebtedness or any
refinancing Indebtedness in respect thereof incurred pursuant to clause (k)
of the definition of Permitted Indebtedness; provided, however, that such
Lien shall be equal in priority to the Lien on the Bond Collateral securing
the Notes;
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(c) Liens on any property or assets of a Restricted Subsidiary granted
in favor of the Company or any other Restricted Subsidiary;
(d) Liens securing the Notes;
(e) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by the Company or any Restricted Subsidiary; provided that such Lien does
not extend to any property or assets of the Company or any Restricted
Subsidiary other than the assets acquired in connection with the incurrence
of such Acquired indebtedness;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation or any Purchase Money Obligation, in each case as permitted
under clause (h) of the definition of "Permitted Indebtedness"; provided,
however, that such interest or title shall not extend to any property or
assets other than the assets that are the subject of such Capitalized Lease
Obligation or Purchase Money Obligation;
(g) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repair-men or other like Liens arising
in the ordinary course of business of the Company or any Restricted
Subsidiary and with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made;
(h) Liens for taxes, assessments, government charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made;
(i) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts
for the payment of money);
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(j) easements, rights-of-way, encroachments and survey defects
restrictions and other similar charges or encumbrances incurred in the
ordinary course of business not interfering in any material respect with
the business of the Company or any Restricted Subsidiary;
(k) Liens arising by reason of any judgment, decree or order of any
court or arbitration proceeding so long as such Lien is adequately bonded
and any appropriate legal proceedings that may have been duly initiated for
the review of such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be initiated
shall not have expired;
(l) Liens securing obligations of the Company under Interest Rate
Agreements or Currency Agreements or any collateral (other than Bond
Collateral) for the Indebtedness to which such Interest Rate Agreements or
Currency Agreements relate;
(m) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(n) Liens securing reimbursement obligations of the Company or any
Restricted Subsidiary with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the
products and proceeds thereof so long as such Liens do not extend to Bond
Collateral;
(o) Liens on the satellites of the Company which are not one of the
first three satellites, or on contractual rights to acquire such
satellites, securing Indebtedness of the Company; provided, however, that
such Indebtedness shall not be secured by Bond Collateral; provided
further, however, that such Lien on the satellites of the Company which are
not one of the first three satellites, or on contractual rights to acquire
such satellites, may only secure up to $110 million of such Indebtedness
(plus the interest thereon and other amounts payable in respect thereof)
and such Indebtedness (a) shall not have an effective annual interest rate
greater than LIBOR + 600 basis points and (b) by its terms does not entitle
the holders of such Indebtedness to receive Common Stock or warrants
exercisable for Common Stock in an amount
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greater than 2.25% of the Company's outstanding Common Stock on a fully
diluted basis (after giving pro forma effect to such offering of Common
Stock or warrants exercisable for Common Stock) and, in the event that such
Indebtedness is in an amount less than $110 million, the provisions of
clause (b) of the immediately preceding proviso shall be pro rated
accordingly;
(p) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) and (c) through (o); provided
that any such extension, renewal or replacement shall be no more
restrictive in any material respect than the Lien so extended, renewed or
replaced and shall not extend to any additional property or assets;
(q) Liens incurred in the ordinary course of business of the Company
or any Restricted Subsidiary with respect to obligations that do not exceed
$5 million at any one time outstanding; and
(r) Liens on cash, Cash Equivalents or U.S. Government Obligations
securing Indebtedness up to the Fair Market Value, on the date of
incurrence of such Indebtedness, of the cash, Cash Equivalents and U.S.
Government Obligations constituting the collateral securing such
Indebtedness on a perfected basis and dedicated for disbursement to the
payment of principal and/or interest on such Indebtedness.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Pledge Account" means an account established with the Trustee
pursuant to the terms of the Collateral Pledge Agreement for the deposit of the
Pledged Securities.
"Pledge Agreement" means the Amended and Restated Pledge Agreement
dated as of May 15, 1999, among the Company, as Pledgor, IBJ WHITEHALL BANK &
TRUST COMPANY, as Collateral Agent, the Trustee and the trustee for the Discount
Notes, as amended, modified or supplemented from time to time.
"Pledged Securities" means the U.S. Government obligations (as defined
in Section 13.04) purchased by the
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Company with a portion of the net proceeds from the Units offering to be
deposited in the Pledge Account.
"Pledged Stock" means the capital stock of Satellite CD Radio, Inc., a
Delaware corporation, that is pledged to secure the Notes.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.06 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock whether now outstanding, or issued
after the Issue Date, and including all classes and series of preferred or
preference stock of such Person.
"Purchase Money Obligations" means Indebtedness of the Company or any
Restricted Subsidiary
(1) issued to finance or refinance the purchase or construction of any
assets of the Company or any Restricted Subsidiary,
(2) issued to finance the construction of satellite dish antennas or
radio adapters to receive the Company's services or
(3) secured by a Lien on any assets of the Company or any Restricted
Subsidiary where the lender's sole recourse is to the assets so encumbered,
(a) in the case of clauses (1) or (3) above, to the extent the purchase or
construction prices for such assets are or should be included in "addition to
property, plant or equipment" in accordance with GAAP and (b) in each case, if
the purchase or construction of such assets is not part of any acquisition of a
Person or business unit.
"Qualified Capital Stock" of any person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.
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"Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Notes or is redeemable at the option of the
holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity; provided, however, that Redeemable Capital Stock shall
not include any Common Stock the holder of which has a right to put to the
Company upon certain terminations of employment; and provided further, however,
that any class or series of Capital Stock that would not constitute Redeemable
Capital Stock but for provisions thereof giving holders thereof the right to
require the issuer of such Capital Stock to repurchase or redeem such Capital
Stock upon the occurrence of an "asset sale" or "change of control" occurring
prior to the final Stated Maturity of the Notes shall not constitute Redeemable
Capital Stock if the "asset sale" or "change of control" provisions applicable
to such class or series of Capital Stock are no more favorable to the holders of
such Capital Stock in any material respect than the provisions of Section 10.10
and Section 10.16 and such class or series of Capital Stock specifically
provides that the issuer of such Capital Stock will not repurchase or redeem any
such stock pursuant to such provision prior to the Company's repurchase of such
Notes as are required to be purchased pursuant to Section 10.10 and Section
10.16, as applicable.
"Redemption Date", when used with respect to any Note to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which it is to be. redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the May 1 or November 1 (whether or not a Business Day or legal
holiday), as the case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any
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assistant treasurer, the cashier, any assistant cashier, any trust officer or
assistant trust officer, the controller or any assistant controller or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above-designated officers, and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Restricted Subsidiary" means a Subsidiary other than an Unrestricted
Subsidiary.
"S&P" means Standard and Poor's Ratings Group, a division of
McGraw-Hill, Inc. and its successors.
"Sale and Leaseback Transaction" means an arrangement by the Company
or a Restricted Subsidiary with any lender or investor or to which such lender
or investor is a party providing for the leasing by the Company or such
Restricted Subsidiary of any property or asset of the Company or such Restricted
Subsidiary which has been or is being sold or transferred by the Company or such
Restricted Subsidiary not more than 270 days after the acquisition thereof to
such lender or investor or any Affiliate thereof or to any Person to whom funds
have been or are to be advanced by such lender or investor or any Affiliate
thereof on the security of such property or asset.
"Satellite Assets" means satellites, terrestrial repeating stations,
uplink facilities and telemetry, tracking, monitoring and control equipment.
"Secured Debt" means, as of any date, (i) the unpaid principal of, and
any accrued interest and premium, if any, on any Indebtedness secured by a Lien
permitted by clause (b) of the definition of Permitted Liens, and (ii) fees,
expenses and charges (including indemnification obligations) due or owing to any
Secured Party arising under this Agreement or any Collateral Document.
"Secured Party" means holders of Indebtedness secured by a Lien
permitted by clause (b) of the definition of Permitted Liens and the Trustee or
any other obligee or indemnified party under any Collateral Document.
"Securities Act" means the Securities Act of 1933.
"Series C Preferred Stock" means the 10-1/2% Series C Convertible
Preferred Stock of the Company.
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"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries or by the Company and one or more
other Subsidiaries.
"Total Consolidated Indebtedness" means, at any date of determination,
an amount equal to the aggregate amount of all Indebtedness of the Company and
the Restricted Subsidiaries outstanding as of the date of determination.
"Total Incremental Equity" means, at any date of determination, the
sum of, without duplication,
(1) the aggregate cash proceeds received by the Company after the
Issue Date from the issuance or sale of Qualified Capital Stock of the
Company (excluding any proceeds received from the issuance of the Company's
9.2% Series B Junior Cumulative Convertible Preferred Stock but including
Capital Stock issued upon the conversion of convertible Indebtedness or
from the exercise of options, warrants or rights to purchase Qualified
Capital Stock of the Company) to any Person other than a Subsidiary; plus
(2) an amount equal to the sum of
(a) the net reduction in Investments in any Person (other than
Permitted Investments) resulting from the payment in cash of
dividends, repayments of loans or advances or other transfers of
assets, in each case to the Company or any
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Restricted Subsidiary after the Issue Date from such Person and
(b) the portion (proportionate to the Company's equity interest
in such Subsidiary) of the fair market value of the net assets of any
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary;
provided, however, that in the case of (a) or (b) above the foregoing sum
shall not exceed the amount of Investments previously made (and treated as
a Restricted Payment) by the Company or any Restricted Subsidiary in such
Person or Unrestricted Subsidiary and that constitutes a Restricted Payment
that has been deducted from Total Incremental Equity pursuant to clause (3)
below, minus
(3) the aggregate amount of all Restricted Payments declared or made
on or after the Issue Date and minus
(4) the aggregate amount paid pursuant to clauses (1), (2), (3), (4),
(6) and (8) of the second paragraph of Section 10.12.
"Trading Day" with respect to a securities exchange or automated
quotation system means a day on which such exchange or system is open for a full
day of trading.
"Tranche A Credit Facility" means the term loan facility under the
Credit Agreement, dated as of June 30, 1998, among the Company, Bank of America
National Trust and Savings Association ("Bank of America") and other financial
institutions from time to time parties thereto and Bank of America, as
administrative agent, as the same may be amended, modified or supplemented from
time to time.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unit" means $1,000 aggregate principal amount of the Notes and three
warrants to purchase Common Stock.
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"Unrestricted Subsidiary" means
(1) any Subsidiary that at the time of determination shall be an
Unrestricted Subsidiary (as designated by the Board of Directors, as
provided below) and
(2) any subsidiary of an Unrestricted Subsidiary;
provided, however, that in no event shall any Person that is a Restricted
Subsidiary on the Issue Date become an Unrestricted Subsidiary. The Board of
Directors may designate any newly acquired or newly formed Subsidiary to be an
Unrestricted Subsidiary so long as
(1) neither the Company nor any Restricted Subsidiary is directly or
indirectly liable for any Indebtedness of such Subsidiary,
(2) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any
other Indebtedness of the Company or any Restricted Subsidiary to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity,
(3) neither the Company nor any Restricted Subsidiary has a contract,
agreement, arrangement, understanding or obligation of any kind, whether
written or oral, with such Subsidiary other than those that might be
obtained at the time from persons who are not Affiliates of the Company and
(4) neither the Company nor any Restricted Subsidiary has any
obligation (a) to subscribe for additional shares of Capital Stock or other
equity interests in such Subsidiary or (b) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results.
Any such designation by the Board of Directors of the Company shall be evidenced
to the Trustee by filing a Board Resolution with the Trustee giving effect to
such designation. The Board of Directors may designate any Unrestricted
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
designation, there would be no Default or Event of Default under this Indenture
and the Company could incur $1.00 of additional Indebtedness
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(other than Permitted Indebtedness) pursuant to Section 10.11.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means, with respect to any Person, any class or classes
of Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not,
at the time, stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency).
SECTION 1.02. Compliance Certificates and Opinions. Upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture (including any covenant compliance with which constitutes
a condition precedent) relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 10.08(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or
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investigation as is necessary to enable him to express an informed opinion
as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 1.03. Form of Documents Delivered to Trustee. In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.04. Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by agents duly appointed in writing; and, except as herein otherwise expressly
provided, such
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action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section 1.04.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of
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the requisite proportion of Outstanding Notes have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
waiver or other Act, and for that purpose the Outstanding Notes shall be
computed as of such record date; provided that no such authorization, agreement
or consent by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not later
than eleven months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
SECTION 1.05. Notices, Etc., to Trustee and Company. Any request,
demand, authorization, direction, notice, consent, waiver or Act of Holders or
other document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention of
Corporate Trust Administration, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 1.06. Notice to Holders; Waiver. Where this Indenture provides
for notice of any event to Holders by the Company or the Trustee, such notice
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to each Holder affected by such
event, at his address as it appears in the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where
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notice to Holders is given by mail, neither the failure to mail such notice, nor
any defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice mailed to a
Holder in the manner herein prescribed shall be conclusively deemed to have been
received by such Holder, whether or not such Holder actually receives such
notice. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 1.07. Effect of Headings and Table of Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
SECTION 1.08. Successors and Assigns. All covenants and agreements in
this Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 1.09. Separability Clause. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 1.10. Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto, any Paying Agent, any Notes Registrar and their successors hereunder,
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 1.11. Governing Law. This Indenture and the Notes shall be
governed by and construed in accordance with the law of the State of New York.
This Indenture is
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subject to the provisions of the Trust Indenture Act that are required to be
part of this Indenture and shall, to the extent applicable, be governed by such
provisions.
SECTION 1.12. Legal Holidays. In any case where any Interest Payment
Date, Redemption Date, Stated Maturity or Maturity of any Note shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or of
the Notes) payment of principal (or premium, if any) or interest need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date or Redemption
Date, or at the Stated Maturity or Maturity; provided that no interest shall
accrue for the period from and after such Interest Payment Date, Redemption
Date, Stated Maturity or Maturity, as the case may be, to the next Business Day.
ARTICLE II
Note Forms
SECTION 2.01. Form of Note and Trustee's Certificate of
Authentication. Provisions relating to the Initial Notes and the Exchange Notes
are set forth in the Rule 144A Appendix attached hereto (the "Appendix") which
is hereby incorporated in and expressly made part of this Indenture. The Notes
and the Trustee's certificate of authentication shall be in substantially the
forms set forth in the Appendix or in Exhibit B hereto, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes. Any portion of the text of any Note
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Note.
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers of the Company executing such Notes, as evidenced by their
execution of such Notes.
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ARTICLE III
The Notes
SECTION 3.01. Title and Terms. The aggregate principal amount of Notes
which may be authenticated and delivered under this Indenture is limited to
$200,000,000, except for Notes authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section
3.04, 3.05, 3.06, 9.06, 10.10, 10.16 or 11.08.
The Notes shall be known and designated as the "14-1/2% Senior
Secured Notes due 2009" of the Company. Their Stated Maturity shall be May 15 ,
2009, and they shall bear interest at the rate of 14-1/2% per annum from May 18,
1999 or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, payable on November 15, 1999 and semiannually
thereafter on May 15 and November 15 in each year and at said Stated Maturity,
until the principal thereof is paid or duly provided for. Interest on any
overdue principal amount shall be payable on demand.
The principal of (premium, if any, on) and interest on the Notes shall
be payable at the office or agency of the Company maintained for such purpose in
The City of New York, or at such other office or agency of the Company as may be
maintained for such purpose; provided, however, that at the option of the
Company interest may be paid by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Note Register.
The Notes shall be redeemable as provided in Article XI.
SECTION 3.02. Denominations. The Notes shall be issuable only in
registered form without coupons and only denominations of $1,000 and any
integral multiple thereof.
SECTION 3.03. Execution, Authentication, Delivery and Dating. The
Notes shall be executed on behalf of the Company by its Chairman, its Chief
Executive Officer, its President or a Vice President, and attested by its
Secretary or an Assistant Secretary. The signature of any of these officers on
the Notes may be manual or facsimile signatures of the present or any future
such authorized officer and may be imprinted or otherwise reproduced on the
Notes.
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Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes, and the Trustee in accordance with such Company
Order shall authenticate and deliver such Notes.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company, pursuant to Article VIII, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article VIII, any of the Notes authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Notes executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Notes surrendered for such exchange
and of like principal amount; and the Trustee, upon Company Request of the
successor Person, shall authenticate and deliver Notes as specified in such
request for the purpose of such exchange. If Notes
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shall at any time be authenticated and delivered in any new name of a successor
Person pursuant to this Section 3.03 in exchange or substitution for or upon
registration of transfer of any Notes, such successor Person, at the option of
the Holders but without expense to them, shall provide for the exchange of all
Notes at the time Outstanding for Notes authenticated and delivered in such new
name.
SECTION 3.04. Temporary Notes. Pending the preparation of definitive
Notes, the Company may execute, and upon Company Order the Trustee shall
authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Notes in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Notes may determine, as conclusively
evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 10.02, without charge to the
Holder. Upon surrender for cancelation of any one or more temporary Notes, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 3.05. Registration, Registration of Transfer and Exchange. The
Company shall cause to be kept at the Corporate Trust Office of the Trustee a
register (the register maintained in such office and in any other office or
agency designated pursuant to Section 10.02 being herein sometimes referred to
as the "Note Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Notes and of
transfers of Notes. The Note Register shall be in written form or any other form
capable of being converted into written form within a reasonable time. At all
reasonable times, the Note Register shall be open to inspection by the Trustee.
The Trustee is hereby initially appointed as note registrar (the "Note
Registrar") for the
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purpose of registering Notes and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the office
or agency of the Company designated pursuant to Section 10.02, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Notes of any authorized
denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 3.04, 9.06, 10.10, 10.16 or 11.08 not involving
any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business 15
days before the selection of Notes to be redeemed under Section 11.04 and ending
at the close of business on the day of such mailing of the relevant notice of
redemption, or (ii) to register the transfer of or exchange any Note so selected
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for redemption in whole or in part, except the unredeemed portion of any Note
being redeemed in part.
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Notes. If (i) any
mutilated Note is surrendered to the Trustee, or (ii) the Company and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Note, and there is delivered to the Company and the Trustee such security
or indemnity as may be required by them to save each of them harmless, then, in
the absence of notice to the Company or the Trustee that such Note has been
acquired by a bona fide purchaser, the Company shall execute and upon Company
Order the Trustee shall authenticate and deliver, in exchange for any such
mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note
of like tenor and principal amount, bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section 3.06, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section 3.06 in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section 3.06 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 3.07. Payment of Interest; Interest Rights Preserved. Interest
on any Note which is payable, and is punctually paid or duly provided for, on
any Interest Payment Date shall be paid to the Person in whose name such Note
(or one or more Predecessor Notes) is registered at the close of business on the
Regular Record Date for such
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interest at the office or agency of the Company maintained for such purpose
pursuant to Section 10.02; provided, however, that each installment of interest
may at the Company's option be paid by (i) mailing a check for such interest,
payable to or upon the written order of the Person entitled thereto pursuant to
Section 3.08, to the address of such Person as it appears in the Note Register
or (ii) transfer to an account located in the United States maintained by the
payee.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Notes (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest") may be paid by
the Company, at its election in each case, as provided in clause (1) or (2)
below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Notes (or their respective Predecessor Notes) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Note and the date of the proposed payment, and at
the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such Defaulted Interest as
in this clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date, and in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be given to the Holders in the manner provided for in Section 1.06,
not less than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest
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shall be paid to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 3.07, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 3.08. Persons Deemed Owners. Prior to the due presentment of a
Note for registration of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the Person in whose name such Note is
registered as the owner of such Note for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Sections 3.05 and 3.07)
interest on such Note and for all other purposes whatsoever, whether or not such
Note be overdue, and none of the Company, the Trustee or any agent of the
Company or the Trustee shall be affected by notice to the contrary.
SECTION 3.09. Cancelation. All Notes surrendered for payment,
redemption, registration of transfer or exchange shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be promptly
canceled by it. The Company may at any time deliver to the Trustee for
cancellation any Notes previously authenticated and delivered hereunder which
the Company may have acquired in any manner whatsoever, and may deliver to the
Trustee (or to any other Person for delivery to the Trustee) for cancellation
any Notes previously authenticated hereunder which the Company has not issued
and sold, and all Notes so delivered shall be promptly canceled by the Trustee.
If the Company shall so acquire any of the Notes, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee for cancellation. No Notes shall be authenticated in lieu of or
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in exchange for any Notes canceled as provided in this Section 3.09, except as
expressly permitted by this Indenture. All canceled Notes held by the Trustee
shall be disposed of by the Trustee in accordance with its customary procedures
and certification of their disposal delivered to the Company unless by Company
Order the Company shall direct that canceled Notes be returned to it.
SECTION 3.10. Computation of Interest. Interest on the Notes shall be
computed on the basis of a 360-day year of twelve 30-day months.
SECTION 3.11. CUSIP Number. The Company, in issuing the Notes may use
a "CUSIP" number, and if so, such CUSIP number shall be included in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number printed in the notice or on the Notes, and that
reliance may be placed only on the other identification numbers printed on the
Notes. The Company will promptly notify the Trustee of any such CUSIP number
used by the Company in connection with the issuance of the Securities and of any
change in the CUSIP number.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture
shall upon Company Request cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of Notes expressly provided for
herein or pursuant hereto) and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture when
(1) either
(a) all Notes theretofore authenticated and delivered (other than
(i) Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 3.06 and (ii) Notes for
whose payment money has theretofore been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such
trust, as provided in
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Section 10.03) have been delivered to the Trustee for cancellation; or
(b) all Notes not theretofore delivered to the Trustee for
cancelation
(i) have become due and payable,
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Notes not theretofore
delivered to the Trustee for cancelation, for the aggregate principal
amount of, premium, if any, and interest on the Notes to the date of
such deposit (in the case of Notes which have become due and payable)
or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
under this Indenture, the Notes and the Collateral Documents by the
Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
provided in this Indenture relating to the satisfaction and discharge of
this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.06 and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of clause (1) of
this Section 4.01, the obligations of the Trustee under Section 4.02 and the
last paragraph of Section 10.03 shall survive.
SECTION 4.02. Application of Trust Money. Subject to the provisions of
the last paragraph of
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Section 10.03, all money deposited with the Trustee pursuant to Section 4.01
shall be held in trust and applied by it, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the aggregate
principal amount of, premium, if any, and interest for whose payment such money
has been deposited with the Trustee; but such money need not be segregated from
other funds except to the extent required by law.
ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default", wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) as to any Interest Payment Date occurring on or prior to May 15,
2002, default in the payment of any interest on any Note when it becomes
due and payable; and as to any Interest Payment Date thereafter, any
default in the payment of interest on any Note and continuance of such
default for a period of 30 days;
(2) default in the payment of the principal of or premium, if any, on
any Note at its Maturity;
(3) default in the performance, or breach, of the provisions of
Article VIII, the failure to make or consummate a Change of Control Offer
in accordance with the provisions of Section 10.10 or the failure to make
or consummate an Excess Proceeds Offer in accordance with the provisions of
Section 10.16;
(4) default in the performance, or breach, of any covenant or
agreement of the Company in this Indenture (other than a default in the
performance, or breach, of a covenant or warranty which is specifically
dealt with elsewhere in this Indenture), and continuance of such default or
breach for a period of 30 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
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Trustee by the Holders of at least 25% in principal amount of the
Outstanding Notes a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder;
(5) any provision of the Collateral Documents shall cease, for any
reason, to be in full force and effect in any material respect, or the
Company shall so assert in writing; or the Trustee or the Collateral Agent,
as the case may be, shall cease to have a first priority perfected security
interest in the Pledged Stock or the Pledged Securities or the Pledge
Account, as the case may be, for the benefit of the Trustee and the Holders
(other than by reason of the release of any such security interest in
accordance with the Collateral Documents), or any representation, warranty
or certification of the Company made in or pursuant to the Collateral
Documents shall be false in any material respect as of the date when made;
(6) (A) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of the Company or any Subsidiary
aggregating $10.0 million or more, when the same becomes due and payable at
the Stated Maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have been cured
or waived or (B) Indebtedness of the Company or any Subsidiary aggregating
$10.0 million or more shall have been accelerated or otherwise declared due
and payable, or required to be prepaid or repurchased (other than by
regularly scheduled required prepayment), prior to the Stated Maturity
thereof;
(7) one or more final judgments, orders, or decrees of any court or
regulatory agency shall be rendered against the Company or any Subsidiary
or their respective properties for the payment of money, either
individually or in an aggregate amount in excess of $10.0 million and
either (A) an enforcement proceeding shall have been commenced by any
creditor upon such judgment or order or (B) there shall have been a period
of 30 consecutive days during which a stay of enforcement of such judgment
or order, by reason of pending appeal or otherwise, was not in effect;
(8) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Subsidiary a bankrupt or
insolvent, or
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approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Subsidiary
under any Bankruptcy Law or any other applicable Federal or state law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or any Subsidiary or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order unstayed
and in effect for a period of 90 consecutive days; or
(9) the institution by the Company or any Subsidiary of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or
relief under any Bankruptcy Law or any other applicable Federal or state
law, or the consent by it to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or any Subsidiary or of any
substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due.
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If
an Event of Default (other than an Event of Default specified in Section 5.01(8)
or (9)) occurs and is continuing, then and in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Notes by
written notice to the Company (and to the Trustee if such notice is given by the
Holders), may, and the Trustee upon the written request of such Holders shall,
declare the principal amount of, premium, if any, and accrued interest on all of
the Outstanding Notes immediately due and payable, and upon any such declaration
all such amounts payable in respect of the Notes shall become immediately due
and payable. If an Event of Default specified in Section 5.01(8) or (9) occurs
and is continuing, then the principal of, premium, if any, and accrued interest
on all of the Outstanding Notes shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of
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the money due has been obtained by the Trustee as hereinafter provided in this
Article V, the Holders of a majority in principal amount of the Outstanding
Notes, by written notice to the Company and the Trustee, may rescind and annul
such declaration and its consequences if,
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(i) all overdue interest on all Outstanding Notes,
(ii) all unpaid principal of and premium, if any, on any
Outstanding Notes that have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by
the Notes,
(iii) to the extent that payment of such interest is lawful,
interest on overdue interest and overdue principal at the rate borne
by the Notes, and
(iv) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel; and
(b) all Events of Default, other than the non- payment of amounts of
principal of, premium, if any, or interest on the Notes that have become
due solely by such declaration of acceleration, have been cured or waived
as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration
of acceleration in respect of the Notes because of an Event of Default specified
in Section 5.01(5) shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness that is the
subject of such Event of Default has been discharged or the Holders thereof have
rescinded their declaration of acceleration in respect of such Indebtedness, and
written notice of such discharge or rescission, as the case may be, shall have
been given to the Trustee by the Company and countersigned by the holders of
such Indebtedness or a trustee, fiduciary or agent for such holders, within 30
days after such declaration of
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acceleration in respect of the Notes, and no other Event of Default has occurred
during such 30-day period which has not been cured or waived during such period.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that if
(a) default is made in the payment of any installment of interest on
any Note when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium, if
any, on) any Note at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Notes, the whole amount then due and payable on such
Notes for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Notes, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes or against the
Collateral and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
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SECTION 5.04. Trustee May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company or any other obligor upon the Notes or the
property of the Company or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment of
overdue principal, premium, if any, or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Notes and
to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.06.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 5.05. Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or
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the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Notes in respect of which such judgment has been recovered.
SECTION 5.06. Application of Money Collected. Any money collected by
the Trustee pursuant to this Article V shall be applied in the following order,
at the date or dates fixed by the Trustee and, in case of the distribution of
such money on account of principal (or premium, if any) or interest, upon
presentation of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
6.06;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Notes for principal (and premium, if any) and interest,
respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
The Trustee may fix a record date and a payment date for any payments
to be made to Holders pursuant to this Section 5.06. At least 15 days before
such record date, the Company shall direct the Trustee to mail to each Holder a
notice that states the record date, the payment date and the amount to be paid.
SECTION 5.07. Limitation on Suits. No Holder of any Notes shall have
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
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(2) the Holders of not less than 25% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or
more in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 5.08. Unconditional Right of Holders to Receive Principal,
Premium and Interest. Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article XIII) and
in such Note of the principal of (and premium, if any) and (subject to Section
3.07) interest on such Note on the respective Stated Maturities expressed in
such Note (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively
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to their former positions hereunder and thereafter all rights and remedies of
the Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Notes in the last paragraph of Section 3.06, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Trustee or to
the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
SECTION 5.12. Control by Holders. The Holders of not less than a
majority in principal amount of the Outstanding Notes shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with any provisions of this Indenture or the Collateral Documents,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
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SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a
majority in principal amount of the Outstanding Notes may, on behalf of the
Holders of all the Notes, waive any past defaults under this Indenture and their
consequences, except a default
(1) in respect of the payment of the principal of (or premium, if any)
or interest on any Note, or
(2) in respect of a covenant or provision hereof which under Article
IX cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 5.14. Waiver of Stay or Extension Laws. The Company covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE VI
The Trustee
SECTION 6.01. Notice of Defaults. (a) Within 30 days after the Trustee
receives notice of the occurrence of any Default or an Event of Default
hereunder, the Trustee shall transmit in the manner and to the extent provided
in TIA Section 313(c), notice of such Default hereunder known to the Trustee,
unless such Default or Event of Default shall have been cured or waived;
provided, however, that, except in the case of a Default in the payment of the
principal of (or premium, if any) or interest on any Note, the Trustee shall be
protected in withholding such notice if
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and so long as the Board of Directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interest of the
Holders; and provided further that in the case of any Default of the character
specified in Section 5.01(4) no such notice to Holders shall be given until at
least 30 days after the occurrence thereof.
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part or manifest error, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or opinion
which by any provisions hereof are specifically required to be furnished to
the Trustee, the Trustee shall examine such certificates and opinions to
determine whether or not they conform to the requirements of this Indenture
(but need not confirm or investigate the accuracy of mathematical
calculations or other facts stated therein).
(c) The Trustee may not be relieved form liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (b) and (c) of this Section.
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(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or a affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
(h) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses (including
reasonable attorneys' fees and expenses) and liabilities that might be incurred
by it in compliance with such request or direction.
(i) The Trustee shall not be charged with knowledge of any Default or
Event of Default, of the identity of any Restricted Subsidiary or the existence
of any Change of Control or Asset Sale unless either (i) a Trust Officer shall
have actual knowledge thereof or (ii) the Trustee shall have received written
notice thereof from the Company or any Holder.
SECTION 6.02. Certain Rights of Trustee. Subject to the provisions of
TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a
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matter be proved or established prior to taking, suffering or omitting any
action hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon an
Officers' Certificate or Opinion of Counsel and shall not be liable for any
action it takes or omits to take in reliance in good faith on such
Officers' Certificate or Opinion of Counsel;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture or the other Collateral
Documents at the request or direction of any of the Holders pursuant to
this Indenture or the other Collateral Documents, unless such Holders shall
have offered to the Trustee security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with
such request or direction reasonably satisfactory to the Trustee;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the
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discretion or rights or powers conferred upon it by this Indenture; and
(9) the permissive right of the Trustee to act hereunder will not be
construed as a duty.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 6.03. Trustee Not Responsible for Preamble or Issuance of
Notes. The preamble contained herein and in the Notes, except for the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes, except that the Trustee represents that it is duly authorized to
execute and deliver this Indenture, authenticate the Notes and perform its
obligations hereunder and that the statements made by it in a Statement of
Eligibility on Form T-1 supplied to the Company are true and accurate, subject
to the qualifications set forth therein. The Trustee shall not be accountable
for the use or application by the Company of Notes or the proceeds thereof.
SECTION 6.04. May Hold Notes. The Trustee, any Paying Agent, any Note
Registrar or any other agent of the Company or of the Trustee, in its individual
or any other capacity, may become the owner or pledgee of Notes and, subject to
TIA Sections 3.10(b) and 3.11, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Note Registrar or
such other agent.
SECTION 6.05. Money Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the Company.
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SECTION 6.06. Compensation and Reimbursement. The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its gross negligence or
bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without gross negligence or bad faith
on its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
The obligations of the Company under this Section 6.06 to compensate
the Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such obligations
of the Company, the Trustee shall have a claim prior to the Notes upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any) or interest on
particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 5.01(7) or (8), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
The provisions of this Section 6.06 shall survive the termination of
this Indenture.
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SECTION 6.07. Corporate Trustee Required; Eligibility; Conflicting
Interests. There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section 6.07, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 6.07, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article VI.
SECTION 6.08. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article VI shall become effective until the acceptance
of appointment by the successor Trustee in accordance with the applicable
requirements of Section 6.09.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 6.09 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the Outstanding Notes, delivered
to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 6.07 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
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(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Notes in the manner provided for in Section 1.06. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 6.09. Acceptance of Appointment by Successor. Every successor
Trustee appointed hereunder shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall
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become vested with all the rights, powers, trusts and duties of the retiring
Trustee; but, on request of the Company or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
retiring Trustee and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder. Upon
request of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article VI.
SECTION 6.10. Merger, Conversion, Consolidation or Succession to
Business. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article VI, without the execution or filing of any paper or any further act on
the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
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ARTICLE VII
Holders Lists and Reports by Trustee and Company
SECTION 7.01. Disclosure of Names and Addresses of Holders. Every
Holder of Notes, by receiving and holding the same, agrees with the Company and
the Trustee that none of the Company or the Trustee or any agent of either of
them shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with TIA
Section 312, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under TIA Section 312(b).
SECTION 7.02. Reports by Trustee. Within 60 days after May 15 of each
year commencing with the first May 15 after the first issuance of Notes, the
Trustee shall transmit to the Holders, in the manner and to the extent provided
in TIA Section 313(c), a brief report dated as of such May 15 if required by TIA
Section 313(a).
SECTION 7.03. Reports by Company. The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Company is not required to file information, documents or
reports pursuant to either of said Sections, then it shall file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the supplementary
and periodic information, documents and reports which may be required
pursuant to Section 13 of the Exchange Act in respect of a security listed
and registered on a national securities exchange as may be prescribed from
time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional
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information, documents and reports with respect to compliance by the
Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of
this Section 7.03 as may be required by rules and regulations prescribed
from time to time by the Commission.
ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms.
The Company will not in a single transaction or a series of related transactions
consolidate with or merge with or into any other Person or sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety to any Person or Persons, and the Company
will not permit any Restricted Subsidiary to enter into any such transaction, or
series of transactions, if such transaction or series of transactions, in the
aggregate, would result in the sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of the properties and assets of
the Company and its Restricted Subsidiaries on a consolidated basis to any
Person or Persons, unless:
(i) either
(a) the Company shall be the surviving corporation or
(b) the Person (if other than the Company) formed by such
consolidation or into which the Company or the Company and its
Restricted Subsidiaries is merged or the Person which acquires by
sale, conveyance, transfer, lease or other disposition, all or
substantially all of the properties and assets of the Company or the
Company and its Restricted Subsidiaries, as the case may be, (the
"Surviving Entity")
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(1) shall be a corporation organized and validly existing
under the laws of the United States of America, any state thereof
or the District of Columbia and
(2) shall expressly assume, by an indenture supplemental to
this Indenture executed and delivered to the Trustee, in form
satisfactory to the Trustee, the Company's obligations for the
due and punctual payment of the principal of (or premium, if any,
on) and interest on all the Notes and the performance and
observance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(ii) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating any obligation of the
Company or any Restricted Subsidiary in connection with or as a result of
such transaction as having been incurred of the time of such transaction),
no Default or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (on the assumption that the transaction
or series of transactions occurred on the first day of the latest four
fiscal quarters for which consolidated financial statements of the Company
are available prior to the consummation of such transaction or series of
transactions with the appropriate adjustments with respect to the
transaction or series of transactions, including the incurrence and
repayment of any Indebtedness incident to such transaction, being included
in such pro forma calculation), the Company (or the Surviving Entity if the
Company is not the continuing obligor under this Indenture) could incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
under the proviso to Section 10.11; provided, however, that this clause
(iii) shall not apply to a consolidation, merger or sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially
all of the properties and assets of the Company and its Restricted
Subsidiaries if
(a) all Liens and Indebtedness of the Company or the Surviving
Entity, as the case may be, and its Restricted Subsidiaries
outstanding
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immediately after such transaction would, if incurred at such time,
have been permitted to be incurred (and all such Liens and
Indebtedness, other than the Liens and Indebtedness of the Company and
its Restricted Subsidiaries outstanding immediately prior to the
transaction, shall be deemed to have been incurred at such time) for
all purposes of this Indenture and
(b) immediately after giving effect to such transaction or series
of transactions on a pro forma basis (and treating any obligation of
the Company or any Restricted Subsidiary incurred in connection with
or as a result of such transaction or series of transactions as having
been incurred at the time of such transaction), the Consolidated Net
Worth of the Company (or of the Surviving Entity if the Company is not
the continuing obligor under this Indenture) is equal to or greater
than the Consolidated Net Worth of the Company immediately prior to
such transaction or series of transactions;
(iv) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of Section 10.15 are complied with; and
(v) the Company or the Surviving Entity shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, sale, assignment, conveyance, transfer,
lease or other disposition and such supplemental indenture comply with this
Article VIII and that all conditions precedent herein provided for relating
to such transaction have been complied with.
SECTION 8.02. Successor Substituted. Upon any consolidation of the
Company with or merger of the Company with or into any other corporation or any
conveyance, transfer or lease of the properties and assets of the Company
substantially as an entirety to any Person in accordance with Section 8.01, the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person had been
named
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as the Company herein, and in the event of any such conveyance or transfer, the
Company (which term shall for this purpose mean the Person named as the
"Company" in the first paragraph of this Indenture or any successor Person which
shall theretofore become such in the manner described in Section 8.01), except
in the case of a lease, shall be discharged of all obligations and covenants
under this Indenture and the Notes and may be dissolved and liquidated.
SECTION 8.03. Notes To Be Secured in Certain Events. If, upon any such
consolidation of the Company with or merger of the Company into any other
corporation, or upon any conveyance, lease or transfer of the property of the
Company substantially as an entirety to any other Person, any property or assets
of the Company would thereupon become subject to any Lien, then unless such Lien
could be created pursuant to Section 10.15 without equally and ratably securing
the Notes, the Company, prior to or simultaneously with such consolidation,
merger, conveyance, lease or transfer, will as to such property or assets,
secure the Notes Outstanding (together with, if the Company shall so determine,
any other Indebtedness of the Company now existing or hereinafter created which
is not subordinate in right of payment to the Notes) equally and ratably with
(or prior to) the Indebtedness which upon such consolidation, merger,
conveyance, lease or transfer is to become secured as to such property or assets
by such Lien, or will cause such Notes to be so secured; provided that, for the
purpose of providing such equal and ratable security, the principal amount of
the Notes shall mean that amount which would at the time of making such
effective provision be due and payable pursuant to Section 5.02 upon a
declaration of acceleration of the Maturity thereof, and the extent of such
equal and ratable security shall be adjusted, to the extent permitted by law, as
and when said amount changes over time as provided in Section 5.02.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form
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satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor obligor of the covenants of the
Company contained in this Indenture, in the Collateral Documents and in the
Notes in accordance with Section 8.01;
(2) to add to the covenants of the Company or any obligor upon the
Notes for the benefit of the Holders or to surrender any right or power
herein conferred upon the Company or any other obligor upon the Notes for
the benefit of the Holders, as applicable, in this Indenture or in the
Notes;
(3) to add any additional Events of Default;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
6.09;
(5) to cure any ambiguity, to correct or supplement any provision
herein or in the Collateral Documents or the Notes which may be
inconsistent with any other provision herein or in the Collateral Documents
or the Notes, or to make any other provisions with respect to matters or
questions arising under this Indenture or the Notes; provided that such
action shall not adversely affect the interests of the Holders in any
material respect;
(6) to secure the Notes pursuant to the requirements of Section 8.03
or otherwise;
(7) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act;
(8) to add a guarantor of the securities under this Indenture;
(9) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the Holders as additional security
for the payment and performance of the Company's obligations under this
Indenture, in any property, or assets, including any of which are required
to be mortgaged, pledged or hypothecated, or in which a security
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interest is required to be granted to the Trustee pursuant to this
Indenture or otherwise; or
(10) to convey, transfer, assign, mortgage or pledge to the Trustee or
the Custodian Agent as security for the Notes and the other Secured Debt
any property or assets.
The Trustee is hereby authorized to join in the execution of any such
supplemental indenture, to make any further appropriate agreements and
stipulations which may be therein contained and to accept the conveyance,
transfer, assignment, mortgage or pledge of any property thereunder, but the
Trustee shall not be obligated to enter into any such supplemental indenture
which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
SECTION 9.02. Supplemental Indentures with Consent of Holders. With
the consent of the Holders of not less than a majority in principal amount of
the Outstanding Notes, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby:
(i) change the Stated Maturity of the principal of or any installment
of interest on any Note, or reduce the principal amount thereof (or
premium, if any) or the rate of interest thereon or any premium payable
upon the redemption thereof or reduce the amount of the principal of the
Notes that would be due and payable upon a declaration of acceleration of
the Maturity thereof pursuant to Section 5.02 or the amount thereof
provable in bankruptcy pursuant to Section 5.04, or change the coin or
currency in which any Note or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any
such payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date);
(ii) reduce the percentage in principal amount of the Outstanding
Notes, the consent of whose Holders is
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required for any such supplemental indenture, or the consent of whose
Holders is required for any waiver of compliance with certain provisions of
this Indenture or certain defaults hereunder and their consequences
provided for in this Indenture;
(iii) modify any of the provisions of this Article IX, Article V or
Section 10.18, except to increase any such percentage of outstanding Notes
required for such actions or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Note affected thereby;
(iv) amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control or
an Excess Proceeds Offer in connection with any Asset Sale or modify any of
the provisions or definitions with respect thereto; or
(v) make any change in any of the provisions relating to the
Collateral Documents not authorized by Article XII that materially
adversely affects the Holders.
It shall not be necessary for any Act of Holders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
SECTION 9.03. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article IX or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustees own rights, duties or immunities under this
Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture under this Article IX, this Indenture shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of
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Notes theretofore or thereafter authenticated and delivered hereunder shall be
bound thereby.
SECTION 9.05. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article IX shall conform to the requirements
of the Trust Indenture Act as then in effect.
SECTION 9.06. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and shall if required by the Trustee, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Notes so modified
as to conform, in the opinion of the Trustee and the Company, to any such
supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
SECTION 9.07. Notice of Supplemental Indentures. Promptly after the
execution by the Company and the Trustee of any supplemental indenture pursuant
to the provisions of Section 9.01 or Section 9.02, the Company shall give notice
thereof to the Holders of each Outstanding Note affected, in the manner provided
for in Section 1.06, setting forth in general terms the substance of such
supplemental indenture.
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium, if any, and Interest.
The Company covenants and agrees for the benefit of the Holders that it will
duly and punctually pay the principal of (and premium, if any) and interest on
the Notes in accordance with the terms of the Notes and this Indenture.
SECTION 10.02. Maintenance of Office or Agency. The Company will
maintain in The City of New York, an office or agency where Notes may be
presented or surrendered for payment, where Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Notes and this Indenture may be served. The
Corporate Trust Office of the Trustee shall be such office or agency of the
Company, unless the Company shall designate and maintain some other office or
agency for one or more of such purposes. The Company will
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give prompt written notice to the Trustee of any change in the location of any
such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all such purposes and may from time to
time rescind any such designation; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in The City of New York for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and any change in the location of any such other office or agency.
SECTION 10.03. Money for Note Payments To Be Held in Trust. If the
Company shall at any time act as its own Paying Agent, it will, on or before
each due date of the principal of (or premium, if any) or interest on any of the
Notes, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal of (or premium, if any) or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee of
its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal of (or premium, if
any) or interest on any Notes, deposit with a Paying Agent a sum sufficient to
pay the principal (and premium, if any) or interest so becoming due, such sum to
be held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of such action or any failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the
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Trustee, subject to the provisions of this Section 10.03, that such Paying Agent
will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
(and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (or premium, if
any) or interest on any Note and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
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the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 10.04. Corporate Existence. Subject to Article VIII, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect the corporate existence, rights (charter and statutory)
and franchises of the Company and each Subsidiary; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries as a whole and that the loss thereof is not disadvantageous in any
material respect to the Holders.
SECTION 10.05. Payment of Taxes and Other Claims. The Company will pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Restricted Subsidiary or upon the income,
profits or property of the Company or any Restricted Subsidiary and (b) all
lawful claims for labor, materials and supplies, which, if unpaid, might by law
become a lien upon the property of the Company or any Restricted Subsidiary;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
SECTION 10.06. Maintenance of Properties. The Company will cause all
properties owned by the Company or any Restricted Subsidiary or used or held for
use in the conduct of its business or the business of any Restricted Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly conducted at all times; provided, however,
that nothing in this Section 10.06 shall prevent the Company from discontinuing
the maintenance of any of such properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect
to the Holders.
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SECTION 10.07. Insurance. (a) The Company shall maintain launch
insurance with respect to each satellite launch covering the period from the
launch to 180 days following the launch of each satellite in an amount equal to
or greater than the sum of (i) the cost to replace such satellite with a
satellite of comparable or superior technological capability (as determined by
the Board of Directors, whose determination shall be conclusive and evidenced by
a Board Resolution) and having at least as much transmission capacity as the
satellite to be replaced, (ii) the cost to launch a replacement satellite
pursuant to the contract whereby a replacement satellite will be launched and
(iii) the cost of launch insurance for such replacement or, in the event that
the Company has reason to believe that the cost of obtaining comparable
insurance for a replacement would be materially higher, the Company's best
estimate of the cost of such comparable insurance. Notwithstanding the
foregoing, the Company shall not be obligated to maintain insurance pursuant to
this paragraph (a) with respect to (i) the launch of its first satellite and
(ii) any subsequent launch not preceded by a launch failure or failure of any
satellite within 180 days from the date of its launch; provided, however, that
the Company's spare satellite shall be under construction in accordance with the
terms of the Loral Satellite Contract or the Company shall have otherwise
obtained a spare satellite.
(b) The Company shall maintain full in-orbit insurance with respect to
each satellite it or a Restricted Subsidiary owns and launches in an amount at
least equal to (i) the cost to replace such satellite with a satellite of
comparable or superior technological capability (as determined by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) and having at least as much transmission capacity as the satellite
to be replaced, (ii) the cost to launch a replacement satellite pursuant to the
contract pursuant to which a replacement satellite will be launched and (iii)
the cost of launch insurance for such replacement or, in the event that the
Company has reason to believe that the cost of obtaining comparable insurance
for a replacement would be materially higher, the Company's best estimate of the
cost of such comparable insurance. The in-orbit insurance required by this
paragraph shall provide that if 50% or more of a satellite's capacity is lost,
the full amount of insurance shall become due and payable, and that if a
satellite is able to maintain more than 50% but less that 100% of its capacity,
a portion of such insurance will become due and payable.
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(c) In the event that the Company receives proceeds from insurance
relating to any satellite, the Company is entitled to use all or a portion of
such proceeds to repay any vendor or third-party purchase money financing
pertaining to such satellite that is required to be repaid by reason of the loss
giving rise to such insurance proceeds. The Company shall use the remainder of
such proceeds to develop and construct a replacement satellite; provided that
(i) such replacement satellite is of comparable or superior technological
capability as compared with the satellite being replaced and has at least as
much transmission capacity as the satellite being replaced (as determined by the
Board of Directors, whose determination shall be conclusive and evidenced by a
Board Resolution); (ii) the Company will have sufficient funds (together with
the proceeds of any business interruption insurance) to service the Company's
projected debt service requirements until the scheduled launch of the Company's
spare satellite and for one year thereafter and to develop and construct such
replacement satellite; and (iii) that the Company's spare satellite is scheduled
to be launched within 12 months of the receipt of such proceeds. Any such
proceeds not used as permitted by this paragraph shall constitute "Excess
Proceeds" for purposes of Section 10.16.
SECTION 10.08. Statement by Officers as to Default. (a) The Company
shall deliver to the Trustee, within 60 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each fiscal year),
a brief certificate from the principal executive officer, principal financial
officer or principal accounting officer as to his or her knowledge of the
Company's compliance with all conditions and covenants under this Indenture. For
purposes of this Section 10.08(a), such compliance shall be determined without
regard to any period of grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in an aggregate principal amount of less than $1,000,000), the
Company shall deliver to the Trustee by registered or certified mail or by
telegram, telex or facsimile transmission an Officers' Certificate specifying
such event, notice or other action within five Business Days of its occurrence.
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SECTION 10.09. Provision of Financial Statements and Reports. (a) The
Company shall file on a timely basis with the Commission, to the extent such
filings are accepted by the Commission and whether or not the Company has a
class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to file
if it were subject to Section 13 or 15 of the Exchange Act.
(b) The Company shall also (i) file with the Trustee, and provide to
each holder of Notes, without cost to such holder, copies of such reports and
documents within 15 days after the date on which the Company files such reports
and documents with the Commission or the date on which the Company would be
required to file such reports and documents if the Company were so required and
(ii) if the filing of such reports and documents with the Commission is not
accepted by the Commission or is prohibited under the Exchange Act, to supply at
the Company's cost copies of such reports and documents to any prospective
holder of Notes promptly upon written request.
SECTION 10.10. Purchase of Notes upon Change in Control. (a) If a
Change of Control shall occur at any time, then each Holder shall have the right
to require that the Company purchase such Holder's Notes in whole or in part in
integral multiples of $1,000 principal amount, at a purchase price (the "Change
of Control Purchase Price") in cash in an amount equal to 101% of the principal
amount of such Notes as of the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), pursuant to the offer described below (the "Change of Control Offer"),
in accordance with the procedures set forth in paragraphs (b) and (c) of this
Section 10.10.
(b) Within 15 days following any Change of Control, the Company shall
notify the Trustee thereof and give to each Holder of the Notes in the manner
provided in Section 1.06 a notice stating:
(1) that a Change in Control has occurred and that such Holder has the
right to require the Company to repurchase such Holder's Notes at the
Change of Control Purchase Price;
(2) the circumstances and relevant facts regarding such Change in
Control (including but not limited to information with respect to pro forma
historical
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income, cash flow and capitalization after giving effect to such Change in
Control);
(3) the Change of Control Purchase Price and the Change of Control
Purchase Date which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed or such later date
as is necessary to comply with requirements under the Exchange Act or any
applicable securities laws or regulations;
(4) that any Notes not tendered will continue to accrue interest;
(5) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date; and
(6) the instructions a Holder must follow in order to have its Notes
repurchased in accordance with paragraph (b) of this Section 10.10.
The Company shall have no obligation to purchase any Notes in a Change
of Control Offer if no Notes are tendered by the Holders thereof.
(c) Holders electing to have Notes purchased will be required to
surrender such Notes to the Company at the address specified in the notice at
least five Business Days prior to the Change of Control Purchase Date. Holders
will be entitled to withdraw their election if the Company receives, not later
than three Business Days prior to the Change of Control Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes delivered for purchase by the Holder
as to which his election is to be withdrawn and a statement that such Holder is
withdrawing his election to have such Notes purchased. Holders whose Notes are
purchased only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered.
SECTION 10.11. Limitation on Indebtedness. The Company shall not, and
shall not permit any Restricted Subsidiary to, create, assume, issue, guarantee
or in any manner become directly or indirectly liable for or with respect to the
payment of, or otherwise incur (collectively, to "incur"), any Indebtedness,
except for Permitted
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Indebtedness; provided, however, that (i) the Company shall be permitted to
incur Indebtedness and (ii) a Restricted Subsidiary shall be permitted to incur
Acquired Indebtedness, if, in either case, after giving pro forma effect to such
incurrence (including the application of the net proceeds therefrom), the ratio
of (x) Total Consolidated Indebtedness to (y) Adjusted Consolidated Operating
Cash Flow for the latest four fiscal quarters for which consolidated financial
statements of the Company are available preceding the date of such incurrence,
taken as a whole, would be greater than zero and less than or equal to 4.0 to
1.0.
SECTION 10.12. Limitation on Restricted Payments. (a) The Company
shall not make, and shall not permit any Restricted Subsidiary to make, directly
or indirectly, any of the following: (i) the declaration or payment of any
dividend or any other distribution on Capital Stock of the Company or any
payment made to the direct or indirect holders (in their capacities as such) of
Capital Stock of the Company (other than dividends or distributions payable
solely in Qualified Capital Stock of the Company or in options, warrants or
other rights to purchase Qualified Capital Stock of the Company); (ii) the
purchase, redemption or other acquisition or retirement for value of any Capital
Stock of the Company (other than any such Capital Stock owned by the Company or
a Restricted Subsidiary) or any affiliate of the Company (other than any
Restricted Subsidiary); (iii) the making of any principal payment on, or the
repurchase, redemption, defeasance or other acquisition or retirement for value
of, prior to any scheduled principal payment, sinking fund payment or maturity,
any Subordinated Indebtedness (other than any Subordinated Indebtedness held by
a Restricted Subsidiary); or (iv) the making of any Investment (other than a
Permitted Investment) in any Person (such payments or other actions described in
(but not excluded from) clauses (i) through (iv) are collectively referred to as
"Restricted Payments"), unless, in each case:
(A) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted
Payment;
(B) immediately after giving effect to such Restricted Payment, the
Company would be able to incur at least $1.00 of Indebtedness (other than
Permitted Indebtedness) under the proviso of Section 10.11; and
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(C) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
November 26, 1997, would not exceed an amount equal to the sum of (a) the
difference between (x) the Cumulative Available Cash Flow determined at the
time of such Restricted Payment and (y) 150% of the cumulative Consolidated
Interest Expense of the Company determined for the period commencing on
November 26, 1997 and ending on the last day of the latest fiscal quarter
for which consolidated financial statements of the Company are available
preceding the date of such Restricted Payment plus (b) the aggregate Net
Cash Proceeds received by the Company from the issue or sale (other than to
any Restricted Subsidiary) of Qualified Capital Stock of the Company after
January 1, 1998, plus (c) the aggregate Net Cash Proceeds received after
November 26, 1997, by the Company from the issuance or sale (other than to
any Restricted Subsidiary) of debt securities or Redeemable Capital Stock
that have been converted into or exchanged for Qualified Capital Stock of
the Company, together with the aggregate Net Cash Proceeds received by the
Company at the time of such conversion or exchange, plus (d) to the extent
not otherwise included in the Consolidated Operating Cash Flow of the
Company, an amount equal to the sum of (1) the net reduction in Investments
in any Person (other than the Permitted Investments) resulting from the
payment in cash of dividends, repayments of loans or advances or other
transfers of assets, in each case to the Company or any Restricted
Subsidiary after November 26, 1997, from such Person and (2) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of any Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that in the case of (1) or (2) above the foregoing sum
shall not exceed the aggregate amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary, minus (e) the sum of
80% of the outstanding principal amount of the Notes and all Indebtedness
incurred pursuant to clause (a)(2) of the definition of Permitted
Indebtedness.
For purposes of determining the amount expended for Restricted Payments,
property other than cash shall be valued at its Fair Market Value.
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(b) The provisions of this Section 10.11(a) shall not prohibit, so
long as, with respect to clauses (ii) through (viii) below, no Default or Event
of Default shall have occurred and be continuing,
(i) the payment of any dividend or other distribution within 60 days
after the date of declaration thereof if at such date of declaration such
payment complied with the provisions of this Indenture, and such payment
will be deemed to have been paid on the date of declaration for purposes of
the calculation in the foregoing paragraph;
(ii) the purchase, redemption, retirement or other acquisition of any
shares of Capital Stock of the Company in exchange for, or out of the Net
Cash Proceeds of a substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of, shares of Qualified Capital Stock of the
Company;
(iii) the purchase, redemption, retirement, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness made by
exchange for, or out of the Net Cash Proceeds of a substantially concurrent
issue or sale (other than to a Restricted Subsidiary) of, Qualified Capital
Stock of the Company;
(iv) the purchase of (A) any Subordinated Indebtedness at a purchase
price not greater than 101% of the principal amount or accreted value
thereof, as the case may be, together with accrued interest, if any, in the
event of a Change of Control in accordance with provisions similar to
Section 10.10 or (B) any Preferred Stock at a purchase price not greater
than 101% of the liquidation preference thereof, together with accrued
dividends, if any, in the event of a Change of Control in accordance with
provisions similar to Section 10.10; provided, however, that, in each case,
prior to such purchase the Company has made the Change of Control Offer as
provided in Section 10.10 with respect to the Notes and has purchased all
Notes validly tendered for payment in connection with such Change of
Control Offer;
(v) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or out
of the Net Cash Proceeds of a substantially concurrent incurrence (other
than to a Restricted Subsidiary) of, new Subordinated Indebtedness so long
as
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(A) the principal amount of such new Subordinated Indebtedness
does not exceed the principal amount (or, if such Subordinated
Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of
determination) of the Subordinated Indebtedness being so purchased,
redeemed, defeased, acquired or retired, plus the lesser of the amount
of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Subordinated Indebtedness being
refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing, plus, in either
case, the amount of expenses of the Company incurred in connection
with such refinancing,
(B) such new Subordinated Indebtedness is subordinated to the
Notes to the same extent as such Subordinated Indebtedness so
purchased, redeemed, defeased, acquired or retired and
(C) such new Subordinated Indebtedness has an Average Life longer
than the Average Life of the Notes and a final Stated Maturity of
principal later than the Stated Maturity of principal of the Notes;
(vi) the purchase of any Subordinated Indebtedness at a purchase price
not greater than 100% of the principal amount or accreted value thereof, as
the case may be, together with accrued interest, if any, following an Asset
Sale in accordance with provisions similar to Section 10.16; provided,
however, that prior to making any such purchase the Company has made the
Excess Proceeds Offer as provided in such covenant with respect to the
Notes and has purchased all Notes validly tendered for payment in
connection with such Excess Proceeds Offer; (vii) the payment of cash
dividends on outstanding shares of Series C Preferred Stock of the Company
out of the Net Cash Proceeds of a substantially concurrent issue and sale
(other than to a Restricted Subsidiary) of Common Stock of the Company; and
(viii) any other Restricted Payments in an aggregate amount not to exceed
$15.0 million.
In determining the amount of Restricted Payments permissible under
this covenant, amounts expended pursuant
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to clauses (i), (ii), (iii), (iv), (vi), (vii) and (viii) above shall be
included as Restricted Payments.
SECTION 10.13. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries. The Company (a) shall not permit any Restricted
Subsidiary to issue any Capital Stock (other than to the Company or a Restricted
Subsidiary) and (b) shall not permit any Person (other than the Company or a
Restricted Subsidiary) to own any Capital Stock of any Restricted Subsidiary;
provided, however, that this covenant shall not prohibit (i) the issuance and
sale of all, but not less than all, of the issued and outstanding Capital Stock
of any Restricted Subsidiary owned by the Company or any Restricted Subsidiary
in compliance with the other provisions of this Indenture or (ii) the ownership
by directors of directors' qualifying shares or the ownership by foreign
nationals of Capital Stock of any Restricted Subsidiary, to the extent mandated
by applicable law.
SECTION 10.14. Limitation on Transactions with Affiliates. The Company
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, enter into or suffer to exist any transaction or series of related
transactions (including the sale, purchase, exchange or lease of assets,
property or services) with, or for the benefit of, any Affiliate of the Company
(other than the Company or a Restricted Subsidiary) unless (i) such transaction
or series of related transactions is on terms that are no less favorable to the
Company or such Restricted Subsidiary, as the case may be, as determined in good
faith by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution, than those that could have been obtained in an
arm's-length transaction with unrelated third parties who are not Affiliates,
(ii) with respect to any transaction or series of related transactions involving
aggregate consideration equal to or greater than $2,500,000, the Company shall
have delivered an officers' certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (i) above and
such transaction or series of related transactions has been approved by a
majority of the Disinterested Directors of the Board of Directors of the
Company, or the Company has obtained a written opinion from a nationally
recognized investment banking firm to the effect that such transaction or series
of related transactions is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view and (iii) with respect to any
transaction or series of related transactions including aggregate consideration
in excess of $10,000,000, or in the event no members of the
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Board of Directors of the Company are Disinterested Directors with respect to
any transaction or series of transactions included in clause (ii), the Company
shall obtain an opinion from a nationally recognized investment banking firm as
described above; provided, however, that this Section 10.14 will not restrict
(1) any transaction by the Company or any Restricted Subsidiary with an
Affiliate directly related to the purchase, sale or distribution of products in
the ordinary course of business consistent with industry practice, (2) the
Company from paying reasonable and customary regular compensation and fees to
directors of the Company or any Restricted Subsidiary who are not employees of
the Company or any Restricted Subsidiary, (3) the payment of compensation
(including stock options and other incentive compensation) to officers and other
employees the terms of which are approved by the Board of Directors, (4) the
Company or any Restricted Subsidiary from making any Restricted Payment in
compliance with Section 10.12 (including pursuant to paragraph (b) thereof), (5)
transactions between the Company and Batchelder & Partners Inc. pursuant to
agreements in effect on November 26, 1997; provided that the Company shall not,
and shall not permit any Restricted Subsidiary to amend, modify or in any way
alter, other than an extension of the term thereof, the terms of any such
agreement in a manner materially adverse to the holders of the Notes, (6)
transactions among the Company and its Restricted Subsidiaries, (7) amendments
to the Loral Satellite Contract; provided, however, that the Company will not
amend, modify or in any way alter the terms of such agreement in a manner
materially adverse to the holders of the Notes.
SECTION 10.15. Limitation on Liens. The Company shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, create, incur,
assume or suffer to exist any Lien of any kind, other than Permitted Liens, on
or with respect to any of its property or assets, including any shares of stock
or indebtedness of any Restricted Subsidiary, whether owned at the date of this
Indenture or thereafter acquired, or any income, profits or proceeds therefrom,
or assign or otherwise convey any right to receive income thereon, unless (x) in
the case of any Lien securing Subordinated Indebtedness, the Notes are secured
by a Lien on such property, assets or proceeds that is senior in priority to
such Lien and (y) in the case of any other Lien, the Notes are equally and
ratably secured.
SECTION 10.16. Limitation on Sale of Assets. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
engage in
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any Asset Sale unless (i) the consideration received by the Company or such
Restricted Subsidiary for such Asset Sale is not less than the Fair Market Value
of the shares or assets sold (as determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) and (ii)
the consideration received by the Company or the relevant Restricted Subsidiary
in respect of such Asset Sale consists of at least 80% cash or Cash Equivalents.
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company shall be entitled to use the Net Cash Proceeds thereof within
12 months after the later of such Asset Sale or the receipt of such Net Cash
Proceeds (i) to permanently repay or prepay any then outstanding Pari Passu
Indebtedness, (ii) to invest in any one or more businesses, capital expenditures
or other tangible assets of the Company or any Restricted Subsidiary, in each
case, engaged, used or useful in the CD Radio Business (or enter into a legally
binding agreement to do so within six months); or (iii) to invest in properties
or assets that replace the properties and assets that are the subject to such
Asset Sale (or enter into a legally binding agreement to do so within six
months). If any such legally binding agreement to invest such Net Cash Proceeds
is terminated, then the Company may, within 90 days of such termination or
within 12 months of such Asset Sale, whichever is later, apply or invest such
Net Cash Proceeds as provided in clause (i), (ii) or (iii) (without regard to
the parenthetical contained in clause (ii) or (iii)) above. The amount of such
Net Cash Proceeds not so used as set forth above in this paragraph (b)
constitutes "Excess Proceeds".
(c) When the aggregate amount of Excess Proceeds exceeds $10,000,000
the Company shall (i) comply with the provisions of Section 1016(c) of the
Discount Notes Indenture that require the Company to make an offer to purchase
Discount Notes, if applicable, and (ii) within 30 business days after the
completion of such offer, or if such provisions are not applicable, within 30
days after the time Excess Proceeds exceed $10,000,000, make an offer to
purchase (an "Excess Proceeds Offer") from all holders of Notes and, if the
Company so elects, from Holders of Pari Passu Indebtedness, on a pro rata basis,
in accordance with the procedures set forth below, the maximum principal amount
(expressed as a multiple of $1,000) of Notes and, if applicable, such Pari Passu
Indebtedness that may be purchased with the Excess Proceeds. In the case of
other Pari Passu Indebtedness that is issued at a discount to its
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face amount, the requirement that Notes and other Pari Passu Indebtedness be
purchased on a "pro rata basis" means that the amount of such other Pari Passu
Indebtedness to be purchased will be based on the amount to which the Pari Passu
Indebtedness has accreted in value for purposes of determining the amount that
would be payable thereon in the event of the occurrence of an event of default
(or similar event) under such other Pari Passu Indebtedness. The offer price as
to each Note and such other Pari Passu Indebtedness shall be payable in cash in
an amount equal to 100% of the accreted value, as the case may be, of such Note
or other Pari Passu Indebtedness (without premium) as of the date of purchase
plus accrued interest, if any (the "Offered Price"), to the date such Excess
Proceeds Offer is consummated (the "Offer Date"). To the extent that the
aggregate principal amount, or accreted value, as the case may be, of Notes and
such other Pari Passu Indebtedness tendered pursuant to an Excess Proceeds Offer
is less than the Excess Proceeds relating thereto, the Company may use such
additional Excess Proceeds for general corporate purposes or to fund an offer to
redeem any outstanding Subordinated Indebtedness in accordance with provisions
similar to this Section 10.16. If the aggregate principal amount of Notes and
such other Pari Passu Indebtedness validly tendered and not withdrawn by holders
thereof exceeds the Excess Proceeds, Notes and such other Pari Passu
Indebtedness to be purchased will be selected on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset to zero.
(d) If the Company becomes obligated to make an Excess Proceeds Offer
pursuant to clause (c) above, the Notes shall be purchased by the Company, at
the option of the holder thereof, in whole or in part in integral multiples of
$1,000, on a date that is not earlier than 30 days and not later than 60 days
from the date the notice is given to holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange Act
or any other applicable securities laws or regulations, subject to proration in
the event the amount of Excess Proceeds is less than the aggregate Offered Price
of all Notes and such other Pari Passu Indebtedness tendered.
(e) The Company shall comply to the extent applicable with the
requirements of the tender offer rules, including Rule 14e-1 under the Exchange
Act, and any other applicable securities laws and regulations in connection with
an Excess Proceeds Offer.
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SECTION 10.17. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries. The Company shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary to (a) pay dividends, in cash
or otherwise, or make any other distributions on or in respect of its Capital
Stock, (b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (c) make Investments in the Company or any other Restricted
Subsidiary, (d) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary or (e) guarantee any Indebtedness of the Company or
any other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) any agreement in effect on the Issue Date,
(ii) applicable law or judicial or regulatory action, (iii) customary
nonassignment provisions of any lease governing a leasehold interest of the
Company or any Restricted Subsidiary, (iv) any agreement or other instrument of
a Person acquired by the Company or any Restricted Subsidiary in existence at
the time of such acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired and the Subsidiaries of such Person, (v) any mortgage or
other Lien on real property acquired or improved by the Company or any
Restricted Subsidiary after the date of this Indenture that prohibit transfers
of the type described in (d) above with respect to such real property, (vi) any
encumbrance or restriction contained in contracts for sales of assets permitted
by Section 10.16 with respect to the assets to be sold pursuant to such
contract; (vii) any such customary encumbrance or restriction contained in a
security document creating a Permitted Lien to the extent relating to the
property or asset subject to such Permitted Lien; (viii) any agreement or other
instrument governing any Pari Passu Indebtedness if such encumbrance or
restriction applies only (x) to amounts which at any point in time (other than
during such periods as are described in clause (y)) (1) exceed amounts due and
payable (or which are to become due and payable within 30 days) in respect of
the Notes or this Indenture for interest, premium and principal (after giving
effect to any realization by the Company under any applicable Currency
Agreement), or (2) if paid, would result in an event described in the following
clause (y) of this sentence, or (y) during the pendency of any event that
causes, permits or, after notice or lapse of time, would cause or permit the
holder(s) of the
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Indebtedness governed by such agreement or instrument to declare any such
Indebtedness to be immediately due and payable or require cash collateralization
or cash cover for such Indebtedness for so long as such cash collateralization
or cash cover has not been provided; or (ix) the refinancing of Indebtedness
incurred under the agreements described in clause (v) above, so long as such
encumbrances or restrictions are no less favorable in any material respect to
the Company or any Restricted Subsidiary than those contained in the respective
agreement as in effect on the Issue Date.
SECTION 10.18. Waiver of Certain Covenants. The Company may omit in
any particular instance to comply with any term, provision or condition set
forth in Section 8.03, Sections 10.07 or 10.09 through 10.17, inclusive, if
before or after the time for such compliance the Holders of at least a majority
in principal amount of the Outstanding Notes, by Act of such Holders, waive such
compliance in such instance with such term, provision or condition, but no such
waiver shall extend to or affect such term, provision or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.
SECTION 10.19. Required Stock Ownership. The Company will at all times
be the legal and beneficial owner of the Pledged Stock and will not sell,
transfer or otherwise dispose of any Capital Stock of Satellite CD Radio, Inc.
SECTION 10.20. Further Assurances. The Company will promptly execute
and deliver such additional instruments and do such further acts as in the
opinion of the Trustee may be reasonably necessary or proper to carry out the
purposes of this Indenture and the Collateral Documents.
SECTION 10.21. Limitation on Subsidiary Business Activities. Satellite
CD Radio, Inc., shall not engage in any trade or business other than holding an
FCC license to build, launch and operate a national satellite radio broadcast
system.
SECTION 10.22. Limitation on Sale-Leaseback Transactions. The Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into any sale-leaseback transaction involving any of its
assets
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or properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets sold or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if (a) the lease is for a period, including renewal rights, of not
in excess of three years;(b) the transaction is solely between the Company and
any Restricted Subsidiary or solely between Restricted Subsidiaries; (c) the
Company or such Restricted Subsidiary, within 12 months after the sale or
transfer of any assets or properties is completed, applies an amount not less
than the net proceeds received from such sale in accordance with paragraph (b)
of Section 10.16.
SECTION 10.23. Pledge Account. (a) Upon the closing of the offering of
the Securities by the Company, the Company shall purchase, and deposit in the
Pledge Account for the benefit of Holders and owners of beneficial ownership
interests in the Notes, Pledged Securities in an amount which, in the opinion of
an internationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, will result in the
receipt of United States dollars in immediately available funds in amounts and
at times sufficient to provide for payment in full when due of the six regularly
scheduled interest payments due on the Notes from November 15, 1999 through May
15, 2002 upon receipt of scheduled principal and interest payments on the
Pledged Securities.
(b) The Company hereby agrees that all of its rights and obligations
with respect to the Pledged Securities shall be as set forth in the Collateral
Pledge Agreement.
ARTICLE XI
Redemption of Notes
SECTION 11.01. Right of Redemption. The Notes may be redeemed, at the
election of the Company, as a whole or from time to time in part, at any time on
or after May 15, 2004, subject to the conditions and at the
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Redemption Prices specified in the form of Note, together with accrued interest
to the Redemption Date.
In addition, at any time or from time to time prior to May 15, 2002,
the Company may redeem up to a maximum of 35% of the original aggregate
principal amount of the Notes with the net proceeds of one or more Equity
Offerings at a redemption price (expressed as a percentage of principal amount
on the redemption date) of 114.5% plus accrued interest to the redemption date;
provided, however, that immediately after giving effect to such redemption, at
least 65% of the original aggregate principal amount of the Notes remains
outstanding; provided further, however, that notice of such redemption shall be
given within 60 days of the closing of such Equity Offering.
SECTION 11.02. Applicability of Article. Redemption of Notes at the
election of the Company or otherwise, as permitted or required by any provision
of this Indenture, shall be made in accordance with such provision and this
Article XI.
SECTION 11.03. Election to Redeem; Notice to Trustee. The election of
the Company to redeem any Notes pursuant to Section 11.01 shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company,
the Company shall, at least 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee in writing of such Redemption Date and of the principal amount of
Notes to be redeemed and shall deliver to the Trustee such documentation and
records as shall enable the Trustee to select the Notes to be redeemed pursuant
to Section 11.04.
SECTION 11.04. Selection by Trustee of Notes To Be Redeemed. If less
than all the Notes are to be redeemed, the particular Notes to be redeemed shall
be selected not more than 60 days prior to the Redemption Date by the Trustee by
such method as the Trustee shall deem fair and appropriate; provided, however,
that no such partial redemption shall reduce the portion of the principal amount
of a Note not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
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For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
SECTION 11.05. Notice of Redemption. Notice of redemption shall be
given in the manner provided for in Section 1.06 not less than 30 nor more than
60 days prior to the Redemption Date, to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 11.07, if any;
(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amount) of the particular Notes to be redeemed;
(4) in case any Note is to be redeemed in part only, the notice which
relates to such Note shall state that on and after the Redemption Date,
upon surrender of such Note, the holder will receive, without charge, a new
Note or Notes of authorized denominations for the principal amount thereof
remaining unredeemed;
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
11.07) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue on
and after said date; and
(6) the name and address of the Paying Agent where such Notes are to
be surrendered for payment of the Redemption Price and accrued interest, if
any.
(7) that Notes call for redemption must be surrendered to the Paying
Agent to collect the Redemption Price,
(8) the CUSIP number, and that no representation is made as to the
accuracy or correctness of the CUSIP
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number, if any, listed in such notice or printed on the Notes, and
(9) the paragraph of the Notes pursuant to which the Notes are to be
redeemed.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 11.06. Deposit of Redemption Price. Prior to any Redemption
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.03) an amount of money sufficient to pay the Redemption
Price of, and accrued interest on, all the Notes which are to be redeemed on
that date.
SECTION 11.07. Notes Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Notes so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified (together with accrued interest, if any, to the Redemption Date), and
from and after such date (unless the Company shall default in the payment of the
Redemption Price and accrued interest) such Notes shall cease to accrue
interest. Upon surrender of any such Note for redemption in accordance with said
notice, such Note shall be paid by the Company at the Redemption Price, together
with accrued interest, if any, to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Notes, or one or more Predecessor
Notes, registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 3.07.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Notes.
SECTION 11.08. Notes Redeemed in Part. Any Note which is to be
redeemed only in part (pursuant to the provisions of this Article XI) shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 10.02 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company
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and the Trustee duly executed by, the Holder thereof or such Holders attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Note without service
charge, a new Note or Notes, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal amount of the Note so surrendered.
ARTICLE XII
Security and Pledge of Collateral
SECTION 12.01. Collateral Documents. Each Holder of a Note, by its
acceptance thereof, (i) consents and agrees to the terms of the Collateral
Documents, (ii) authorizes and ratifies the entering into by the Trustee and the
Collateral Agent of each of the Collateral Documents to which they are a party
and (iii) authorizes and directs the Trustee and the Collateral Agent to perform
their respective obligations and exercise their rights thereunder in accordance
therewith.
SECTION 12.02. Trustee May Perform. If the Company fails to perform
any agreement contained in this Article XII, the Trustee may, but shall not be
obligated to, itself perform, or cause performance of, such agreement, and the
expenses of the Trustee incurred in connection therewith shall be payable by the
Company under Section 6.06.
SECTION 12.03. Collateral Trust Arrangements. (a) The Trustee shall,
upon request of the Company and upon receipt of the Opinion of Counsel and
Officer's Certificate described in paragraph (c) of this Section 12.03 (i)
amend, revise and supplement the Pledge Agreement to assign and pledge to the
Collateral Agent for the benefit of the Holders of the Notes the holders of the
Discount Notes and the equal and ratable benefit of the Secured Parties a
security interest in the Bond Collateral and (ii) enter into an amended
Intercreditor Agreement that provides for the enforcement of the payment of
Indebtedness under this Indenture equally and ratably with all other Secured
Debt.
(b) Upon any such assignment or pledge pursuant to paragraph (a)
above, the Bond Collateral shall be held in trust under and subject to the terms
and conditions of the Collateral Documents and the amended Intercreditor
Agreement for the benefit of the Secured Parties and for the enforcement of the
payment of Indebtedness under this
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Indenture equally and ratably with all other Secured Debt and for the
performance of and compliance with the covenants and conditions of this
Indenture and the other Collateral Documents. It is intended that this Indenture
and the other Collateral Documents shall be construed and enforced to give
effect to such intention.
(c) Prior to giving effect to any assignment or pledge of the Bond
Collateral to the Collateral Agent as set forth in Section 12.03(a), the Trustee
shall receive, and shall be fully protected in relying upon, an Opinion of
Counsel and an Officer's Certificate as to the validity and perfection of a
first-priority lien on the Bond Collateral for the equal and ratable benefit of
the Secured Parties.
SECTION 12.04. Certificates and Opinions. The Company shall comply
with (a) TIAss.314(b), relating to Opinions of Counsel regarding the Lien of
this Indenture and (b) TIAss.314(d), relating to, among other matters, the
release of Bond Collateral from the Lien of this Indenture and Officers'
Certificates or other documents regarding fair value of the Bond Collateral, to
the extent such provisions are applicable. Any certificate or opinion required
by TIA ss.314(d) may be executed and delivered by an Officer of the Company to
the extent permitted by TIA'SS'314(d).
ARTICLE XIII
Defeasance and Covenant Defeasance
SECTION 13.01. Company's Option to Effect Defeasance or Covenant
Defeasance. The Company may, at its option by Board Resolution, at any time,
with respect to the Notes, elect to have either Section 13.02 or Section 13.03
be applied to all Outstanding Notes upon compliance with the conditions set
forth below in this Article XIII.
SECTION 13.02. Defeasance and Discharge. Upon the Company's exercise
under Section 13.01 of the option applicable to this Section 13.02, the Company
shall be deemed to have been discharged from its obligations with respect to all
Outstanding Notes on the date the conditions set forth in Section 13.04 are
satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means
that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the Outstanding Notes, which shall thereafter be
deemed to be "Outstanding" only for the purposes of Section 13.05 and the other
Sections of this Indenture referred to in (A) and (B) below, and to have
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satisfied all its other obligations under such Notes, this Indenture and the
Collateral Pledge Agreement insofar as such Notes are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
Outstanding Notes to receive, solely from the trust fund described in Section
13.04 and as more fully set forth in Section 13.04, payments in respect of the
principal of (and premium, if any, on) and interest on such Notes when such
payments are due, (B) the Company's obligations with respect to such Notes under
Sections 3.04, 3.05, 3.06, 10.02 and 10.03, (C) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and (D) this Article XIII.
Subject to compliance with this Article XIII, the Company may exercise its
option at any time under this Section 13.02 notwithstanding the prior exercise
of its option under Section 13.03 with respect to the Notes.
SECTION 13.03. Covenant Defeasance. Upon the Company's exercise under
Section 13.01 of the option applicable to this Section 13.03, the Company shall
be released from its obligations under any covenant contained in Section 8.03
and in Sections 10.07 through 10.17 with respect to the Outstanding Notes on and
after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Notes shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section
5.01(4), but, except as specified above, the remainder of this Indenture and
such Notes shall be unaffected thereby.
SECTION 13.04. Conditions to Defeasance or Covenant Defeasance. The
following shall be the conditions
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to application of either Section 13.02 or Section 13.03 to the Outstanding
Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 6.07 who shall agree to comply with the provisions of this
Article XIII applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (A) money in
an amount, or (B) U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with
their terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, sufficient, in
the opinion of a nationally recognized firm of independent public
accountants, or a nationally recognized investment banking firm, expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, at the principal of (and premium, if any)
and interest on the Outstanding Notes at their Stated Maturity (or
Redemption Date, if applicable) of such principal (and premium, if any) or
installment of interest on the day on which such payments are due and
payable in accordance with the terms of this Indenture and of such Notes;
provided that the Trustee shall have been irrevocably instructed to apply
such money or the proceeds of such U.S. Government Obligations to said
payments with respect to the Notes. Before such a deposit, the Company may
give to the Trustee, in accordance with Section 11.03 hereof, a notice of
its election to redeem all of the Outstanding Notes at a future date in
accordance with Article XI hereof, which notice shall be irrevocable. Such
irrevocable redemption notice, if given, shall be given effect in applying
the foregoing. For this purpose, "U.S. Government Obligations" means
securities that are (x) direct obligations of the United States of America
for the timely payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States of America the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation
by the United States of America, which, in either case, are not callable or
redeemable at the option of the issuer
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thereof, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act), as custodian with
respect to any such U.S. Government Obligation or a specific payment of
principal of or interest on any such U.S. Government Obligation held by
such custodian for the account of the holder of such depository receipt;
provided that (except as required by law) such custodian is not authorized
to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of principal of or
interest on the U.S. Government Obligation evidenced by such depository
receipt.
(2) No Default or Event of Default with respect to the Notes shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs (8) and (9) of Section 5.01 hereof are concerned, at any time
during the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until
the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
(4) In the case of an election under Section 13.02, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since May 13, 1999, there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders
of the Outstanding Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred.
(5) In the case of an election under Section 13.03, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as
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a result of such covenant defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred.
(6) In the case of an election under Section 13.02 or Section 13.03,
the Company shall have delivered to the Trustee an Opinion of Counsel in
the United States to the effect that after the 91st day following the
deposit or after the date such opinion is delivered, the trust funds will
not be subject to the effect of any applicable Bankruptcy Law.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of the Notes over the other creditors of
the Company with the intent of hindering, delaying or defrauding creditors
of the Company.
(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section
13.02 or the covenant defeasance under Section 13.03 (as the case may be)
have been complied with.
SECTION 13.05. Deposited Money and U.S. Government Obligations To Be
Held in Trust: Other Miscellaneous Provisions. Subject to the provisions of the
last paragraph of Section 10.03, all money and U.S. Government Obligations
(including the proceeds thereof) deposited with the Trustee (or other qualifying
trustee, collectively for purposes of this Section 13.05, the "Trustee")
pursuant to Section 13.04 in respect of the Outstanding Notes shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any Paying
Agent (including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant
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to Section 13.04 or the principal and interest received in respect thereof other
than any such tax, fee or other charge which by law is for the account of the
Holders of the Outstanding Notes.
Anything in this Article XIII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 13.04 which, in the opinion of a nationally recognized firm of
independent public accountants, or a nationally recognized investment banking
firm, expressed in a written certification thereof delivered to the Trustee, are
in excess of the amount thereof which would then be required to be deposited to
effect an equivalent defeasance or covenant defeasance, as applicable, in
accordance with this Article XIII.
SECTION 13.06. Reinstatement. If the Trustee or any Paying Agent is
unable to apply any money in accordance with Section 13.05 by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, then the Company's obligations under
this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 13.02 or 13.03, as the case may be,
until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance with Section 13.05; provided, however, that if the Company
makes any payment of principal of (or premium, if any) or interest on any Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or Paying Agent.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
CD RADIO INC.,
by /s/ Patrick L. Donnelly
--------------------------------
Name:Patrick L. Donnelly
Title:Executive Vice
President & General
Counsel
UNITED STATES TRUST COMPANY OF
NEW YORK,
by /s/ Patricia Gallagher
--------------------------------
Name:Patricia Callagher
Title:Assistant Vice
President
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RULE 144A/APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL
BUYERS PURSUANT TO RULE 144A AND TO
INSTITUTIONAL "ACCREDITED INVESTORS"
(AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)).
PROVISIONS RELATING TO INITIAL NOTES
AND EXCHANGE NOTES
1. Definitions
1.1 Definitions
For the purposes of this Appendix the following terms shall have the
meanings indicated below:
"Definitive Note" means a certificated Initial Note bearing the
restricted securities legend set forth in Section 2.3(d) and which is held by an
IAI in accordance with Section 2.1(c).
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Exchange Notes" means the 14-1/2% Senior Secured Notes due 2009
to be issued pursuant to this Indenture in connection with a Registered Exchange
Offer pursuant to the Registration Rights Agreement.
"IAI" means an institutional "accredited investor" as described
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Initial Purchasers" means Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Lehman Brothers, Bear, Stearns & Co. Inc.,
NationsBanc Montgomery Securities LLC and U.S. Bancorp Libra.
"Initial Notes" means the 14-1/2% Senior Secured Notes due 2009,
issued under this Indenture on or about the date hereof.
"Notes" means the Initial Notes and the Exchange Notes,
treated as a single class.
"Notes Custodian" means the custodian with respect to a Global
Note (as appointed by the Depository), or any successor person thereto and shall
initially be the Trustee.
"Purchase Agreement" means the Purchase Agreement dated May
13, 1999, between the Company and the Initial Purchasers.
<PAGE>
2
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registered Exchange Offer" means the offer by the Company,
pursuant to the Registration Rights Agreement, to certain Holders of Initial
Notes, to issue and deliver to such Holders, in exchange for the Initial Notes,
a like aggregate principal amount of Exchange Notes registered under the
Securities Act.
"Registration Rights Agreement" means the Registration Rights
Agreement dated May 13, 1999, among the Company and the Initial Purchasers.
"Securities Act" means the Securities Act of 1933.
"Shelf Registration Statement" means the registration statement
issued by the Company, in connection with the offer and sale of Initial Notes,
pursuant to the Registration Rights Agreement.
"Transfer Restricted Notes" means Definitive Notes and Notes that
bear or are required to bear the legend set forth in Section 2.3(d)hereto.
Capitalized terms used herein without definition are used herein
as defined in the Indenture dated as of May 15, 1999 to which this Appendix is
attached.
1.2 Other Definitions
<TABLE>
<CAPTION>
Defined in
Term Section:
---- ----------
<S> <C>
"Agent Members"..........................................................2.1(b)
"Global Note"............................................................2.1(a)
"Rule 144A"..............................................................2.1(a)
</TABLE>
2. The Notes.
2.1 Form and Dating.
The Initial Notes are being offered and sold by the Company
pursuant to the Purchase Agreement.
(a) Global Notes. Initial Notes offered and sold to a QIB in
reliance on Rule 144A under the Securities Act ("Rule 144A") as provided in the
Purchase Agreement, shall be issued initially in the form of one or more
permanent global Notes in definitive, fully registered form without interest
coupons with the global notes legend and restricted notes
<PAGE>
3
legend set forth in Exhibit 1 hereto (each, a "Global Note"), which shall be
deposited on behalf of the purchasers of the Initial Notes represented thereby
with the Trustee, at its New York office, as custodian for the Depository (or
with such other custodian as the Depository may direct), and registered in the
name of the Depository or a nominee of the Depository, duly executed by the
Company and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the Global Notes may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depository
or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only
to a Global Note deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.1(b), authenticate and deliver initially one or more Global
Notes that (a) shall be registered in the name of the Depository for such Global
Note or Global Notes or the nominee of such Depository and (b) shall be
delivered by the Trustee to such Depository or pursuant to such Depository's
instructions or held by the Trustee as custodian for the Depository.
Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depository or by the Trustee as the custodian of the
Depository or under such Global Note, and the Depository may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the absolute
owner of such Global Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depository or impair, as between
the Depository and its Agent Members, the operation of customary practices of
such Depository governing the exercise of the rights of a holder of a beneficial
interest in any Global Note.
(c) Certificated Notes. Except as provided in this Section 2.1 or
Section 2.3 or 2.4, owners of beneficial interests in Global Notes will not be
entitled to receive physical delivery of certificated Notes. Purchasers of
Initial Notes who are IAIs and are not QIBs will receive Definitive Notes;
provided, however, that upon transfer of such Definitive Notes to a QIB, such
Definitive Notes will, unless the Global Note has previously been exchanged, be
exchanged for an interest in a Global Note pursuant to the provisions of Section
2.3.
<PAGE>
4
2.2 Authentication. The Trustee shall authenticate and deliver: (1)
Initial Notes for original issue in an aggregate principal amount of
$200,000,000 14-1/2% Senior Secured Notes due 2009 and (2) Exchange Notes for
issue only in a Registered Exchange Offer pursuant to the Registration Rights
Agreement, for a like principal amount of Initial Notes, in each case upon a
Company Order. Such order shall specify the amount of the Notes to be
authenticated and the date on which the original issue of Notes is to be
authenticated and whether the Notes are to be Initial Notes or Exchange Notes.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive
Notes. When Definitive Notes are presented to the Trustee with a request:
(x) to register the transfer of such Definitive Notes; or
(y) to exchange such Definitive Notes for an equal principal
amount of Definitive Notes of other authorized denominations,
the Trustee shall register the transfer or make the exchange as requested if its
reasonable requirements for such transaction are met; provided, however, that
the Definitive Notes surrendered for transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instrument
of transfer in form reasonably satisfactory to the Company and the
Trustee or co-registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing; and
(ii) are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act, pursuant to Section
2.3(b) or pursuant to clause (A), (B) or (C) below, and are accompanied
by the following additional information and documents, as applicable:
(A) if such Definitive Notes are being delivered to the
Trustee by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect
(in the form set forth on the reverse of the Note); or
(B) if such Definitive Notes are being transferred to any
of the Globalstar Parties, a certification to that effect (in the
form set forth on the reverse of the Note); or
<PAGE>
5
(C) if such Definitive Notes are being transferred (w)
pursuant to an exemption from registration in accordance with
Rule 144; or (x) in reliance on another exemption from the
registration requirements of the Securities Act: (i) a
certification to that effect (in the form set forth on the
reverse of the Security) and (ii) if the Company or Trustee so
requests, an opinion of counsel or other evidence reasonably
satisfactory to them as to the compliance with the restrictions
set forth in the legend set forth in Section 2.3(d)(i).
(b) Restrictions on Transfer of a Definitive Note for a
Beneficial Interest in a Global Note. A Definitive Note may not be exchanged for
a beneficial interest in a Global Note except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive Note,
duly endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Trustee, together with:
(i) certification, in the form set forth on the reverse of the
Note, that such Definitive Note is being transferred (A) to a QIB in
accordance with Rule 144A, or (B) outside the United States in an
offshore transaction within the meaning of Regulation S and in
compliance with Rule 904 under the Securities Act; and
(ii) written instructions directing the Trustee to make an
adjustment on its books and records with respect to such Global Note to
reflect an increase in the aggregate principal amount of the Securities
represented by the Global Note, such instructions to contain information
regarding the Depositary account to be credited with such increase,
then the Trustee shall cancel such Definitive Note and cause, in accordance with
the standing instructions and procedures existing between the Depositary and the
Trustee, the aggregate principal amount of Notes represented by the Global Note
to be increased by the aggregate principal amount of the Definitive Note to be
exchanged and shall credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Global Note equal to
the principal amount of the Definitive Note so cancelled. If no Global Notes are
then outstanding, the Company shall issue and the Trustee shall authenticate,
upon written order of the Company in the form of an Officers' Certificate, a new
Global Note in the appropriate aggregate principal amount.
(c) Transfer and Exchange of Global Notes. (i) The transfer and
exchange of Global Notes or beneficial interests
<PAGE>
6
therein shall be effected through the Depository, in accordance with this
Indenture (including applicable restrictions on transfer set forth herein, if
any) and the procedures of the Depository therefor. A transferor of a beneficial
interest in a Global Note shall deliver to the Trustee a written order given in
accordance with the Depositary's procedures containing information regarding the
participant account of the Depositary to be credited with a beneficial interest
in the Global Note. The Trustee shall, in accordance with such instructions
instruct the Depositary to credit to the account of the Person specified in such
instructions a beneficial interest in the Global Note and to debit the account
of the Person making the transfer the beneficial interest in the Global Note
being transferred.
(ii) Notwithstanding any other provisions of this Appendix (other
than the provisions set forth in Section 2.4), a Global Note may not be
transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or
another nominee of the Depository or by the Depository or any such
nominee to a successor Depository or a nominee of such successor
Depository.
(iii) In the event that a Global Note is exchanged for Notes in
definitive registered form pursuant to Section 2.4 hereof or Section
3.04 of the Indenture, prior to the consummation of a Registered
Exchange Offer or the effectiveness of a Shelf Registration Statement
with respect to such Notes, such Notes may be exchanged only in
accordance with such procedures as are substantially consistent with the
provisions of this Section 2.3 (including the certification requirements
set forth on the reverse of the Initial Notes intended to ensure that
such transfers comply with Rule 144A and such other procedures as may
from time to time be adopted by the Company.
(d) Legend.
(i) Except as permitted by the following para graphs (ii), (iii)
and (iv), each Note certificate evidencing the Global Notes and the
Definitive Notes (and all Notes issued in exchange therefor or in
substitution thereof) shall bear a legend in substantially the following
form:
"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED,
<PAGE>
7
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS
SET FORTH BELOW.
"EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER
("RULE 144A"). BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) OR
AN INSTITUTIONAL "ACCREDITED INVESTOR" AND (2) AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE WHICH
IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF
AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) ONLY (A) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG
AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
INSIDE THE UNITED STATES, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A OR (D) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT."
"FOR PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"), THIS SECURITY HAS ORIGINAL ISSUE
DISCOUNT. FOR PURPOSES OF SECTION 1273 OF THE CODE, THE ISSUE
PRICE IS $843.09 AND THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS
$156.91, IN EACH CASE PER $1,000 PRINCIPAL AMOUNT OF THIS
SECURITY. FOR PURPOSES OF SECTION 1275 OF THE CODE, THE ISSUE
DATE OF THIS SECURITY IS MAY 18, 1999. FOR PURPOSES OF SECTION
1272 OF THE CODE, THE YIELD TO MATURITY (COMPOUNDED SEMIANNUALLY)
IS 17.99%."
(ii) Upon any sale or transfer of a Transfer Restricted Note
(including any Transfer Restricted Note represented by a Global Note)
pursuant to Rule 144 under the Securities Act:
(A) in the case of any Transfer Restricted Note that is a
Definitive Note, the Trustee shall permit
<PAGE>
8
the Holder thereof to exchange such Transfer Restricted Note for
a certificated Note that does not bear the legend set forth above
and rescind any restriction on the transfer of such Transfer
Restricted Note; and
(B) in the case of any Transfer Restricted Note that is
represented by a Global Note, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Note for a
certificated Note that does not bear the legend set forth above
and rescind any restriction on the transfer of such Transfer
Restricted Note, if the Holder certifies in writing to the
Registrar that its request for such exchange was made in reliance
on Rule 144 (such certification to be in the form set forth on
the reverse of the Note).
(iii) After a transfer of any Initial Notes during the period of
the effectiveness of a Shelf Registration Statement with respect to such
Initial Notes, all require ments pertaining to legends on such Initial
Note will cease to apply, the requirements requiring any such Initial
Note issued to certain Holders be issued in global form will cease to
apply, and a certificated Initial Note without legends will be available
to the transferee of the Holder of such Initial Notes upon exchange of
such transferring Holder's certificated Initial Note or directions to
transfer such Holder's interest in the Global Note, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Notes pursuant to which Holders of such Initial
Notes are offered Exchange Notes in exchange for their Initial Notes,
all requirements pertaining to such Initial Notes that Initial Notes
issued to certain Holders be issued in global form will cease to apply
and certificated Initial Notes with the restricted notes legend set
forth in Exhibit 1 hereto will be available to Holders of such Initial
Notes that do not exchange their Initial Notes, and Exchange Notes in
certificated or global form will be available to Holders that exchange
such Initial Notes in such Registered Exchange Offer.
(e) Cancellation or Adjustment of Global Note. At such time as
all beneficial interests in a Global Note have either been exchanged for
certificated or Definitive Notes, redeemed, repurchased or canceled, such Global
Note shall be returned to the Depository for cancellation or retained and
canceled by the Trustee. At any time prior to such
<PAGE>
9
cancellation, if any beneficial interest in a Global Note is exchanged for
certificated or Definitive Notes, redeemed, repurchased or canceled, the
principal amount of Notes represented by such Global Note shall be reduced and
an adjustment shall be made on the books and records of the Trustee (if it is
then the Notes Custodian for such Global Note) with respect to such Global Note,
by the Trustee, to reflect such reduction.
(f) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Note, a member of, or a participant in the
Depository or other Person with respect to the accuracy of the records
of the Depository or its nominee or of any participant or member
thereof, with respect to any ownership interest in the Notes or with
respect to the delivery to any participant, member, beneficial owner or
other Person (other than the Depository) of any notice (including any
notice of redemption) or the payment of any amount, under or with
respect to such Notes. All notices and communications to be given to the
Holders and all payments to be made to Holders under the Notes shall be
given or made only to or upon the order of the registered Holders (which
shall be the Depository or its nominee in the case of a Global Note).
The rights of beneficial owners in any Global Note shall be exercised
only through the Depository subject to the applicable rules and
procedures of the Depository. The Trustee may rely and shall be fully
protected in relying upon information furnished by the Depository with
respect to its members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Note (including any transfers between or
among Depository participants, members or beneficial owners in any
Global Note) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do
so if and when expressly required by, the terms of this Indenture, and
to examine the same to determine substantial compliance as to form with
the express requirements hereof.
2.4 Certificated Notes.
(a) A Global Note deposited with the Depository or with the
Trustee as custodian for the Depository pursuant to
<PAGE>
10
Section 2.1 shall be transferred to the beneficial owners thereof in the form of
certificated Notes in an aggregate principal amount equal to the principal
amount of such Global Note, in exchange for such Global Note, only if such
transfer complies with Section 2.3 and (i) the Depository notifies the Company
that it is unwilling or unable to continue as Depository for such Global Note or
if at any time such Depository ceases to be a "clearing agency" registered under
the Exchange Act and a successor depositary is not appointed by the Company
within 90 days of such notice, or (ii) an Event of Default has occurred and is
continuing or (iii) the Company, in its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of certificated Notes under this
Indenture.
(b) Any Global Note that is transferable to the beneficial owners
thereof pursuant to this Section shall be surrendered by the Depository to the
Trustee located in the Borough of Manhattan, The City of New York, to be so
transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Note, an equal aggregate principal amount of certificated Initial
Notes of authorized denominations. Any portion of a Global Note transferred
pursuant to this Section shall be executed, authenticated and delivered only in
denominations of $1,000 and any integral multiple thereof and registered in such
names as the Depository shall direct. Any certificated Initial Note delivered in
exchange for an interest in the Global Note shall, except as otherwise provided
by Section 2.3(d), bear the restricted notes legend set forth in Exhibit 1
hereto.
(c) Subject to the provisions of Section 2.4(b), the registered
Holder of a Global Note may grant proxies and otherwise authorize any Person,
including Agent Members and Persons that may hold interests through Agent
Members, to take any action which a Holder is entitled to take under this
Indenture or the Notes.
(d) In the event of the occurrence of either of the events
specified in Section 2.4(a), the Company will promptly make available to the
Trustee a reasonable supply of certificated Notes in definitive, fully
registered form without interest coupons.
<PAGE>
[Draft--May 5, 1999]
EXHIBIT 1
to
RULE 144A APPENDIX
[FORM OF FACE OF INITIAL NOTE]
[Global Notes Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Notes Legend]
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH BELOW.
"EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER ("RULE 144A"). BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) OR AN INSTITUTIONAL
"ACCREDITED INVESTOR" AND (2) AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL
ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY)
ONLY (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A
REGISTRATION STATEMENT
<PAGE>
2
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE THE UNITED
STATES, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A OR (D) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
FOR PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"), THIS SECURITY HAS ORIGINAL ISSUE DISCOUNT. FOR
PURPOSES OF SECTION 1273 OF THE CODE, THE ISSUE PRICE IS $843.09 AND THE AMOUNT
OF ORIGINAL ISSUE DISCOUNT IS $156.91, IN EACH CASE PER $1,000 PRINCIPAL AMOUNT
OF THIS SECURITY. FOR PURPOSES OF SECTION 1275 OF THE CODE, THE ISSUE DATE OF
THIS SECURITY IS MAY 18, 1999. FOR PURPOSES OF SECTION 1272 OF THE CODE, THE
YIELD TO MATURITY (COMPOUNDED SEMIANNUALLY) IS 17.99%.
<PAGE>
3
CUSIP No.
No. $
14-1/2% Senior Secured Notes Due 2009
CD RADIO INC., a Delaware corporation, promises to pay to Merrill
Lynch, Pierce, Fenner & Smith Incorporated, or registered assigns, the principal
sum of $1,000,000 Dollars on May 15, 2009.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
Additional provisions of this Note are set forth on the other
side of this Note.
Dated:
CD RADIO INC.,
by
-----------------------
Name:
Title:
Attested by:
- -----------------------------
Patrick L. Donnelly
Executive Vice President,
General Counsel and Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee, certifies that this is
one of the Notes referred to
in the Indenture.
by
-----------------------------
Authorized Signatory
<PAGE>
4
[FORM OF REVERSE SIDE OF INITIAL NOTE]
14-1/2% Senior Secured Note due 2009
1. Interest.
CD RADIO INC., a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "Company"), promises to pay interest on the principal amount of this
Note at the rate per annum shown above; provided, however, that if a
Registration Default (as defined in the Registration Rights Agreement) occurs,
additional interest will accrue on this Note at a rate of 0.50% per annum with
respect to the first 90-day period following any such Registration Default. The
amount of the additional interest will increase by an additional one-half of one
percent (0.50%) to a maximum of one and one-half percent (1.50%) per annum for
each subsequent 90-day period until such Registration Default has been cured.
The Company will pay interest semiannually on May 15 and November 15 of each
year. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from May 18, 1999.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Notes plus 1% per annum, and it shall pay interest on overdue installments
of interest at the same rate to the extent lawful.
2. Method of Payment.
The Company will pay interest on the Notes (except defaulted
interest) to the Persons who are registered holders of Notes at the close of
business on the May 1 or November 1 next preceding the interest payment date
even if Notes are canceled after the record date and on or before the interest
payment date. Holders must surrender Notes to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. Payments in respect of the Notes represented by a Global Note
(including principal, premium and interest) will be made by wire transfer of
immediately available funds to the accounts specified by The Depository Trust
Company. The Company will make all payments in respect of a certificated Note
(including principal, premium and interest) by mailing a check to the registered
address of each Holder thereof;
<PAGE>
5
provided, however, that payments on a certificated Note will be made by wire
transfer to a U.S. dollar account maintained by the payee with a bank in the
United States if such Holder elects payment by wire transfer by giving written
notice to the Trustee or the paying agent to such effect designating such
account no later than 30 days immediately preceding the relevant due date for
payment (or such other date as the Trustee may accept in its discretion).
3. Paying Agent and Registrar.
Initially, United States Trust Company of New York, a New York
banking corporation ("Trustee"), will act as paying agent and registrar. The
Company may appoint and change any paying agent, registrar or co-registrar
without notice. The Company or any of its domestically incorporated wholly owned
subsidiaries may act as paying agent, registrar or co-registrar.
4. Indenture.
The Company issued the Notes under an Indenture dated as of May
15, 1999 ("Indenture"), between the Company and the Trustee. The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939 (15 U.S.C. 'SS''SS'
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Notes are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Notes are secured obligations of the Company. The Initial
Notes issued on the Issue Date and all Exchange Notes issued in exchange
therefore will be treated as a single class for all purposes under the
Indenture. The Indenture limits, among other things, (i) the incurrence of
additional debt by the Company and its subsidiaries, (ii) the payment of
dividends on capital stock of the Company and the purchase, redemption or
retirement of capital stock or subordinated indebtedness, (iii) the creation of
certain liens, (iv) certain transaction with affiliates, (v) sales of assets,
including capital stock of subsidiaries, (vi) sale and leaseback transactions,
(vii) restrict dividend or other payments to the Company, (viii) the issuance
and sale of shares in restricted subsidiaries, and (ix) certain consolidations,
mergers and transfers of assets. The Indenture also prohibits certain
restrictions on distributions from subsidiaries. All of those
<PAGE>
6
limitations and prohibitions, however, are subject to a number of important
qualifications contained in the Indenture.
5. Optional Redemption.
Except as set forth in the next paragraph, the Notes may not be
redeemed prior to May 15, 2004. On and after that date, the Company may redeem
the Notes in whole at any time or in part from time to time at the following
redemption prices (expressed in percentages of principal amount), plus accrued
interest to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the related interest payment
date):
if redeemed during the 12-month period beginning May 15,
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2004........................................... 107.250%
2005........................................... 104.833%
2006........................................... 102.417%
2007 and thereafter............................ 100.000%
</TABLE>
In addition, at any time prior to May 15, 2002, the Company may redeem
up to 35% of the aggregate principal amount of Notes with the proceeds of an
Equity Offering, at any time or from time to time, at a redemption price
(expressed as a percentage of principal amount) of 114.50%, plus accrued
interest to redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the related interest payment
date); provided, however, that immediately after giving effect to such
redemption, at least 65% of the original aggregate principal amount of the Notes
outstanding; provided further, however, that notice of such redemption shall be
given within 60 days of the closing of such Equity Offering.
6. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Notes to be redeemed
at his registered address. Notes in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If money sufficient to
pay the redemption price of and accrued interest
<PAGE>
7
on all Notes (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to accrue
on such Notes (or such portions thereof) called for redemption.
7. Security.
The Notes will be secured by a first priority perfected security
interest in all the issued and outstanding common stock of Satellite CD Radio,
Inc., the Company's wholly owned subsidiary, on an equal basis with holders of
the Discount Notes pursuant to the Pledge Agreement.
Further, as set forth in the Indenture, a portion of the net
proceeds of the Units offering will be used to purchase the Pledged Securities
in such amount as will be sufficient, upon receipt of scheduled interest on and
principal payments of such securities, to provide for payment in full of the
first six scheduled interest payments due on the Notes. The Pledged Securities
will be pledged by the Company to the Trustee for the benefit of the holders of
the Notes pursuant to the Collateral Pledge Agreement and will be held by the
Trustee in the Pledge Account.
8. Put Provisions.
Upon a Change of Control, any Holder of Notes will have the right
to cause the Company to repurchase all or any part of the Notes of such Holder
at a repurchase price equal to 101% of the principal amount of the Notes to be
repurchased plus accrued interest to the date of repurchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the related interest payment date) as provided in, and subject to the terms
of, the Indenture.
9. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Notes
in accordance with the Indenture. The Trustee may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay any
taxes and fees required by law or permitted by the Indenture.
<PAGE>
8
10. Persons Deemed Owners.
The registered Holder of this Note may be treated as the owner of
it for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. Discharge and Defeasance.
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Notes and the Indenture if
the Company deposits with the Trustee money or U.S. Government Obligations for
the payment of principal and interest on the Notes to redemption or maturity, as
the case may be.
13. Amendment, Waiver.
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture, the Collateral Documents or the Notes may be amended with the written
consent of the Holders of at least a majority in principal amount outstanding of
the Notes and (ii) any default or noncompliance with any provision may be waived
with the written consent of the Holders of a majority in principal amount
outstanding of the Notes. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company and the
Trustee may amend the Indenture or the Notes to cure any ambiguity, omission,
defect or inconsistency, or to comply with Article VIII of the Indenture, or to
provide for uncertificated Notes in addition to or in place of certificated
Notes, or to add guarantees with respect to the Notes or to secure the Notes, or
to add additional covenants or surrender rights and powers conferred on the
Company, or to comply with any request of the SEC in connection with qualifying
the Indenture under the Act, or to make any change that does not adversely
affect the rights of any Securityholder.
<PAGE>
9
14. Defaults and Remedies.
Under the Indenture, Events of Default include (i) as to any
interest payment date occurring on or prior to May 15, 2002, default in the
payment of interest on the Notes when it becomes due and payable; and as to any
interest payment date thereafter, default for 30 days in payment of interest on
the Notes; (ii) default in payment of principal on the Notes at maturity, upon
redemption pursuant to paragraph 5 of the Notes, upon acceleration or otherwise,
or failure by the Company to redeem or purchase Notes when required; (iii)
failure by the Company to comply with other agreements in the Indenture or the
Notes, in certain cases subject to notice and lapse of time; (iv) certain
accelerations (including failure to pay within any grace period after final
maturity) of other Indebtedness of the Company if the amount accelerated (or so
unpaid) exceeds $10.0 million; (v) certain events of bankruptcy or insolvency
with respect to the Company and the Significant Subsidiaries; and (vi) certain
judgments or decrees for the payment of money in excess of $10.0 million. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Notes may declare all the Notes to be due
and payable immediately. Certain events of bankruptcy or insolvency are Events
of Default which will result in the Notes being due and payable immediately upon
the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Notes except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives indemnity or security reasonably satisfactory to
it. Subject to certain limitations, Holders of a majority in principal amount of
the Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company.
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with and collect obligations
owed to it by the Company or its Affiliates and may otherwise deal with the
Company or its Affiliates with the same rights it would have if it were not
Trustee.
<PAGE>
10
16. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Notes or the Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation. By accepting a Note, each
Securityholder waives and releases all such liability. The waiver and release
are part of the considera tion for the issue of the Notes.
17. Authentication.
This Note shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Note.
18. Abbreviations.
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
19. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
20. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Note, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
<PAGE>
11
21. Governing Law.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Securityholder upon written
request and without charge to the Security holder a copy of the Indenture which
has in it the text of this Note in larger type. Requests may be made to:
CD Radio Inc.
1221 Avenue of the Americas
New York, NY 10020
Attention of Patrick L. Donnelly, Esq.
<PAGE>
12
________________________________________________________________________________
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on
the books of the Company. The agent may substitute another to act for him.
________________________________________________________________________________
Date: ________________ Your Signature:__________________________________________
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Note.
In connection with any transfer of any of the Notes evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Notes and the last date, if any, on which such Notes were owned by the
Company or any Affiliate of the Company, the undersigned confirms that such
Notes are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) [ ] to the Company; or
(2) [ ] pursuant to an effective registration statement
under the Securities Act of 1933; or
(3) [ ] inside the United States to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act
of 1933) that purchases for its own account or for the
account of a qualified institutional buyer to whom notice
is given that such transfer is being made in
<PAGE>
13
reliance on Rule 144A, in each case pursuant to
and in compliance with Rule 144A under the
Securities Act of 1933; or
(4) [ ] outside the United States in an offshore transaction
within the meaning of Regulation S under the Securities
Act in compliance with Rule 904 under the Securities Act
of 1933; or
(5) [ ] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register
any of the Notes evidenced by this certificate in the name of any person
other than the registered holder thereof; provided, however, that if box
(4) or (5) is checked, the Trustee may require, prior to registering any
such transfer of the Notes, such legal opinions, certifications and
other information as the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the
Securities Act of 1933, such as the exemption provided by Rule 144 under
such Act.
________________________
Signature
Signature Guarantee:
____________________________ __________________________
Signature must be guaranteed Signature
________________________________________________________________________________
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
<PAGE>
14
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated: ________________ ______________________________
NOTICE: To be executed by
an executive officer
<PAGE>
15
[TO BE ATTACHED TO GLOBAL NOTES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have
been made:
<TABLE>
<S> <C> <C> <C> <C>
DATE OF AMOUNT OF DECREASE AMOUNT OF INCREASE PRINCIPAL AMOUNT OF SIGNATURE OF
EXCHANGE IN PRINCIPAL IN PRINCIPAL AMOUNT THIS GLOBAL NOTE AUTHORIZED OFFICER
AMOUNT OF THIS OF THIS GLOBAL NOTE FOLLOWING SUCH OF TRUSTEE OR NOTES
GLOBAL NOTE DECREASE OR CUSTODIAN
INCREASE)
</TABLE>
<PAGE>
16
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 10.10 or 10.16 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Note purchased by
the Company pursuant to Section 10.10 or 10.16 of the Indenture, state the
amount in principal amount: $
Date: _______________ Your Signature: ____________________________
(Sign exactly as your name
appears on the other side of
this Note.)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
<PAGE>
EXHIBIT A
[FORM OF FACE OF EXCHANGE NOTE]
[(*)]
No.1 $
14-1/2% Senior Secured Notes Due 2009
CD RADIO INC., a Delaware corporation, promises to pay to , or
registered assigns, the principal sum of Dollars on May 15, 2009.
.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
Additional provisions of this Note are set forth on the other side of this Note.
Dated:
CD RADIO INC.
by ________________________
Name:
Title:
Attested by:
_____________________________
Patrick L. Donnelly
Executive Vice President,
General Counsel and Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Notes referred
to in the Indenture.
by_______________________________
Authorized Signatory
<PAGE>
2
___________________
(*) [If the Note is to be issued in global form add the Global Notes Legend from
Exhibit 1 to Appendix A and the attachment from such Exhibit 1 captioned "[TO BE
ATTACHED TO GLOBAL NOTES] - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE".]
<PAGE>
3
[FORM OF REVERSE SIDE OF EXCHANGE NOTE]
14-1/2% Senior Secured Note due 2009
1. Interest.
CD RADIO INC., a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "Company"), promises to pay interest on the principal amount of this
Note at the rate per annum shown above; provided, however, that if a
Registration Default (as defined in the Registration Rights Agreement) occurs,
additional interest will accrue on this Note at a rate of 0.50% per annum with
respect to the first 90-day period following any such Registration Default.
(***). The amount of the additional interest will increase by an additional
one-half of one percent (0.50%) to a maximum of one and one-half percent (1.50%)
per annum for each subsequent 90- day period until such Registration Default has
been cured. The Company will pay interest semiannually on May 15 and November 15
of each year. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from May 18,
1999. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Notes plus 1% per annum, and it shall pay interest on overdue installments
of interest at the same rate to the extent lawful.
___________________
(***) Insert if at the time of issuance of the Exchange Note neither the
Registered Exchange Offer has been consummated nor a Shelf Registration
Statement has been declared effective in accordance with the Registration Rights
Agreement.
<PAGE>
4
2. Method of Payment.
The Company will pay interest on the Notes (except defaulted
interest) to the Persons who are registered holders of Notes at the close of
business on the May 1 or November 1 next preceding the interest payment date
even if Notes are canceled after the record date and on or before the interest
payment date. Holders must surrender Notes to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. Payments in respect of Notes (including principal, premium
and interest) will be made by wire transfer of immediately available funds to
the accounts specified by the holders thereof or, if no U.S. dollar account
maintained by the payee with a bank in the United States is designated by any
holder to the Trustee or the paying agent at least 30 days prior to the relevant
due date for payment (or such other date as the Trustee may accept in its
discretion), by mailing a check to the registered address of such holder.
3. Paying Agent and Registrar.
Initially, United States Trust Company of New York, a New York
banking corporation ("Trustee"), will act as paying agent and registrar. The
Company may appoint and change any paying agent, registrar or co-registrar
without notice. The Company or any of its domestically incorporated wholly owned
subsidiaries may act as paying agent, registrar or co-registrar.
4. Indenture.
The Company issued the Notes under an Indenture dated as of May
15, 1999 ("Indenture"), between the Company and the Trustee. The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939 (15 U.S.C. 'SS''SS'
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Notes are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Notes are secured obligations of the Company. The Initial
Notes issued on the Issue Date, and all Exchange Notes issued in exchange
therefor will be treated as a single class for all purposes under the Indenture.
The Indenture limits, among other things, (i) the incurrence of additional
<PAGE>
5
debt by the Company and its subsidiaries, (ii) the payment of dividends on
capital stock of the Company and the purchase, redemption or retirement of
capital stock or subordinated indebtedness, (iii) the creation of certain liens,
(iv) certain transactions with affiliates, (v) sales of assets, including
capital stock of subsidiaries, (vi) sale and leaseback transactions, (vii)
restrict dividend or other payments to the company, (viii) the issuance and sale
of shares in restricted subsidiaries, and (ix) certain consolidations, mergers
and transfers of assets. The Indenture also prohibits certain restrictions on
distributions from subsidiaries. All of these limitations and prohibitions,
however, are subject to a number of important qualifications contained in the
Indenture.
5. Optional Redemption.
Except as set forth in the next paragraph, the Notes may not be
redeemed prior to May 15, 2004. On and after that date, the Company may redeem
the Notes in whole at any time or in part from time to time at the following
redemption prices (expressed in percentages of principal amount), plus accrued
interest to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the related interest payment
date):
if redeemed during the 12-month period beginning May 15,
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2004........................................... 107.250%
2005........................................... 104.833%
2006........................................... 102.417%
2007 and thereafter............................ 100.000%
</TABLE>
In addition, at any time prior to May 15, 2002, the Company may redeem
up to 35% of the aggregate principal amount of Notes with the proceeds of an
Equity Offering, at any time or from time to time, at a redemption price
(expressed as a percentage of principal amount) of 114.50%, plus accrued
interest to redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the related interest payment
date); provided, however, that immediately after giving effect to such
redemption, at least 65% of the original aggregate principal amount of the Notes
outstanding; provided further, however, that notice of such
<PAGE>
6
redemption shall be given within 60 days of the closing of such Equity Offering.
6. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Notes to be redeemed
at his registered address. Notes in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If money sufficient to
pay the redemption price of and accrued interest on all Notes (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Notes (or
such portions thereof) called for redemption.
7. Security.
The Notes will be secured by a first priority perfected security
interest in all the issued and outstanding common stock of Satellite CD Radio
Inc., the Company's wholly owned subsidiary, on an equal basis with holders of
the Discount Notes pursuant to the Pledge Agreement.
Further, as set forth in the Indenture, a portion of the net
proceeds of the Units offering will be used to purchase the Pledged Securities
in such amount as will be sufficient, upon receipt of scheduled interest on and
principal payments of such securities, to provide for payment in full of the
first six scheduled interest payments due on the Notes. The Pledged Securities
will be pledged by the Company to the Trustee for the benefit of the holders of
the Notes pursuant to the Collateral Pledge Agreement and will be held by the
Trustee in the Pledge Account.
8. Put Provisions.
Upon a Change of Control, any Holder of Notes will have the right
to cause the Company to repurchase all or any part of the Notes of such Holder
at a repurchase price equal to 101% of the principal amount of the Notes to be
repurchased plus accrued interest to the date of repurchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the related interest payment date) as provided in, and subject to the terms
of, the Indenture.
<PAGE>
7
9. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Notes
in accordance with the Indenture. The Trustee may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay any
taxes and fees required by law or permitted by the Indenture.
10. Persons Deemed Owners.
The registered Holder of this Note may be treated as the owner of
it for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. Discharge and Defeasance.
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Notes and the Indenture if
the Company deposits with the Trustee money or U.S. Government Obligations for
the payment of principal and interest on the Notes to redemption or maturity, as
the case may be.
13. Amendment, Waiver.
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture, the Collateral Documents or the Notes may be amended with the written
consent of the Holders of at least a majority in principal amount outstanding of
the Notes and (ii) any default or noncompliance with any provision may be waived
with the written consent of the Holders of a majority in principal amount
outstanding of the Notes. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company and the
Trustee may amend the Indenture or the Notes to cure any ambiguity, omission,
defect or inconsistency, or to comply with
<PAGE>
8
Article VIII of the Indenture, or to provide for uncertificated Notes in
addition to or in place of certificated Notes, or to add guarantees with respect
to the Notes or to secure the Notes, or to add additional covenants or surrender
rights and powers conferred on the Company, or to comply with any request of the
SEC in connection with qualifying the Indenture under the Act, or to make any
change that does not adversely affect the rights of any Securityholder.
14. Defaults and Remedies.
Under the Indenture, Events of Default include (i) as to any
interest payment date occurring on or prior to May 15, 2002, default in the
payment of interest on the Notes when it becomes due and payable; and as to any
interest payment date thereafter, default for 30 days in payment of interest on
the Notes; (ii) default in payment of principal on the Notes at maturity, upon
redemption pursuant to paragraph 5 of the Notes, upon acceleration or otherwise,
or failure by the Company to redeem or purchase Notes when required; (iii)
failure by the Company to comply with other agreements in the Indenture or the
Notes, in certain cases subject to notice and lapse of time; (iv) certain
accelerations (including failure to pay within any grace period after final
maturity) of other Indebtedness of the Company if the amount accelerated (or so
unpaid) exceeds $10.0 million; (v) certain events of bankruptcy or insolvency
with respect to the Company and the Significant Subsidiaries; and (vi) certain
judgments or decrees for the payment of money in excess of $10.0 million. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Notes may declare all the Notes to be due
and payable immediately. Certain events of bankruptcy or insolvency are Events
of Default which will result in the Notes being due and payable immediately upon
the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Notes except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives indemnity or security reasonably satisfactory to
it. Subject to certain limitations, Holders of a majority in principal amount of
the Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in the interest of the Holders.
<PAGE>
9
15. Trustee Dealings with the Company.
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with and collect obligations
owed to it by the Company or its Affiliates and may otherwise deal with the
Company or its Affiliates with the same rights it would have if it were not
Trustee.
16. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Notes or the Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation. By accepting a Note, each
Securityholder waives and releases all such liability. The waiver and release
are part of the considera tion for the issue of the Notes.
17. Authentication.
This Note shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Note.
18. Abbreviations.
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
19. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of
<PAGE>
10
redemption and reliance may be placed only on the other identification numbers
placed thereon.
20. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Note, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
21. Governing Law.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Securityholder upon written
request and without charge to the Securityholder a copy of the Indenture which
has in it the text of this Note in larger type. Requests may be made to:
CD Radio Inc.
1221 Avenue of the Americas
New York, NY 10020
Attention of Patrick L. Donnelly, Esq.
<PAGE>
11
________________________________________________________________________________
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on the
books of the Company. The agent may substitute another to act for him.
________________________________________________________________________________
Date: ________________ Your Signature:__________________________________________
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Note.
<PAGE>
12
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 10.10 or 10.16 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Note purchased by
the Company pursuant to Section 10.10 or 10.16 of the Indenture, state the
amount:
$
Date: __________________ Your Signature: _______________________________________
(Sign exactly as your name appears
on the other side of the Note)
Signature Guarantee:____________________________________________________________
(Signature must be guaranteed by a
member firm of the New York Stock
Exchange or a commercial bank or trust company)
<PAGE>
EXHIBIT B
UNITED STATES TRUST COMPANY OF NEW YORK
114 West 47th Street
New York, NY 10036
May 18, 1999
CD Radio Inc.
1221 Avenue of the Americas
New York, NY 10020
Re: AUTHENTICATION AND DELIVERY OF 14-1/2% SENIOR
SECURED NOTES DUE 2009
Ladies and Gentlemen:
In accordance with the written order dated May 18, 1999, of CD Radio
Inc., (the "Company"), and pursuant to Section 2.2 of the Rule 144A Appendix to
the Indenture dated as of May 15, 1999, between the Company and the undersigned,
as Trustee, relating to $200,000,000 principal amount of the Company's 14-1/2%
Senior Secured Notes due 2009 (the "Notes"), we deliver to Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc., Bear,
Stearns & Co. Inc., NationsBanc Montgomery Securities LLC and U.S. Bancorp Libra
(collectively, the "Initial Purchasers"), an aggregate of $200,000,000 principal
amount of the Notes, all duly authenticated and represented by the certificate
numbers and registered in the names and for the principal amounts set forth on
Schedule A hereto. At the Initial Purchasers' direction we are holding
Certificate No.QIB-1 (CUSIP No. 125127AC4) as custodian for The Depository Trust
Company.
Very truly yours,
UNITED STATES TRUST COMPANY OF
NEW YORK,
as trustee
by____________________________
Name:
Title:
<PAGE>
EXHIBIT 4.4.4
EXECUTION COPY
================================================================================
WARRANT AGREEMENT
between
CD RADIO INC.
and
UNITED STATES TRUST COMPANY OF NEW YORK
Warrant Agent
Dated as of May 15, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
Certain Definitions
SECTION 1.01. Definitions......................................................2
ARTICLE II
Original Issue of Warrants
SECTION 2.01. Form of Warrant Certificates..................................... 8
SECTION 2.02. Restrictive Legends.............................................. 9
SECTION 2.03. Execution and Delivery of Warrant
Certificates.....................................................10
SECTION 2.04. Loss or Mutilation...............................................11
SECTION 2.05. CUSIP Number.....................................................11
SECTION 2.06. Certificated Warrants............................................11
ARTICLE III
Exercise Price; Exercise of Warrants
SECTION 3.01. Exercise Price...................................................12
SECTION 3.02. Exercise; Restrictions on Exercise...............................12
SECTION 3.03. Method of Exercise...............................................13
SECTION 3.04. Issuance of Warrant Shares.......................................14
SECTION 3.05. Fractional Warrant Shares........................................14
SECTION 3.06. Reservation of Warrant Shares....................................15
SECTION 3.07. Compliance with Law..............................................15
ARTICLE IV
Antidilution Provisions
SECTION 4.01. Changes in Common Stock..........................................16
SECTION 4.02. Cash Dividends and Other Distributions...........................16
SECTION 4.03. Issuance of Common Stock or
Rights or Options................................................17
SECTION 4.04. Fundamental Transaction; Liquidation.............................19
SECTION 4.05. Other Events.....................................................20
SECTION 4.06. Superseding Adjustment...........................................20
SECTION 4.07. Minimum Adjustment...............................................21
SECTION 4.08. Notice of Adjustment.............................................21
SECTION 4.09. Notice of Certain Transactions...................................22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 4.10. Adjustment to Warrant Certificate................................23
ARTICLE V
Warrant Transfer Books; Restrictions On Transfer
SECTION 5.01. Transfer and Exchange............................................23
SECTION 5.02. Registration; Registration of Transfer
and Exchange.....................................................24
SECTION 5.03. Book-Entry Provisions for the
Global Warrants..................................................26
SECTION 5.04. Surrender of Warrant Certificates................................27
ARTICLE VI
Registration Rights; Indemnification
SECTION 6.01. Effectiveness of Registration Statement..........................28
SECTION 6.02. Suspension.......................................................30
SECTION 6.03. Liquidated Damages...............................................30
SECTION 6.04. Piggy-Back Registration Rights...................................31
SECTION 6.05. Blue Sky.........................................................32
SECTION 6.06. Accuracy of Disclosure...........................................32
SECTION 6.07. Indemnification..................................................33
SECTION 6.08. Additional Acts..................................................37
SECTION 6.09. Expenses.........................................................37
ARTICLE VII
The Warrant Agent
SECTION 7.01. Duties and Liabilities...........................................38
SECTION 7.02. Right To Consult Counsel.........................................40
SECTION 7.03. Compensation; Indemnification....................................40
SECTION 7.04. No Restrictions on Actions.......................................41
SECTION 7.05. Discharge or Removal; Replacement
Warrant Agent....................................................41
SECTION 7.06. Successor Warrant Agent..........................................42
ARTICLE VIII
Warrant Holders
SECTION 8.01. Warrant Holder Not Deemed a
Holder of Common Stock...........................................42
SECTION 8.02. Right of Action..................................................43
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE IX
Miscellaneous
SECTION 9.01. Payment of Taxes.................................................43
SECTION 9.02. Reports to Holders...............................................43
SECTION 9.03. Notices..........................................................44
SECTION 9.04. Severability.....................................................44
SECTION 9.05. Binding Effect...................................................44
SECTION 9.06. Third-Party Beneficiaries........................................45
SECTION 9.07. Amendments.......................................................45
SECTION 9.08. Headings.........................................................45
SECTION 9.09. GOVERNING LAW....................................................45
SECTION 9.10. Counterparts.....................................................46
EXHIBIT A Form of Warrant Certificate
EXHIBIT B Form of Legend for Global Warrants
EXHIBIT C Form of Legend for Warrants Issued as Part of a Unit
EXHIBIT D Form of Transfer Restriction Legend
</TABLE>
<PAGE>
WARRANT AGREEMENT (this "Agreement") dated
as of May 15, 1999, between CD RADIO INC. (the
"Company"), a Delaware corporation, and UNITED STATES
TRUST COMPANY OF NEW YORK, Warrant Agent (the
"Warrant Agent").
Pursuant to the terms of a Purchase Agreement dated May 13,
1999 (the "Purchase Agreement") among the Company on the one hand and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), Lehman Brothers Inc., Bear, Stearns & Co., Inc., NationsBanc Montgomery
Securities LLC and U.S. Bancorp Libra on the other hand (collectively, the
"Initial Purchasers"), the Company has agreed to issue and sell to the Initial
Purchasers warrants (each, a "Warrant") entitling the holders thereof to
purchase an aggregate of 2,190,000 shares of Common Stock, par value $.001 per
share, of the Company ("Common Stock"), as part of 200,000 units (the "Units"),
each Unit consisting of $1,000 principal amount of 14-1/2% Senior Secured Notes
due 2009 (the "Notes") to be issued pursuant to the provisions of an Indenture
dated as of May 15, 1999 (the "Indenture") between the Company and United States
Trust Company of New York, as trustee, and three Warrants, each to purchase 3.65
shares of Common Stock. The Note and the Warrants included in each Unit will not
be separately transferable until the earliest of (a) August 16, 1999, (b) the
commencement of a registered exchange offer for the Notes or the effective date
of a shelf registration statement with respect to the Notes, (c) the occurrence
of an Exercise Event (as defined herein), (d) the occurrence of an Event of
Default (as defined in the Indenture), (e) the redemption of all or part of the
Notes in accordance with the Indenture and (f) such earlier date as determined
by Merrill Lynch in its sole discretion (the date of the occurrence of an event
specified in clauses (a) through (f) above being the "Separability Date").
In consideration of the foregoing and of the agreements
contained in the Purchase Agreement and for the purpose of defining the terms
and provisions of the Warrants and the respective rights and obligations
thereunder of the Company and the Warrant Agent, the Company and the Warrant
Agent each hereby agree as follows for the benefit of the
<PAGE>
2
other party and for the equal and ratable benefit of the holders of Warrants
(the "Holders"):
ARTICLE I
Certain Definitions
SECTION 1.01. Definitions. (a) As used in this Agreement, the following terms
shall have the following meanings:
"Affiliate" means, with respect to any specified Person, (1)
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person or (2) any other
Person that owns, directly or indirectly, 10% or more of such specified Person's
Voting Stock or any executive officer or director of any such specified Person
or other Person or, with respect to any natural Person, any Person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control", when used
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Board of Directors" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such Board
of Directors.
"Business Day" means any day which is not a Saturday, a
Sunday, or any other day on which banking institutions in New York City are not
required to be open.
"By-laws" means the by-laws of the Company, as the same may be
amended or restated from time to time.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Cashless Exercise Ratio" means a fraction, the numerator of
which is the excess of the Current Market Value per share of Common Stock on the
Exercise Date over the
<PAGE>
3
Exercise Price per share as of the Exercise Date and the denominator of which is
the Current Market Value per share of the Common Stock on the Exercise Date.
"Commission" means the Securities and Exchange Commission.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman, its Chief Executive
Officer, its President, any Vice President, its Treasurer or an Assistant
Treasurer, and delivered to the Warrant Agent.
"Current Market Value" per share of Common Stock of the
Company or any other security at any date means (1) if the security is not
registered under the Exchange Act, (a) the value of the security, determined in
good faith by the Board of Directors and certified in a board resolution, based
on the most recently completed arms-length transaction between the Company and a
Person other than an Affiliate of the Company and the closing of which occurs on
such date or shall have occurred within the six-month period preceding such
date, or (b) if no such transaction shall have occurred on such date or within
such six-month period, the fair market value of the security as determined by a
nationally or regionally recognized independent financial expert (provided that,
in the case of the calculation of Current Market Value for determining the cash
value of fractional shares, any such determination within six months that is, in
the good faith judgment of the Board of Directors, a reasonable determination of
value, may be utilized) or (2) if the security is registered under the Exchange
Act,(a) the average of the daily closing sales prices of the securities for the
20 consecutive trading days immediately preceding such date, or (b) if the
securities have been registered under the Exchange Act for less than 20
consecutive trading days before such date, then the average of the daily closing
sales prices for all of trading days before such date for which closing sales
prices are available, in the case of each of (2)(a) and (2)(b), as certified to
the Warrant Agent by the President, any Vice President or the Chief Financial
Officer of the Company. The closing sales price for each such trading day shall
be: (A) in the case of a security listed or admitted to trading on any United
States national securities exchange or quotation system, the closing sales
price, regular way, on such day, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day; (B) in the case of a
security not then listed or admitted to trading on any national securities
exchange or quotation system, the last reported sale price on such day, or if no
sale takes
<PAGE>
4
place on such day, the average of the closing bid and asked prices on such day,
as reported by a reputable quotation source designated by the Company; (C) in
the case of a security not then listed or admitted to trading on any national
securities exchange or quotation system and as to which no such reported sale
price or bid and asked prices are available, the average of the reported high
bid and low asked prices on such day, as reported by a reputable quotation
service, or a newspaper of general circulation in the Borough of Manhattan, City
and State of New York, customarily published on each business day, designated by
the Company, or if there shall be no bid and asked prices on such day, the
average of the high bid and low asked prices, as so reported, on the most recent
day (not more than 30 days prior to the date in question) for which prices have
been so reported; and (D) if there are not bid and asked prices reported during
the 30 days prior to the date in question, the Current Market Value shall be
determined as if the securities were not registered under the Exchange Act.
"DTC" means The Depository Trust Company, its nominees and
their respective successors.
"Event of Default" has the meaning set forth in the Indenture.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended.
"Exercisability Date" means the date on which there shall have
occurred an Exercise Event.
"Exercise Event" means the earlier to occur of (i) immediately
prior to a Warrant Change of Control and (ii) the one year anniversary of the
Issue Date.
"Expiration Date" means May 15, 2009.
"Extraordinary Cash Dividend" means that portion, if any, of
the aggregate amount of all dividends paid by the Company on the Common Stock in
any fiscal year that exceeds $15 million.
"Fundamental Transaction" means any transaction or series of
related transactions by which the Company consolidates with or merges with or
into any other Person or sells, assigns, transfers, leases, conveys or otherwise
disposes of all or substantially all of its properties and assets to another
Person or group of affiliated Persons or is a party to a merger or binding share
exchange which reclassifies or changes its outstanding Common Stock.
<PAGE>
5
"Issue Date" means the date on which the Warrants are
originally issued.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock", as applied to the Capital Stock of any
Person, means Capital Stock of any class or classes (however designated) which
is preferred as to the payment of dividends or distributions, or as to the
payment of assets upon any voluntary or involuntary liquidation or dissolution
of such Person, over shares of Capital Stock of any other class of such Person.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities" means the Warrants and the Warrant Shares.
"Securities Act" means the United States Securities Act of
1933.
"Transfer Restricted Securities" means the Warrants and the
Common Stock which may be issued to Holders upon exercise of the Warrants,
whether or not such exercise has been effected. Each such security shall cease
to be a Transfer Restricted Security when (i) it has been disposed of pursuant
to a registration statement of the Company filed with the Commission and
declared effective by the Commission that covers the disposition of such
Transfer Restricted Security, (ii) it has been distributed pursuant to Rule 144
promulgated under the Securities Act (or any similar provisions under the
Securities Act then in effect) or (iii) it may be resold without registration
under the Securities Act, whether pursuant to Rule 144(k) under the Securities
Act or otherwise.
"Voting Stock" means, with respect to any Person, any class or
classes of Capital Stock pursuant to which the holders thereof have the general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not, at the time, stock of any other class or
<PAGE>
6
classes shall have, or might have, voting power by reason of the happening of
any contingency).
"Warrant Change of Control" is defined to mean the occurrence
of any of the following events:
(a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted
Holder (as defined in the Indenture), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have a "beneficial ownership"
of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 40% of the total Voting
Stock of the Company;
(b) the Company consolidates with, or merges with or into
another Person or conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person
consolidates with or merges with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where
(i) the outstanding Voting Stock of the Company is
not converted into or exchanged at all (except to the extent
necessary to reflect a change in the jurisdiction of
incorporation of the Company) or is converted into or
exchanged for Voting Stock (other than Redeemable Capital
Stock (as defined in the Indenture)) of the surviving or
transferee corporation and cash, securities and other property
(other than Capital Stock of the surviving entity) in an
amount that could be paid by the Company as a Restricted
Payment under the Indenture and
(ii) immediately after such transaction no "person"
or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) is the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 40%
<PAGE>
7
of the total outstanding Voting Stock of the surviving or
transferee corporation;
(c) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board of Directors
(together with any new directors whose election to such Board of
Directors or whose nomination for election by the stockholders of the
Company, was approved by a vote of 66-2/3% of the directors then still
in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors
then in office; or
(d) the Company is liquidated or dissolved or a special
resolution is passed by the shareholders of the Company approving the
plan of liquidation or dissolution other than in a transaction in
compliance with the Indenture.
"Warrant Shares" mean the shares of Common Stock for which the
Warrants are exercisable or which have been issued upon exercise of Warrants.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
<PAGE>
8
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Agent Members 5.03(a)
Agreement Preamble
Cashless Exercise 3.03
Certificated Warrant 2.03
Common Stock Recitals
Company Preamble
Exercise Price 3.01
Global Warrant 2.03
Holders Recitals
Indemnified Parties 6.07
Indenture Recitals
Initial Purchasers Recitals
Merrill Lynch Recitals
Notes Recitals
Purchase Agreement Recitals
Separability Date Recitals
Stock Transfer Agent 3.04
Successor Company 4.04(a)
Units Recitals
Warrant Recitals
Warrant Agent Preamble
Warrant Certificates 2.01
Warrant Register 5.01
</TABLE>
ARTICLE II
Original Issue of Warrants
SECTION 2.01. Form of Warrant Certificates. Certificates
representing the Warrants (the "Warrant Certificates") shall be in registered
form only and substantially in the form attached hereto as Exhibit A. The
Warrant Certificates shall be dated the date on which they are countersigned by
the Warrant Agent and shall have such insertions as are appropriate or required
or permitted by this Agreement and may have such letters, numbers or other marks
of identification and such legends and endorsements typed, stamped, printed,
lithographed or engraved thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation pursuant thereto, or to
conform to usage.
The terms and provisions contained in the form of Warrant
Certificate annexed hereto as Exhibit A shall constitute, and are hereby
expressly made, a part of this Agreement.
<PAGE>
9
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods, all as
determined by the officer of the Company executing such Warrant Certificates, as
evidenced by such officer's execution of such Warrant Certificates.
Pending the preparation of definitive Warrant Certificates,
temporary Warrant Certificates may be issued, which may be printed,
lithographed, typewritten, mimeographed or otherwise produced, and which will be
substantially of the tenor of the definitive Warrant Certificates in lieu of
which they are issued.
If temporary Warrant Certificates are issued, the Company will
cause definitive Warrant Certificates to be prepared without unreasonable delay.
After the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates to the Warrant Agent, without
charge to the Holder. Until so exchanged the temporary Warrant Certificates
shall in all respects be entitled to the same benefits under this Agreement as
definitive Warrant Certificates.
SECTION 2.02. Restrictive Legends. (a) Each Global Warrant
shall bear the legend set forth in Exhibit B on the face thereof.
(b) Each Warrant Certificate issued prior to the Separability
Date shall bear the legend set forth in Exhibit C on the face thereof.
(c) Warrants offered and sold to a QIB in reliance on Rule
144A or to an institutional "accredited investor" as defined in Rule 501(a) (1),
(2), (3) or (7) under the Securities Act, as provided in the Purchase Agreement,
shall bear the restricted securities legend set forth in Exhibit D on the face
thereof.
(d) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a Global
Warrant) pursuant to Rule 144 under the Securities Act the Warrant Agent shall
permit the Holder thereof to exchange such Transfer Restricted Security for a
Certificated Warrant that does not bear the legend set forth in Exhibit D and
rescind any restriction on the transfer of such Transfer Restricted Security.
<PAGE>
10
(e) After a transfer of any Warrants during the period of the
effectiveness of and pursuant to a Registration Statement with respect to such
Warrants, the requirement pertaining to the legend set forth in Exhibit D on
such Warrant will cease to apply.
SECTION 2.03. Execution and Delivery of Warrant Certificates.
Warrant Certificates evidencing Warrants to purchase an aggregate of up to
2,190,000 shares of Common Stock may be executed, on or after the Issue Date, by
the Company and delivered to the Warrant Agent for countersignature, and the
Warrant Agent shall thereupon countersign and deliver such Warrant Certificates
upon the order and at the direction of the Company to the purchasers thereof on
the date of issuance. The Warrant Agent is hereby authorized to countersign and
deliver Warrant Certificates as required by this Section 2.03 or by Section
2.04, 2.06, 3.03 or 5.03.
The Warrant Certificates shall be executed on behalf of the
Company by its Chief Executive Officer, President or any Vice President, either
manually or by facsimile signature printed thereon. The Warrant Certificates
shall be countersigned manually by the Warrant Agent and shall not be valid for
any purpose unless so countersigned. In case any officer of the Company whose
signature shall have been placed upon any of the Warrant Certificates shall
cease to be such officer of the Company before countersignature by the Warrant
Agent and issuance and delivery thereof, such Warrant Certificates may,
nevertheless, be countersigned by the Warrant Agent and issued and delivered
with the same force and effect as though such person had not ceased to be such
officer of the Company.
Warrants offered and sold to a QIB in reliance on Rule 144A,
as provided in the Purchase Agreement, shall be issued initially in the form of
one or more permanent global Warrant Certificates in definitive, fully
registered form, substantially in the form set forth in Exhibit A (the "Global
Warrant"), deposited with the Warrant Agent (subject to the provisions of
Section 5.02 herein), as custodian for DTC, duly executed by the Company and
countersigned by the Warrant Agent as hereinafter provided. The number of
Warrants represented by the Global Warrant may from time to time be increased or
decreased by adjustments made on the records of the Warrant Agent and DTC or its
nominee as hereinafter provided. Pursuant to Section 5.03, interests in the
Global Warrant may be converted into or exchanged for one or more Warrant
Certificates in definitive, fully
<PAGE>
11
registered form, substantially in the form set forth in Exhibit A ("Certificated
Warrants").
SECTION 2.04. Loss or Mutilation. Upon receipt by the Company
and the Warrant Agent of evidence satisfactory to them, in their reasonable
discretion, of the ownership and the loss, theft, destruction or mutilation of
any Warrant Certificate and of indemnity satisfactory to them and (in the case
of mutilation) upon surrender and cancelation thereof, then, in the absence of
notice to the Company or the Warrant Agent that the Warrants represented thereby
have been acquired by a bona fide purchaser, the Company shall execute and the
Warrant Agent shall countersign and deliver to the registered Holder of the
lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in
lieu thereof, a new Warrant Certificate of the same tenor and for a like
aggregate number of Warrants. Upon the issuance of any new Warrant Certificate
under this Section 2.04, the Company may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and other expenses (including the reasonable fees and expenses of the
Warrant Agent and of counsel to the Company) in connection therewith. Every new
Warrant Certificate executed and delivered pursuant to this Section 2.04 in lieu
of any lost, stolen or destroyed Warrant Certificate shall constitute a
contractual obligation of the Company, whether or not the allegedly lost, stolen
or destroyed Warrant Certificates shall be at any time enforceable by anyone,
and shall be entitled to the benefits of this Agreement equally and
proportionately with any and all other Warrant Certificates duly executed and
delivered hereunder. The provisions of this Section 2.04 are exclusive and shall
preclude (to the extent lawful) all other rights or remedies with respect to the
replacement of mutilated, lost, stolen, or destroyed Warrant Certificates.
SECTION 2.05. CUSIP Number. The Company in issuing the
Warrants may use a "CUSIP" number(s), and if so, the Warrant Agent shall use the
CUSIP number(s) in notices as a convenience to Holders; provided, however, that
any such notice may state that no representation is made as to the correctness
or accuracy of the CUSIP number(s) printed in the notice or on the Warrants, and
that reliance may be placed only on the other identification numbers printed on
the Warrants.
SECTION 2.06. Certificated Warrants. If the Depository is at
any time unwilling or unable to continue as a depository for the Global Warrant
and a successor depository is not appointed by the Company within 90 days,
<PAGE>
12
the Company will issue certificated Warrants in exchange for the Global Warrant.
In connection with the execution and delivery of such certificated Warrants, the
Warrant Agent shall, upon receipt of the order and at the direction of the
Company, reflect on its books and records a decrease in the principal amount of
the relevant Global Warrant equal to the number of such certificated Warrants
and the Company shall execute and the Warrant Agent shall countersign and
deliver one or more certificated Warrants in an equal aggregate number.
ARTICLE III
Exercise Price; Exercise of Warrants
SECTION 3.01. Exercise Price. Each Warrant shall, when the
certificate therefor is countersigned by the Warrant Agent, entitle the Holder
thereof, subject to and upon compliance with the provisions of this Agreement,
to purchase 3.65 shares of Common Stock, subject to adjustment pursuant to the
terms of this Agreement. The exercise price (the "Exercise Price") of each
Warrant is $28.60 per share, subject to adjustment pursuant to the terms of this
Agreement.
SECTION 3.02. Exercise; Restrictions on Exercise. (a) Subject
to the terms and conditions set forth herein, the Warrants shall be exercisable
on any Business Day on or after the Exercisability Date; provided, however, that
holders of Warrants will be able to exercise their Warrants only if (i) a
registration statement relating to the Warrant Shares is effective or (ii) the
exercise of such Warrants is exempt from the registration requirements of the
Securities Act, and the Warrant Shares are qualified for sale or exempt from
qualification under the applicable securities laws of the states or other
jurisdictions in which such holders reside. Any Warrants not exercised by 5:00
p.m., New York City time, on the Expiration Date shall expire and all rights of
the Holders of such Warrants shall terminate.
(b) As soon as practicable after the occurrence of an Exercise
Event which is a Warrant Change of Control, at the Company's written direction
the Warrant Agent, at the expense of the Company, will send to each Holder of
Warrants and each beneficial owner of Warrants, to the extent that the Warrants
are held of record by a depository or other agent, by first-class mail, at the
address appearing on the Warrant Register, a notice of such Exercise Event which
notice shall describe the Exercise Event and the date of occurrence thereof and
the date of expiration of the right
<PAGE>
13
to exercise the Warrants shall be prominently set forth on the face of such
notice.
SECTION 3.03. Method of Exercise. Warrants may be exercised
only in whole upon (i) surrender to the Warrant Agent at the office of the
Warrant Agent of the related Warrant Certificate, together with the form of
election attached thereto to purchase Common Stock on the reverse thereof duly
filled in and signed by the Holder thereof and (ii) payment to the Warrant
Agent, for the account of the Company, of the Exercise Price for each Warrant
Share or other security issuable upon the exercise of such Warrants then
exercised. Such payment shall be made (i) in cash or by certified or official
bank check payable to the order of the Company or by wire transfer of funds to
an account designated by the Company for such purpose or (ii) without the
payment of cash, by reducing the number of shares of Common Stock obtainable
upon the exercise of a Warrant and payment of the Exercise Price in cash so as
to yield a number of shares of Common Stock upon the exercise of such Warrant
equal to the product of (a) the number of shares of Common Stock issuable as of
the Exercise Date upon the exercise of such Warrant (if payment of the Exercise
Price were being made in cash) and (b) the Cashless Exercise Ratio or (iii) any
combination of (i) or (ii) above; provided, that in the case of payment made
pursuant to (ii) or (iii), the Company shall calculate the number of shares of
Common Stock to which such Holder is entitled, and shall inform the Warrant
Agent in writing of such number. An exercise of a Warrant in accordance with the
immediately preceding sentence is herein called a "Cashless Exercise". Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the holder's option to elect a Cashless Exercise, the number of
shares of Common Stock deliverable upon a Cashless Exercise shall be equal to
the number of shares of Common Stock issuable upon the exercise of Warrants that
the holder specifies are to be exercised pursuant to a Cashless Exercise
multiplied by the Cashless Exercise Ratio. All provisions of this Agreement
shall be applicable with respect to a surrender of a Warrant Certificate
pursuant to a Cashless Exercise for less than the full number of Warrants
represented thereby. In the event that a Warrant Certificate is surrendered for
exercise of less than all the Warrants represented by such Warrant Certificate
at any time prior to the Expiration Date, a new Warrant Certificate representing
the remaining Warrants shall be issued. The Warrant Agent shall countersign and
deliver the required new Warrant Certificates, and the Company, at the Warrant
Agent's request, shall supply the Warrant Agent with Warrant Certificates duly
signed on behalf of the Company for such purpose. Upon the request of
<PAGE>
14
the Company, the Warrant Agent shall provide to the Company information with
respect to (x) the total number of Warrants which have been exercised as of the
date of such request and (y) the total amount of funds which have been received
pursuant to the exercise of such Warrants as of the date of such request.
SECTION 3.04. Issuance of Warrant Shares. Upon the surrender
of Warrant Certificates and payment of the per share Exercise Price, as set
forth in Section 3.03, the Company shall issue and cause the Warrant Agent or,
if appointed, a transfer agent for the Common Stock ("Stock Transfer Agent") to
countersign and deliver to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate or certificates for the
number of full Warrant Shares so purchased upon the exercise of such Warrants or
other securities or property to which it is entitled, registered or otherwise,
to the Person or Persons entitled to receive the same (including any depositary
institution so designated by a Holder), together with cash as provided in
Section 3.05 in respect of any fractional Warrant Shares otherwise issuable upon
such exercise. 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 Warrant Shares as of the date of the surrender
of such Warrant Certificates and payment of the per share Exercise Price, as
aforesaid; provided, however, that if, at such date, the transfer books for the
Warrant Shares shall be closed, the certificates for the Warrant Shares in
respect of which such Warrants are then exercised shall be issuable as of the
date on which such books shall next be opened and until such date the Company
shall be under no duty to deliver any certificates for such Warrant Shares;
provided further, however, that such transfer books, unless otherwise required
by law, shall not be closed at any one time for a period longer than 20 calendar
days and shall not be closed without 10 days prior written notice to the
Holders.
SECTION 3.05. Fractional Warrant Shares. The Company shall not
be required to issue fractional Warrant Shares on the exercise of Warrants. If
more than one Warrant shall be exercised in full at the same time by the same
Holder, the number of full Warrant Shares which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of Warrant
Shares which may be purchasable pursuant thereto. If any fraction of a Warrant
Share would, except for the provisions of this Section 3.05, be issuable upon
the exercise of any Warrant, the Company shall pay an amount in cash equal to
the Current Market Value per Warrant Share, as determined on the day
<PAGE>
15
immediately preceding the date the Warrant is presented for exercise, multiplied
by such fraction, computed to the nearest whole cent.
SECTION 3.06. Reservation of Warrant Shares. The Company shall
at all times keep reserved out of its authorized shares of Common Stock a number
of shares of Common Stock sufficient to provide for the exercise of all
outstanding Warrants. The registrar for the Common Stock shall at all times
until the Expiration Date reserve such number of authorized shares as shall be
required for such purpose. The Company will keep a copy of this Agreement on
file with the Stock Transfer Agent. The Company will supply such Stock Transfer
Agent with duly executed stock certificates for such purpose and will itself
provide or otherwise make available any cash which may be payable as provided in
Section 3.05. The Company will furnish to such Stock Transfer Agent a copy of
all notices of adjustments (and certificates related thereto) transmitted to
each Holder.
Before taking any action which would cause an adjustment
pursuant to Article IV to reduce the Exercise Price below the then par value (if
any) of the Common Stock, the Company shall take any and all 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 nonassessable shares of Common
Stock at the Exercise Price as so adjusted.
The Company covenants that all Warrant Shares which may be
issued upon exercise of Warrants shall, upon issue, be fully paid,
nonassessable, free of preemptive rights, free from all taxes and free from all
liens, charges and security interests with respect to the issue thereof.
SECTION 3.07. Compliance with Law. (a) Notwith standing
anything in this Agreement to the contrary, in no event shall a Holder be
entitled to exercise a Warrant unless (i) a registration statement filed under
the Securities Act in respect of the issuance of the Warrant Shares is then
effective or (ii) in the opinion of counsel to the Company addressed to the
Warrant Agent the exercise of such Warrants is exempt from the registration
requirements of the Securities Act and such securities are qualified for sale or
exempt from qualification under the applicable securities laws of the states or
other jurisdictions in which such Holders reside.
(b) If any shares of Common Stock required to be reserved for
purposes of the exercise of Warrants require,
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16
under any other Federal or state law or applicable governing rule or regulation
of any national securities exchange, registration with or approval of any
governmental authority, or listing on any such national securities exchange
before such shares may be issued upon exercise, the Company will cause such
shares to be duly registered or approved by such governmental authority or
listed on the relevant national securities exchange, as the case may be.
ARTICLE IV
Antidilution Provisions
SECTION 4.01. Changes in Common Stock. In the event that at
any time and from time to time the Company shall (i) pay a dividend or make a
distribution on Common Stock in shares of Common Stock or other shares of
Capital Stock, (ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) increase or
decrease the number of shares of Common Stock outstanding by reclassification of
its Common Stock, then the number of shares of Common Stock issuable upon
exercise of each Warrant immediately after the happening of such event shall be
adjusted so that, after giving effect to such adjustment, the Holder of each
Warrant shall be entitled to receive the number of shares of Common Stock upon
exercise of such Warrant that such Holder would have owned or have been entitled
to receive had such Warrants been exercised immediately prior to the happening
of the events described above (or, in the case of a dividend or distribution of
Common Stock, immediately prior to the record date there for). An adjustment
made pursuant to this Section 4.01 shall become effective immediately after the
distribution date, retroactive to the record date therefor in the case of a
dividend or distribution in shares of Common Stock or other shares of Capital
Stock, and shall become effective immediately after the effective date in the
case of a sub division, combination or reclassification.
SECTION 4.02. Cash Dividends and Other Distribu tions. In the
event that at any time and from time to time the Company shall distribute to all
holders of Common Stock (i) any dividend or other distribution (including any
dividend or distribution made in connection with a consolidation or merger in
which the Company is the continuing corporation) of cash, evidences of its
indebtedness, shares of its Capital Stock or any other properties or securities
or (ii) any options, warrants or
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17
other rights to subscribe for or purchase any of the foregoing (other than, in
the case of clause (i) and (ii) above, (A) any dividend or distribution
described in Section 4.01, (B) any rights, options, warrants or securities
described in Section 4.03 or Section 4.04 and (C) any cash dividends or other
cash distributions from current or retained earnings other than Extraordinary
Cash Dividends), then the number of shares of Common Stock issuable upon the
exercise of each Warrant immediately prior to such record date for any such
dividend or distribution shall be increased to a number determined by
multiplying the number of shares of Common Stock issuable upon the exercise of
such Warrant immediately prior to such record date for any such dividend or
distribution by a fraction, the numerator of which shall be the Current Market
Value per share of Common Stock on the record date for such dividend or
distribution, and the denominator of which shall be such Current Market Value
per share of Common Stock less the sum of (x) the amount of cash, if any,
distributed per share of Common Stock and (y) the then fair value (as determined
in good faith by the Board of Directors, whose determination shall be evidenced
by a board resolution filed with the Warrant Agent, a copy of which will be sent
to Holders upon request) of the portion, if any, of the distribution applicable
to one share of Common Stock consisting of evidences of indebtedness, shares of
stock, securities, other property, warrants, options or subscription or purchase
rights; and subject to Section 4.08, the Exercise Price shall be adjusted to a
number determined by dividing the Exercise Price immediately prior to such
record date by the above fraction. Such adjustments shall be made, and shall
only become effective, whenever any dividend or distribution is made; provided,
however, that the Company is not required to make an adjustment pursuant to this
Section 4.02 if at the time of such distribution the Company makes the same
distribution to Holders of Warrants as it makes to holders of Common Stock pro
rata based on the number of shares of Common Stock for which such Warrants are
exercisable (whether or not currently exercisable). No adjustment shall be made
pursuant to this Section 4.02 which shall have the effect of decreasing the
number of shares of Common Stock issuable upon exercise of each Warrant or
increasing the Exercise Price.
SECTION 4.03. Issuance of Common Stock or Rights or Options.
In the event that at any time or from time to time the Company shall issue
shares of Common Stock or rights, options or warrants or securities convertible
or exchangeable into Common Stock for a consideration per share that is less
than the Current Market Value per share of Common Stock as of the issuance date
of such shares, or
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18
entitling the holders of such rights, options, warrants or securities to
subscribe for or purchase shares of Common Stock at a price that is less than
the Current Market Value per share of Common Stock as of the issuance date of
such rights, options, warrants or securities, the number of shares of Common
Stock issuable upon the exercise of each Warrant immediately after such issuance
date shall be determined by multiplying the number of shares of Common Stock
issuable upon exercise of each Warrant immediately prior to such issuance date
by a fraction, the numerator of which shall be the number of shares of Common
Stock out standing immediately preceding the issuance of such shares or rights,
options, warrants or securities plus the number of additional shares of Common
Stock to be issued in such transaction or offered for subscription or purchase
or into which such securities are convertible or exchangeable, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately preceding the date for the issuance of such shares or rights,
options, warrants or securities plus the total number of shares of Common Stock
which the aggregate consideration expected to be received by the Company upon
the issuance of such shares or the exercise, conversion or exchange of such
rights, options, warrants or securities (as determined in good faith by the
Board of Directors, whose determination shall be evidenced by a board resolution
filed with the Warrant Agent, a copy of which will be sent to Holders upon
request) would pur chase at the Current Market Value per share of Common Stock
as of the date of such issuance; and, subject to Section 4.08, in the event of
any such adjustment, the Exercise Price shall be adjusted to a number determined
by dividing the Exercise Price immediately prior to such date of issuance by the
aforementioned fraction; provided, however, that no adjustment to the number of
Warrant Shares issuable upon the exercise of the Warrants or to the Exercise
Price shall be made as a result of (i) the exercise of the Warrants, (ii) the
exercise, conversion or exchange of any right, option, warrant or security, the
issuance of which has previously required an adjustment to the number of Warrant
Shares issuable upon the exercise of the Warrants or to the Exercise Price
pursuant to this Section 4.03, (iii) the exercise, conversion or exchange of any
right, option, warrant or security outstanding on the Issue Date (to the extent
such exercise, conversion or exchange is made in accordance with the terms of
such right, option, warrant or security as in effect on the Issue Date), (iv)
the issuance of the Company's 9.2% Series B Junior Cumulative Convertible
Preferred Stock or the conversion thereof in accordance with the terms of such
Convertible Preferred Stock as in effect on the Issue Date or (v) the issuance,
exercise, conversion or exchange of options to acquire
<PAGE>
19
Common Stock by officers, directors or employees of the Company; provided,
however, that the aggregate number of shares of Common Stock subject to this
clause (v) shall not exceed 1% of the number of shares of Common Stock
outstanding on a fully diluted basis on the Issue Date. Such adjustment shall be
made, and shall only become effective, whenever such shares or such rights,
options, warrants or securities are issued. No adjustment shall be made pursuant
to this Section 4.03 which shall have the effect of decreasing the number of
shares of Common Stock issuable upon exercise of each Warrant or increasing the
Exercise Price.
SECTION 4.04. Fundamental Transaction; Liquidation. (a) Except
as provided in Section 4.04(b), in the event of a Fundamental Transaction, each
Holder shall have the right to receive upon exercise of the Warrants the kind
and amount of shares of Capital Stock or other securities or property which such
Holder would have been entitled to receive upon completion of or as a result of
such Fundamental Transaction had such Warrant been exercised immediately prior
to such event or to the relevant record date for any such entitlement
(regardless of whether the Warrants are then exercisable and without giving
effect to the Cashless Exercise Option), assuming (to the extent applicable)
that such Holder (i) was not a constituent Person or an affiliate to a
constituent Person to such Fundamental Transaction, (ii) made no election with
respect thereto, and (iii) was treated alike with the plurality of non-electing
Holders. Unless paragraph (b) is applicable to a Fundamental Transaction, the
Company shall provide that the surviving or acquiring Person (the "Successor
Company") in such Fundamental Transaction will enter into an agreement (a
"Supplemental Warrant Agreement") with the Warrant Agent confirming the Holders'
rights pursuant to this Section 4.04(a) and providing for adjustments, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Article IV. Any such Supplemental Warrant Agreement shall further
provide that such Successor Company will succeed to and be substituted for every
right and obligation of the Company in respect of this Agreement and the
Warrants. The provisions of this Section 4.04(a) shall similarly apply to
successive Fundamental Transactions involving any Successor Company.
(b) In the event of (i) a Fundamental Transaction with another
Person (other than a subsidiary of the Company) where consideration to the
holders of Common Stock in exchange for their shares is payable solely in cash
or (ii) the dissolution, liquidation or winding-up of the Company, the Holders
of the Warrants shall be entitled to
<PAGE>
20
receive, upon surrender of their Warrant Certificates, such cash distributions
on an equal basis with the holders of Common Stock or other securities issuable
upon exercise of the Warrants, as if the Warrants had been exercised immediately
prior to such event, less the Exercise Price.
In the event of any Fundamental Transaction described in this
Section 4.04(b), the Successor Company and, in the event of any dissolution,
liquidation or winding-up of the Company, the Company, shall deposit promptly
with the Warrant Agent the funds, if any, necessary to pay the Holders of the
Warrants the amounts to which they are entitled as described above. After such
funds and the surrendered Warrant Certificates are received, the Warrant Agent
shall make payment to the Holders by delivering a check in such amount as is
appropriate (or, in the case of consideration other than cash, such other
consideration as is appropriate) to such Person or Persons as it may be directed
in writing by the Holders surrendering such Warrant Certificates.
SECTION 4.05. Other Events. If any event occurs as to which
the foregoing provisions of this Article IV are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board of
Directors, fairly and adequately protect the purchase rights of the Warrants in
accordance with the essential intent and principles of such provisions, then the
Board of Directors shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, as shall be
reasonably necessary, in the good faith opinion of the Board of Directors, to
protect such purchase rights as aforesaid, but in no event shall any such
adjustment have the effect of increasing the Exercise Price or decreasing the
number of shares of Common Stock issuable upon exercise of the Warrants.
SECTION 4.06. Superseding Adjustment. Upon the expiration of
any rights, options, warrants or conversion or exchange privileges which
resulted in adjustments pursuant to this Article IV, if any thereof shall not
have been exercised, the number of Warrant Shares issuable upon the exercise of
each Warrant shall be readjusted pursuant to the applicable section of Article
IV as if (i) the only shares of Common Stock issuable upon exercise of such
rights, options, warrants, conversion or exchange privileges were the shares of
Common Stock, if any, actually issued upon the exercise of such rights, options,
warrants or conversion or exchange privileges and (ii) shares of Common Stock
actually issued, if any, were issuable for the consideration actually received
by the Company upon such exercise plus the
<PAGE>
21
aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all such rights, options, warrants or conversion or
exchange privileges whether or not exercised and the Exercise Price shall be
readjusted inversely; provided, however, that no such readjustment (except by
reason of an intervening adjustment under Section 4.01) shall have the effect of
decreasing the number of Warrant Shares issuable upon the exercise of each
Warrant, or increasing the Exercise Price, by an amount in excess of the amount
of the adjustment initially made in respect of the issuance, sale or grant of
such rights, options, warrants or conversion or exchange privileges.
SECTION 4.07. Minimum Adjustment. The adjust ments required by
the preceding sections of this Article IV shall be made whenever and as often as
any specified event requiring an adjustment shall occur, except that no adjust
ment of the Exercise Price or the number of shares of Common Stock issuable upon
exercise of the Warrants that would otherwise be required shall be made unless
and until such adjustment either by itself or with other adjustments not
previously made increases or decreases by at least 1% of the Exercise Price or
the number of shares of Common Stock issuable upon exercise of the Warrants
immediately prior to the making of such adjustment. Any adjustment representing
a change of less than such minimum amount shall be carried forward and made as
soon as such adjustment, together with other adjustments required by this
Article IV and not previously made, would result in a minimum adjustment. For
the purpose of any adjustment, any specified event shall be deemed to have
occurred at the close of business on the date of its occurrence. In computing
adjustments under this Article IV, fractional interests in Common Stock shall be
taken into account to the nearest one-hundredth of a share.
SECTION 4.08. Notice of Adjustment. Whenever the Exercise
Price or the number of shares of Common Stock and other property, if any,
issuable upon exercise of the Warrants is adjusted, as herein provided, the
Company shall deliver to the Warrant Agent a certificate of a firm of
independent accountants selected by the Board of Directors (who may be the
regular accountants employed by the Company) setting forth, in reasonable
detail, the event requiring the adjustment and the method by which such
adjustment was calculated (including a description of the basis on which (i) the
Board determined the then fair value of any evidences of indebtedness, other
securities or property or warrants, options or other subscription or purchase
rights and (ii) the Current Market Value of the Common Stock was determined, if
either of such determinations were required), and specifying the Exercise Price
and the number of shares
<PAGE>
22
of Common Stock issuable upon exercise of the Warrants after giving effect to
such adjustment. The Company shall promptly cause the Warrant Agent, at the
Company's expense, to mail a copy of such certificate to each Holder in
accordance with Section 9.03. The Warrant Agent shall be entitled to rely on
such certificate and shall be under no duty or responsibility with respect to
any such certificate, except to exhibit the same from time to time, to any
Holder desiring an inspection thereof during reasonable business hours. The
Warrant Agent shall not at any time be under any duty or responsibility to any
Holder to determine whether any facts exist which may require any adjustment of
the Exercise Price or the number of shares of Common Stock or other stock or
property issuable on exercise of the War rants, or with respect to the nature or
extent of any such adjustment when made, or with respect to the method employed
in making such adjustment or the validity or value of any shares of Common
Stock, evidences of indebtedness, warrants, options, or other securities or
property.
SECTION 4.09. Notice of Certain Transactions. In the event
that the Company shall propose to (a) pay any dividend payable in securities of
any class to the holders of its Common Stock or to make any other non-cash
dividend or distribution to the holders of its Common Stock, (b) offer the
holders of its Common Stock rights to subscribe for or to purchase any
securities convertible into shares of Common Stock or shares of stock of any
class or any other securities, rights or options, (c) issue any (i) shares of
Common Stock, (ii) rights, options or warrants entitling the holders thereof to
subscribe for shares of Common Stock or (iii) securities convertible into or
exchangeable or exercisable for Common Stock (in the case of (i), (ii) and
(iii), if such issuance or adjustment would result in an adjustment hereunder),
(d) effect any capital reorganization, reclassification, consolidation or
merger, (e) effect the voluntary or involuntary dissolution, liquidation or
winding-up of the Company or (f) make a tender offer or exchange offer with
respect to the Common Stock, the Company shall within five days after deciding
to take any such action or make any such offer send to the Warrant Agent a
notice and the Warrant Agent shall within five days after receipt thereof, at
the expense of the Company, send the Holders a notice (in such form as shall be
furnished to the Warrant Agent by the Company) of such proposed action or offer.
Such notice shall be mailed by the Warrant Agent to the Holders at their
addresses as they appear in the Certificate Register, which shall specify the
record date for the purposes of such dividend, distribution or rights, or the
date such issuance or event is to take place and the date of participation
therein by the holders
<PAGE>
23
of Common Stock, if any such date is to be fixed, and shall briefly indicate the
effect, if any, of such action on the Common Stock and on the number and kind of
any other shares of stock and on other property, if any, and the number of
shares of Common Stock and other property, if any, issuable upon exercise of
each Warrant and the Exercise Price after giving effect to any adjustment
pursuant to Article IV which will be required as a result of such action. Such
notice shall be given as promptly as possible and (x) in the case of any action
covered by clause (a) or (b) above, at least 10 days prior to the record date
for determining holders of the Common Stock for purposes of such action or (y)
in the case of any other such action, at least 20 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of Common Stock, whichever shall be the earlier.
SECTION 4.10. Adjustment to Warrant Certificate. The form of
Warrant Certificate need not be changed because of any adjustment made pursuant
to this Article IV, and Warrant Certificates issued after such adjustment may
state the same Exercise Price and the same number of shares of Common Stock
issuable upon exercise of the Warrants as are stated in the Warrant Certificates
initially issued pursuant to this Agreement. The Company, however, may at any
time in its sole discretion make any change in the form of Warrant Certificate
that it may deem appropriate to give effect to such adjustments and that does
not affect the substance of the Warrant Certificate, and any Warrant Certificate
thereafter issued or countersigned, whether in exchange or substitution for an
outstanding Warrant Certificate or otherwise, may be in the form as so changed.
ARTICLE V
Warrant Transfer Books; Restrictions On Transfer
SECTION 5.01. Transfer and Exchange. The Warrant Certificates
shall be issued in registered form only. The Company shall cause to be kept at
the office of the Warrant Agent a register (the "Warrant Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Warrant Certificates and transfers or exchanges
of Warrant Certificates as herein provided. All Warrant Certificates issued upon
any registration of transfer or exchange of Warrant Certificates shall be the
valid obligations of the Company, evidencing the same obligations, and entitled
to the same benefit under this Agreement, as the Warrant
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24
Certificates surrendered for such registration of transfer or exchange.
A Holder may transfer its Warrants only by complying with the
terms of this Agreement. No such transfer shall be effected until, and such
transferee shall succeed to the rights of a Holder only upon, final acceptance
and registration of the transfer by the Warrant Agent in the Warrant Register.
Prior to the registration of any transfer of Warrants by a Holder as provided
herein, the Company, the Warrant Agent, any agent of the Company or the Warrant
Agent may treat the Person in whose name the Warrants are registered as the
owner thereof for all purposes and as the Person entitled to exercise the rights
represented thereby, any notice to the contrary notwithstanding. Furthermore,
any Holder of a Global Warrant, shall, by acceptance of such Global Warrant,
agree that transfers of beneficial interests in such Global Warrant may be
effected only through a book-entry system maintained by the Holder of such
Global Warrant (or its agent), and that ownership of a beneficial interest in
the Warrants represented thereby shall be required to be reflected in a book
entry. When Warrants are presented to the Warrant Agent with a request to
register the transfer or to exchange them for an equal amount of Warrants of
other authorized denominations, the Warrant Agent shall register the transfer or
make the exchange in accordance with the provisions hereof.
SECTION 5.02. Registration; Registration of Transfer and
Exchange. Each Warrant shall initially be issued as part of a Unit consisting of
$1,000 principal amount of Notes and one Warrant. Prior to the Separability
Date, the Warrants may not be transferred or exchanged separately from, but may
be transferred or exchanged only together with, the Notes attached to such
Warrants. Prior to the Separability Date, the Trustee under the Indenture shall
act as transfer agent ("Transfer Agent") for both the Warrants and the Notes.
Any request for transfer of a Warrant prior to the Separability Date to the
Transfer Agent shall be accompanied by the Note attached thereto and the
Transfer Agent will not execute any such transfer without such Note attached
thereto. Such Note will be duly endorsed and accompanied by a written instrument
of transfer in form satisfactory to the Company, duly executed by the holder
thereof or the holder's attorneys duly authorized in writing. The Company shall
provide notice to the Transfer Agent and the Warrant Agent of the Separability
Date five Business Days prior to such date and the Transfer Agent will notify
DTC of such date. In the event of a determination by Merrill Lynch to separate
the Warrants and the Notes, the
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25
Company shall promptly, but in no event later than the next following Business
Day after receiving notice of such determination, provide notice to the Transfer
Agent and the Warrant Agent and the Transfer Agent will notify DTC of such date.
When Certificated Warrants are presented to the Warrant Agent
with a request from the Holder of such Warrants to register the transfer or to
exchange them for an equal number of Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested;
provided, however, that (i) every Warrant Certificate presented and surrendered
for registration of transfer or exchange shall be duly endorsed and be
accompanied by a written instrument of transfer in form satisfactory to the
Company, duly executed by the Holder thereof or the Holder's attorneys duly
authorized in writing and (ii) if being transferred or exchanged pursuant to an
effective registration statement under the Securities Act, pursuant to Section
2.04(b) or pursuant to clause (A), (B) or (C) below, shall be accompanied by the
following additional information and documents, as applicable:
(A) if such Certificated Warrants are being delivered
to the Warrant Agent by a Holder for registration in the name
of such Holder, without transfer, a certification from such
Holder to that effect (in the form set forth on the reverse of
the Warrant); or
(B) if such Certificated Warrants are being
transferred to the Company, a certification to that effect (in
the form set forth on the reverse of the Warrant); or
(C) if such Certificated Warrants are being
transferred (w) pursuant to an exemption from registration in
accordance with Rule 144A, or Rule 144 under the Securities
Act; or (x) in reliance on another exemption from the
registration requirements of the Securities Act: (1) a
certification to that effect (in the form set forth on the
reverse of the Warrant) and (2) if the Company or Warrant
Agent so requests, an opinion of counsel or other evidence
reasonably satisfactory to them as to the compliance with the
restrictions set forth in the legend set forth in Exhibit D.
To permit registrations of transfers and exchanges, the
Company shall make available to the Warrant
<PAGE>
26
Agent a sufficient number of executed Warrant Certificates to effect such
registrations of transfers and exchanges. No service charge shall be made to the
Holder for any registration of transfer or exchange of Warrants, but the Company
may require from the transferring or exchanging Holder payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable upon
exchanges pursuant to Section 2.04 and exchanges in respect of portions of
Warrants not exercised and the Company may deduct such taxes from any payment of
money to be made and such transfer or exchange shall not be consummated (if such
taxes are not deducted in full) unless or until the Holder shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company and the Warrant Agent that such tax has been paid.
SECTION 5.03. Book-Entry Provisions for the Global Warrants.
(a) The Global Warrant initially shall (i) be registered in the name of DTC or
the nominee of DTC, (ii) be delivered to the Warrant Agent or, prior to the
Separability Date, the Transfer Agent, as custodian for DTC and (iii) bear
legends as set forth in Section 2.02 hereof. Members of, or participants in, DTC
("Agent Members") shall have no rights under this Agreement with respect to the
Global Warrant held on their behalf by DTC or the Warrant Agent as its
custodian, and DTC may be treated by the Company, the Warrant Agent and any
agent of the Company or the Warrant Agent as the absolute owner of such Global
Warrant for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Warrant Agent or any agent of the Company
or the Warrant Agent from giving effect to any written certification, proxy or
other authorization furnished by DTC or impair, as between DTC and its Agent
Members, the operation of customary practices governing the exercise of the
rights of a beneficial owner of any Warrants.
(b) Transfers of the Global Warrant shall be limited to
transfers of such Global Warrant in whole, but not in part, to DTC, its
successors or their respective nominees. Interests of beneficial owners in the
Global Warrant may be transferred in accordance with the rules and procedures of
DTC. Certificated Warrants shall be transferred to all beneficial owners in
exchange for their beneficial interests in the Global Warrant if (i) DTC
notifies the Company that it is unwilling or unable to continue as depositary
for the Global Warrant or (ii) DTC ceases to be a "Clearing Agency" registered
under the Exchange Act and a successor depositary is not appointed by the
Company within 90 days.
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27
(c) In connection with the transfer of the entire Global
Warrant to beneficial owners pursuant to paragraph (b) of this Section 5.03, the
Global Warrant shall be deemed to be surrendered to the Warrant Agent for
cancelation, and the Company shall execute, and the Warrant Agent shall
countersign and deliver, to each beneficial owner identified by DTC in exchange
for its beneficial interest in the Global Warrant, Certificated Warrants of
authorized denominations representing, in the aggregate, the number of Warrants
theretofore represented by the Global Warrant.
(d) Any Certificated Warrant delivered in exchange for an
interest in a Global Warrant pursuant to paragraph (b) or (c) of this Section
5.03 shall bear applicable legends as set forth in Section 2.02 hereof.
(e) The registered holder of the Global Warrant may grant
proxies and otherwise authorize any Person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Agreement or the Warrants.
(f) Beneficial owners of interests in the Global Warrant may
receive Certificated Warrants (which shall bear the legend set forth in Exhibit
C or Exhibit D if required by Section 2.02) in accordance with the procedures of
DTC. In connection with the execution, countersigning and delivery of such
Certificated Warrants, the Warrant Agent shall reflect on its books and records
a decrease in the number of Warrants represented by the Global Warrant equal to
the number of Warrants represented by such Certificated Warrants and the Company
shall execute and the Warrant Agent shall countersign and deliver one or more
Certificated Warrants representing, in the aggregate, the number of Warrants
theretofore represented by the Global Warrant.
SECTION 5.04. Surrender of Warrant Certificates. Any Warrant
Certificate surrendered for registration of transfer, exchange or exercise of
the Warrants represented thereby shall, if surrendered to the Company, be
delivered to the Warrant Agent, and all Warrant Certificates surrendered or so
delivered to the Warrant Agent shall be promptly canceled by the Warrant Agent
and shall not be reissued by the Company and, except as provided in this Article
V in case of an exchange or in Article III hereof in case of the exercise of
less than all the Warrants represented thereby or in case of a mutilated Warrant
Certificate, no Warrant Certificate shall be issued hereunder in lieu thereof.
The Warrant Agent shall deliver to the Company from time to time or otherwise
dispose of
<PAGE>
28
such canceled Warrant Certificates as the Company may direct in writing.
ARTICLE VI
Registration Rights; Indemnification
SECTION 6.01. Effectiveness of Registration Statements.
Subject to Section 6.02, the Company shall cause to be filed pursuant to Rule
415 (or any successor provision) of the Securities Act (a) a shelf registration
statement relating to the offer and sale of the Warrants by the Holders from
time to time in accordance with the methods of distribution elected by such
holders and set forth in such registration statement (the "Warrant Shelf
Registration Statement"), and shall use its reasonable best efforts to cause the
Warrant Shelf Registration Statement to be declared effective under the
Securities Act on or before 150 days after the Issue Date and (b) a shelf
registration statement covering the issuance of Warrant Shares to the Holders
upon exercise of the Warrants by the Holders thereof (the "Warrant Share Shelf
Registration Statement") and shall use its reasonable best efforts to cause the
Warrant Share Shelf Registration Statement to be declared effective on or before
the Exercisability Date. The Company shall use its reasonable best efforts to
cause (x) the Warrant Shelf Registration Statement to remain effective until the
earliest of (i) such time as all Warrants have been sold thereunder, (ii) two
years after its effective date and (iii) until all Warrants can be sold without
restriction under the Securities Act and (y) the Warrant Share Shelf
Registration Statement to remain effective until the earlier of (i) such time as
all Warrants have been exercised and (ii) the Expiration Date. In connection
with either the Warrant Shelf Registration Statement or the Warrant Share Shelf
Registration Statement,
(i) the Company shall furnish to the Warrant Agent, prior to
the filing with the Commission, a copy of any registration statement,
and each amendment thereof and each amendment or supplement, if any, to
the prospectus included therein and shall use its reasonable best
efforts to reflect in each such document, when filed with the
Commission, such comments as the Warrant Agent may reasonably propose,
(ii) the Company shall furnish to each Holder, without charge,
at least one copy of any registration statement and any post-effective
amendment thereto, including financial statements and schedules, and,
if
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29
the Holder so requests in writing, all exhibits thereto (including
those incorporated by reference),
(iii) the Company shall, for so long as any such registration
statement is effective, deliver to each Holder, without charge, as many
copies of the prospectus (including each preliminary prospectus)
included in such registration statement and any amendment or supplement
thereto as such Holder may reasonably request, and the Company consents
to the proper use of the prospectus therein and any amendment or
supplement thereto by each of the selling Holders in connection with
the offering and sale of the Warrants or the Warrant Shares, as the
case may be, covered by such prospectus and any amendment or supplement
thereto,
(iv) the Company may require each Holder of Warrants to be
sold pursuant to the Warrant Shelf Registration Statement or to be
exercised in connection with the Warrant Share Shelf Registration
Statement to furnish to the Company such information regarding the
Holder and the distribution of such Warrants or Warrant Shares as the
Company may from time to time reasonably request for inclusion in such
registration statement,
(v) the Company shall, if requested, promptly incorporate in a
prospectus supplement or post-effective amendment to such registration
statement such information as a majority in interest of the Holders
reasonably agree should be included therein and shall make all required
filings of such prospectus supplement or post-effective amendment as
soon as notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment,
(vi) the Company shall enter into such agreements (including
underwriting agreements) as are appropriate, customary and reasonably
necessary in connection with any such registration statement and
(vii) the Company shall (A) make available to the
underwriters, if any, all material customary for reasonable due
diligence examinations in connection with such registration statements,
(B) make such representations and warranties to the Holders of Warrants
and the underwriters, if any, as are customary and reasonable in
connection with such registration statements, (C) obtain such opinions
of counsel to the Company addressed to and reasonably satisfactory to
the Holders as are customary and reasonable in connection
<PAGE>
30
with such registration statements and (D) obtain such "comfort" letters
and updates thereof from the independent certified public accountants
of the Company addressed to the Holders as are customary and reasonable
in connection with such registration statements. The Company will
furnish the Warrant Agent with current prospectuses meeting the
requirements of the Securities Act in sufficient quantity to permit the
Warrant Agent to deliver, at the Company's expense, a prospectus to
each holder of a Warrant upon the exercise thereof. The Company shall
promptly inform the Warrant Agent of any change in the status of the
effectiveness or availability of any registration statement.
SECTION 6.02. Suspension. During any consecutive 365-day
period, the Company shall be entitled to suspend the availability of each of the
Warrant Shelf Registration Statement and the Warrant Share Shelf Registration
Statement for up to three 30 consecutive-day periods (except for the 45
consecutive-day period immediately prior to the Expiration Date) but for no more
than an aggregate of 60 days during any 365-day period if the Company's Board of
Directors determines in the exercise of its good faith judgment that it is
necessary to amend such registration statement or amend or supplement any
prospectus or prospectus Supplement thereunder in order that each such document
not include any untrue statement of fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made.
SECTION 6.03. Liquidated Damages. If either the Warrant Shelf
Registration Statement has not been declared effective within 150 days after the
Issue Date or the Warrant Share Shelf Registration Statement has not been
declared effective on or prior to the Exercisability Date (each a "Registration
Default"), then the Company will pay liquidated damages in cash to each Holder
of Warrants in an amount equal to $0.03 per week per Warrant while such
Registration Default continues for the first 90-day period immediately following
such Registration Default. The amount of liquidated damages payable in cash by
the Company to each Holder of Warrants will increase by an amount equal to $0.02
per week per Warrant with respect to each subsequent 90-day period during which
such Registration Default continues and until such Registration Default is
cured, up to a maximum of $0.07 per week per Warrant. All liquidated damages
accrued, but not paid, on or prior to any interest payment date for the Notes,
will be paid to Holders of Warrants on such interest payment date at their
registered addresses.
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31
SECTION 6.04. Piggy-Back Registration Rights. (a) If the
Company proposes to sell Common Stock pursuant to an effective registration
statement under the Securities Act (other than a registration statement on Form
S-4 or S-8 or a registration statement filed in connection with an offer of
securities solely to existing security holders), or the Company files a
registration statement to cover the sale of Common Stock for the account of any
of its security holders, then the Company shall in each case give written
notice, not later than the date of the initial filing of such registration
statement related to such offering, of such proposed offering to the Holders of
Warrants and Warrant Shares and such notice shall offer to such Holders the
opportunity to include in such offering such number of Warrants as such Holders
may request. From and after the Exercisability Date, Holders of Warrants may
also request to include Warrant Shares in such offering. Within 20 days after
receipt of such notice, the Holders of Warrants and Warrant Shares (the
"Requesting Holders") shall, subject to the following sentence, have the right
by notifying the Company in writing to require the Company to include in the
registration statement relating to such offering such number of Warrants or
Warrant Shares as such Holder may request. Notwithstanding the foregoing, if at
any time the managing underwriter or underwriters of such offering (the
"Managing Underwriter") shall advise the Company in writing (and shall deliver a
copy thereof to the Warrant Agent) that, in its opinion, the total number or
type of Warrants, Warrant Shares or other securities, as the case may be,
proposed to be sold exceeds the maximum number or type of Warrants, Warrant
Shares or other securities, as the case may be, which the Managing Underwriter
believes may be sold without materially adversely affecting the price, timing or
distribution of the offering, then the Company will be required to include, for
each Requesting Holder, only that pro rata number (based on the number of
Warrants or Warrant Shares requested to be included therein by all Requesting
Holders) of Warrants or Warrant Shares which the Managing Underwriter believes
may be sold without causing such adverse effect. The Company will have the right
to postpone or withdraw any registration statement relating to any Offering
described under this Section 6.04 prior to the effective date without obligation
to any Requesting Holder.
(b) If the Company has complied with all the obligations under
Section 6.04(a), to the extent applicable, all Holders of Warrants and Warrant
Shares upon request of the Managing Underwriter will be required to not sell or
otherwise dispose of any Warrants or Warrant Shares owned by them for a period
not to exceed 30 days prior to, or 90 days after, the consummation of any
underwritten public offering.
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32
(c) The provisions of Section 6.02 and the third, fourth and
fifth sentences of Section 6.01 shall apply to any registration statement
governed by Section 6.04(a).
SECTION 6.05. Blue Sky. The Company shall use its best efforts
to register or qualify the Warrants and the Warrant Shares under all applicable
securities laws, blue sky laws or similar laws of all jurisdictions in the
United States in which any holder of Warrants may or may be deemed to purchase
Warrants or Warrant Shares upon the exercise of Warrants and shall use its best
efforts to maintain such registration or qualification for so long as it is
required to cause the Warrant Shelf Registration Statement (in the case of the
Warrants), the Warrant Share Shelf Registration Statement (in the case of the
Warrant Shares) and any registration statement governed by Section 6.04 to
remain effective under the Securities Act pursuant to Section 6.01 or until the
offering pursuant to Section 6.04 is complete; provided, however, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 6.05 or to take any action which would subject it to general service of
process or to taxation in any such jurisdiction where it is not then so subject.
SECTION 6.06. Accuracy of Disclosure. The Company represents
and warrants to each Holder and agrees for the benefit of each Holder that (i)
each of the Warrant Shelf Registration Statement, the Warrant Share Shelf
Registration Statement and any registration statement governed by Section 6.04
and any amendment thereto will 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 contained therein not misleading and (ii) each of the
prospectus furnished to such Holder for delivery in connection with the sale of
Warrants and the prospectus delivered to such Holder upon the exercise of
Warrants and the documents incorporated by reference therein will 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 contained
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company shall have no liability under
clauses (i) or (ii) of this Section 6.06 with respect to any such untrue
statement or omission made in any registration statement or prospectus in
reliance upon and in conformity with information furnished to the Company by or
on behalf of the Holders specifically for inclusion therein.
<PAGE>
33
SECTION 6.07. Indemnification. (a) In connection with any
registration statement governed by this Article VI, the Company agrees to
indemnify and hold harmless each Holder of the Securities, and each person, if
any, who controls such Holder within the meaning of the Securities Act or the
Exchange Act (each Holder and such controlling persons being referred to
collectively as the "Indemnified Parties") from and against any losses, claims,
damages or liabilities, joint or several, or any actions in respect thereof
(including, but not limited to, any losses, claims, damages, liabilities or
actions relating to purchases and sales of the Securities) to which each
Indemnified Party may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in a registration statement governed by this
Article VI or prospectus or in any amendment or supplement thereto or in any
preliminary prospectus relating to a registration statement governed by this
Article VI, or arise out of, or are based upon, the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, and shall reimburse, as incurred, the Indemnified
Parties for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action in respect thereof; provided, however, that (i) the Company
shall not be liable in any such case to the extent that such loss, claim, damage
or liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in a registration
statement governed by this Article VI or prospectus or in any amendment or
supplement thereto or in any preliminary prospectus relating to a registration
statement governed by this Article VI in reliance upon and in conformity with
written information pertaining to such Holder and furnished to the Company by or
on behalf of such Holder specifically for inclusion therein and (ii) with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus relating to a Registration
Statement, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any Holder from whom the person asserting any such
losses, claims, damages or liabilities purchased the Securities concerned, to
the extent that a prospectus relating to such Securities was required to be
delivered by such Holder under the Securities Act in connection with such
purchase and any such loss, claim, damage or liability of such Holder results
from the fact
<PAGE>
34
that there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Securities to such person, a copy of the final
prospectus (as amended or supplemented if the Company shall have furnished any
such amendments or supplements to such Holder) if the Company had previously
furnished copies thereof to such Holder; provided further, however, that this
indemnity agreement will be in addition to any liability which the Company may
otherwise have to such Indemnified Party. The Company shall also indemnify
underwriters, selling brokers, dealer-managers and similar securities industry
professionals participating in the distribution (in each case as described in
the registration statement governed by this Article VI), their officers and
directors and each person who controls such persons within the meaning of the
Securities Act or the Exchange Act to the same extent as provided above with
respect to the indemnification of the Holders of the Securities if requested by
such Holders.
(b) In connection with any registration statement governed by
this Article VI, each Holder of the Securities, severally and not jointly, will
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act (and
the directors, officers, agents and employees of the Company and any such
controlling person) from and against any losses, claims, damages or liabilities
or any actions in respect thereof (including, but not limited to, any losses,
claims, damages, liabilities or actions relating to purchases and sales of the
Securities) to which the Company or any such controlling person (or the
directors, officers, agents and employees of the Company and any such
controlling person) may become subject under the Securities Act, the Exchange
Act or otherwise, insofar as such losses, claims, damages, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in a registration statement governed by
this Article VI or prospectus or in any amendment or supplement thereto or in
any preliminary prospectus relating to a registration statement governed by
this Article VI, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, but in each case only to the extent
that the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
pertaining to such Holder and furnished to the Company by or on behalf of such
Holder specifically for inclusion therein; and, subject to the limitation set
<PAGE>
35
forth immediately preceding this clause, shall reimburse, as incurred, the
Company for any legal or other expenses reasonably incurred by the Company or
any such controlling person (or the directors, officers, agents and employees of
the Company and any such controlling person) in connection with investigating or
defending any loss, claim, damage, liability or action in respect thereof. This
indemnity agreement will be in addition to any liability which such Holder may
otherwise have to the Company or any of its controlling persons.
(c) Promptly after receipt by an indemnified party under this
Section 6.07 of notice of the commencement of any action or proceeding
(including a governmental investigation), such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6.07, notify the indemnifying party of the commencement thereof; but the
failure to so notify the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party (except to the
extent that it is prejudiced or harmed in any material respect by failure to
give such prompt notice). In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, act as both counsel to the indemnified and indemnifying
parties in such action if, in the reasonable opinion of both counsel to the
indemnified party and the indemnifying party, a conflict exists which makes such
joint representation not advisable), and after notice from the indemnifying
party to such indemnified party of its election to so assume the defense thereof
the indemnifying party will not be liable to such indemnified party under this
Section 6.07 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. No indemnifying party shall, without the prior written
consent of the indemnified party, not to be unreasonably withheld, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any claims
that are the subject matter of such action. No indemnifying party shall be
liable for any amounts paid in settlement of any
<PAGE>
36
action or claim without its written consent, which consent shall not be
unreasonably withheld.
(d) If the indemnification provided for in this Section 6.07
is unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party or parties on the one
hand and the indemnified party on the other from the registration statement
governed by this Article VI, or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the indemnifying party or parties on the
one hand and the indemnified party on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
such Holder or such other indemnified person, as the case may be, on the other,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid by
an indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which is
the subject of this subsection (d). Notwith standing any other provision of this
Section 6.07(d), the Holders of the Securities shall not be required to
contribute any amount in excess of the amount by which the net proceeds received
by such Holders from the sale of the Warrants pursuant to the Warrant Shelf
Registration Statement or the Warrant Shares pursuant to the Warrant Share Shelf
Registration Statement or the Warrants or Warrant Shares pursuant to any
registration statement governed by Section 6.04 exceeds the amount of damages
which such Holders have otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
<PAGE>
37
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this paragraph
(d), each person, if any, who controls such indemnified party within the meaning
of the Securities Act or the Exchange Act shall have the same rights to
contribution as such indemnified party and each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act shall have
the same rights to contribution as the Company.
(e) The agreements contained in this Section 6.07 shall
survive the sale of the Securities pursuant to the registration statements
governed by this Article VI and shall remain in full force and effect,
regardless of any termination or cancelation of this Agreement or any
investigation made by or on behalf of any indemnified party.
SECTION 6.08. Additional Acts. If the sale of Warrants or the
issuance or sale of any Common Stock or other securities issuable upon the
exercise of the Warrants requires registration or approval of any governmental
authority (other than the registration requirements under the Securities Act),
or the taking of any other action under the laws of the United States or any
political subdivision thereof before such securities may be validly offered or
sold in compliance with such laws, then the Company covenants that it will, in
good faith and as expeditiously as reasonably possible, use its reasonable best
efforts to secure and maintain such registration or approval or to take such
other action, as the case may be. The Company shall promptly notify the Warrant
Agent in writing when (i) the Company has obtained all such governmental
approvals and authorizations and (ii) such approvals and authorizations
thereafter cease to be in effect.
SECTION 6.09. Expenses. All expenses incident to the Company's
performance of or compliance with its obliga tions under this Article VI will be
borne by the Company, including: (i) all Commission, stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees, (ii) all
reasonable fees and expenses incurred in connection with the compliance with
state securities or blue sky laws, (iii) all expenses of any Persons incurred by
or on behalf of the Company in preparing or assisting in preparing, printing and
distributing the Warrant Shelf Registration Statement, the Warrant Share Shelf
Registration Statement or any registration statement governed by Section 6.04,
prospectus, any amendments or supplements thereto and other documents relating
to the performance of and compliance with this Article VI, (iv) the fees and
disbursements of the Warrant Agent as agreed, (v) the fees
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38
and disbursements of counsel for the Company and the Warrant Agent as agreed and
(vi) the fees and disbursements of the independent public accountants of the
Company, including the expenses of any special audits or comfort letters
required by or incident to such performance and compliance.
ARTICLE VII
The Warrant Agent
SECTION 7.01. Duties and Liabilities. The Company hereby
appoints the Warrant Agent to act as agent of the Company as set forth in this
Agreement. The Warrant Agent hereby accepts the agency established by this
Agreement and agrees to perform the same upon the terms and conditions herein
set forth, by all of which the Company and the Holders of Warrants, by their
acceptance thereof, shall be bound. The Warrant Agent shall not have any
obligation towards or relationship of agency or trust for the Holders. The
Warrant Agent shall not, by countersigning Warrant Certificates or by any other
act hereunder, be deemed to make any representations as to the validity or
authorization of the Warrants or the Warrant Certificates (except as to its
countersignature thereon) or of any securities or other property delivered upon
exercise of any Warrant, or as to the accuracy of the calculation of the
Exercise Price, or the number or kind or amount of Common Stock or other
securities or other property deliverable upon exercise of any Warrant, or as to
the correctness of the representations of the Company made in the certificates
that the Warrant Agent receives or the validity, sufficiency or adequacy of any
offering materials. The Warrant Agent shall not have any obligation to calculate
or determine any adjustments with respect to either (i) the Exercise Price, or
(ii) the type or quantity of securities receivable by a Holder upon exercise or
repurchase of such Holder's Warrants, nor shall the Warrant Agent have a duty to
independently verify any such adjustments that may be supplied to it by the
Company. The Warrant Agent shall not (a) be liable for any recital or statement
of fact contained herein or in the Warrant Certificates or for any action taken,
suffered or omitted by it in good faith in the belief that any Warrant
Certificate or any other documents or any signatures are genuine or properly
authorized, (b) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in the Warrant Certificates or (c) be liable for any act or omission in
connection with this Agreement except for its own gross negligence or wilful
misconduct. The Warrant Agent is hereby authorized to accept instructions with
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39
respect to the performance of its duties hereunder from the Chief Executive
Officer, President, any Vice President or the Secretary or Treasurer of the
Company and to apply to any such officer for instructions (which instructions
will be promptly given in writing when requested) and the Warrant Agent shall
not be liable for any action taken or suffered to be taken by it in good faith
in accordance with the instructions of any such officer; however, in its
discretion, the Warrant Agent may in lieu thereof accept other evidence of such
or may require such further or additional evidence as it may deem reasonable.
The Warrant Agent shall not be liable for any action taken, or for any failure
to take any action, with respect to any matter in the event it requests
instructions from the Company as to that matter and does not receive such
instructions within a reasonable period of time after the request therefor.
The Warrant Agent may execute and exercise any of the rights
and powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys, agents or employees, and the Warrant Agent shall not
be answerable or accountable for any act, default, neglect or misconduct of any
such attorneys, agents or employees; provided, however, reasonable care has been
exercised in the selection and in the continued employment of any such attorney,
agent or employee. The Warrant Agent shall not be under any obligation or duty
to institute, appear in or defend any action, suit or legal proceeding in
respect hereof, unless first indemnified to its satisfaction, but this provision
shall not affect the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without such indemnity. The
Warrant Agent shall promptly notify the Company in writing of any claim made or
action, suit or proceeding instituted against it arising out of or in connection
with this Agreement.
The Warrant Agent may rely and shall be fully protected in
acting or refraining from acting upon any certificate, notice, instruction,
Warrant, document or other writing believed by it to be genuine and to have been
signed or presented by the proper Person. The Warrant Agent need not investigate
any fact or matter stated in any such certificate, notice, instruction, Warrant,
document or other writing. The Warrant Agent shall not be liable for any action
that it takes or omits to take in good faith which it believes to be authorized
or within its rights or powers.
The Company will perform, execute, acknowledge and deliver or
cause to be performed, executed, acknowledged and delivered all such further
acts, instruments and assurances as are consistent with this Agreement and as
may reasonably
<PAGE>
40
be required by the Warrant Agent in order to enable it to carry out or perform
its duties under this Agreement.
The Warrant Agent shall act solely as agent of the Company
hereunder. The Warrant Agent shall not be liable except for the failure to
perform such duties as are specifically set forth herein, and no implied
covenants or obligations shall be read into this Agreement against the Warrant
Agent, whose duties and obligations shall be determined solely by the express
provisions hereof.
With respect to the identity of beneficial owners of interests
in the Global Warrant and the number of Warrants beneficially owned by any
beneficial owner, the Warrant Agent shall be entitled to conclusively rely on
the records of DTC and shall be fully protected in so relying.
SECTION 7.02. Right To Consult Counsel. The Warrant Agent may
at any time consult with legal counsel acceptable to it (who may be legal
counsel for the Company), and the opinion or advice of such counsel shall be
full and complete authorization and protection to the Warrant Agent and the
Warrant Agent shall incur no liability or responsibility to the Company or to
any Holder for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
SECTION 7.03. Compensation; Indemnification. The Company
agrees to pay to the Warrant Agent from time to time compensation for all
services rendered by it hereunder as the Company and the Warrant Agent may agree
in writing from time to time, and to reimburse the Warrant Agent for reasonable
expenses and disbursements incurred in connection with the execution and
administration of this Agreement (including the reasonable fees and the expenses
of its counsel), and further agrees to indemnify the Warrant Agent for, and to
hold it harmless against, any claim, loss, liability or expense arising out of
or in connection with the acceptance and administration of this Agreement,
including the costs and expenses of defending itself against any such claim or
liability, except that the Company shall have no liability hereunder to the
extent that any such loss, liability or expense results from the Warrant Agent's
own gross negligence or wilful misconduct. The obligations of the Company under
this Section 7.03 shall survive the exercise and the expiration of the Warrants
and the resignation or removal of the Warrant Agent. No provision of this
Agreement shall require the Warrant Agent to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers if it
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41
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 7.04. No Restrictions on Actions. The Warrant Agent
and any stockholder, director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of the Company or become
pecuniarily interested in transactions in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as fully and
freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
SECTION 7.05. Discharge or Removal; Replacement Warrant Agent.
Except as otherwise provided in this Section 7.05, and except after the exercise
of all of the outstanding Warrants and the delivery of Warrant Shares with
respect thereto, no resignation or removal of the Warrant Agent and no
appointment of a successor warrant agent shall become effective until the
acceptance of appointment by the successor warrant agent provided herein. The
Warrant Agent may resign from its position as such and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own gross negligence or wilful misconduct), after giving
one month's prior written notice to the Company. The Company may remove the
Warrant Agent upon one month's prior written notice specifying the date when
such discharge shall take effect, and the Warrant Agent shall thereupon in like
manner be discharged from all further duties and liabilities hereunder, except
as aforesaid. The Warrant Agent or the Company shall cause to be mailed (by
first-class mail, postage prepaid) to each Holder of a Warrant a copy of said
notice of resignation or notice of removal, as the case may be. Upon such
resignation or removal the Company shall appoint in writing a new warrant agent.
If the Company shall fail to make such appointment within a period of 30
calendar days after it has been notified in writing of such resignation by the
resigning Warrant Agent or after such removal, then the resigning Warrant Agent
or the Holder of any Warrant may apply to any court of competent jurisdiction
for the appointment of a new warrant agent. Any new warrant agent, whether
appointed by the Company or by such a court, shall be a bank or trust company
doing business under the laws of the United States or any state thereof, in good
standing and having a combined capital and surplus of not less than $50,000,000.
The combined capital and surplus of any such new warrant agent shall be deemed
to
<PAGE>
42
be the combined capital and surplus as set forth in the most recent annual
report of its condition published by such warrant agent prior to its
appointment; provided, however, that such reports are published at least
annually pursuant to law or to the requirements of a federal or state
supervising or examining authority. After acceptance in writing of such
appointment by the new warrant agent, it shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named herein as
the Warrant Agent, without any further assurance, conveyance, act or deed;
however, the original Warrant Agent, upon payment of its fees and expenses,
shall in all events deliver and transfer to the successor Warrant Agent all
property, if any, at the time held hereunder by the original Warrant Agent and
if for any reason it shall be necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning or removed Warrant Agent. Not later than the effective date of
any such appointment, the Company shall file a notice thereof with the resigning
or removed Warrant Agent and shall forthwith cause a copy of such notice to be
mailed to each Holder of a Warrant. Failure to give any notice provided for in
this Section 7.05, however, or any defect therein, shall not affect the legality
or validity of the resignation of the Warrant Agent or the appointment of a new
warrant agent, as the case may be.
SECTION 7.06. Successor Warrant Agent. Any corporation into
which the Warrant Agent or any successor warrant agent may be merged or
converted, or any corporation resulting from any consolidation to which the
Warrant Agent or any successor warrant agent shall be a party, and any
corporation that acquires substantially all of the corporate trust business of
the Warrant Agent, shall be a successor Warrant Agent under this Agreement
without any further act; provided, however, that such corporation would be
eligible for appointment as successor to the Warrant Agent under the provisions
of Section 7.05 hereof. Any such successor Warrant Agent shall promptly cause
notice of its succession as Warrant Agent to be mailed (by first-class mail,
postage prepaid) to each Holder of a Warrant.
ARTICLE VIII
Warrant Holders
SECTION 8.01. Warrant Holder Not Deemed a Holder of Common
Stock. Prior to the exercise of the Warrants, no
<PAGE>
43
Holder of a Warrant Certificate, as such, shall be entitled to any rights of a
holder of Common Stock.
SECTION 8.02. Right of Action. All rights of action with
respect to this Agreement are vested in the Holders of the Warrants, and any
Holder of any Warrant, without the consent of the Warrant Agent or the Holder of
any other Warrant, may, on such Holder's own behalf and for such Holder's own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, such
Holder's right to exercise, exchange or tender for purchase such Holder's
Warrants in the manner provided in the Warrant Certificate representing his
Warrants and in this Agreement.
ARTICLE IX
Miscellaneous
SECTION 9.01. Payment of Taxes. The Company shall pay any
stamp, registration, and other similar taxes and other governmental charges that
may be imposed under the laws of the United States of America or any political
subdivision or taxing authority thereof or therein in respect of the issue or
delivery thereof or of other securities deliverable upon exercise of Warrants
(other than income taxes imposed on the Holders). The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any Warrant Shares to any Person other than
the Holder of a Warrant Certificate surrendered upon the exercise of a Warrant,
and in case of such transfer or payment, the Warrant Agent and the Company shall
not be required to issue any Warrant Shares or pay any cash until such tax or
charge has been paid or it has been established to the Warrant Agent's and the
Company's satisfaction that no such tax or other charge is due.
SECTION 9.02. Reports to Holders. The Company shall:
(a) file the reports (or copies of such portions of any of the
foregoing as the Commission may from time to time by rules and regulations
prescribe) required to be filed by it under the Securities Act and the Exchange
Act, and the rules, regulations and policies adopted by the Commission
thereunder in a timely manner in accordance with the requirements of the
Securities Act and the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections,
<PAGE>
44
then the Company shall, upon the request of any Holder or beneficial owner of
Warrants, make available such information as necessary to permit sales pursuant
to Rule 144A under the Securities Act; and
(b) file with the Warrant Agent and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with respect to
compliance by the Company with the conditions and covenants of this Agreement as
may be required from time to time by such rules and regulations.
SECTION 9.03. Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telex, telecopier, or any air courier (a) if to a
Holder of the Warrants, at the address of such Holder maintained by the Warrant
Agent, (b) if to the Company, to CD Radio Inc., 1221 Avenue of the Americas, New
York, New York 10020, Attention: Patrick L. Donnelly and (c) if to the Warrant
Agent, to United States Trust Company of New York, 114 West 47th Street, New
York, NY 10036, Attention: Corporate Trust Administration.
All such notices and communications shall be deemed to have
been duly given; at the time delivered by hand, if personally delivered; at the
time received, if mailed or sent by air courier; when answered back, if telexed;
and when receipt is acknowledged, by recipient's telecopy operator, if
telecopied.
SECTION 9.04. Severability. If any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
SECTION 9.05. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the Company and the Warrant Agent and their
respective successors and assigns, and the Holders from time to time of the
Warrants. Nothing in this Agreement is intended or shall be construed to confer
upon any Person, other than the Company, the Warrant Agent and the Holders of
the Warrants, any right, remedy or claim under or by reason of this Agreement or
any part hereof.
<PAGE>
45
SECTION 9.06. Third-Party Beneficiaries. The Holders and
holders of Warrant Shares shall be third-party beneficiaries to the agreements
made hereunder between the Company, on the one hand, and the Warrant Agent, on
the other hand, and each Holder and holder of Warrant Shares shall have the
right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders or holders of Warrant Shares hereunder.
SECTION 9.07. Amendments. The Company may, without the consent
of the Holders of the Warrants, by supplemental agreement or otherwise, make any
changes or corrections in this Agreement that it shall have been advised by
counsel (a) are required to cure any ambiguity or to correct or supplement any
provision herein which may be defective or inconsistent with any other provision
herein or (b) add to the covenants and agreements of the Company for the benefit
of the Holders, or surrender any rights or power reserved to or conferred upon
the Company in this Agreement; provided, however, that, in each case, such
changes or corrections shall not adversely affect the interests of the Holders
or holders of Warrant Shares in any material respect. Amendments or supplements
which do not meet the requirements of the preceding sentence shall require the
written consent of the Holders of a majority of the then outstanding Warrants
and, to the extent such amendment or supplement affects the rights of holders of
Warrant Shares under Article VI hereof, the written consent of the holders of a
majority of the then outstanding Warrant Shares; provided, however, that the
consent of each Holder is required for any amendment or supplement pursuant to
which the Exercise Price would be increased or the Exercise Rate would be
decreased (other than pursuant to adjustments as provided in Article IV of this
Agreement). The Warrant Agent shall join with the Company in the execution and
delivery of any such supplemental agreements unless it affects the Warrant
Agent's own rights, duties of immunities hereunder, in which case the Warrant
Agent may, but shall not be required to, join in such execution and delivery.
SECTION 9.08. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of any provision hereof.
SECTION 9.09. GOVERNING LAW. THIS AGREEMENT AND THE WARRANTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
<PAGE>
46
SECTION 9.10. Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, and their respective corporate seals to be hereto
affixed and attested, all as of the day and year first above written.
CD RADIO INC.
by /s/Patrick L. Donnelly
----------------------------------------
Name: Patrick L. Donnelly
Title: Executive Vice President
and General Counsel
UNITED STATES TRUST COMPANY OF NEW
YORK, Warrant Agent
by /s/Patricia Gallagher
----------------------------------------
Name: Patricia Gallagher
Title: Assistant Vice President
<PAGE>
EXHIBIT A TO
WARRANT AGREEMENT
CUSIP No.
No. [ ] Certificate for [ ] Warrants
WARRANTS TO PURCHASE COMMON STOCK OF
CD RADIO INC.
THIS CERTIFIES THAT [ ], or its
registered assigns, is the registered holder of the number of Warrants set forth
above (the "Warrants"). Each Warrant entitles the holder thereof (the "Holder"),
at its option and subject to the provisions contained herein and in the Warrant
Agreement referred to below, to purchase from CD RADIO INC., a Delaware
corporation ("the Company"), 3.65 shares of Common Stock, par value of $0.001
per share, of the Company (the "Common Stock") at the per share exercise price
of $28.60 (the "Exercise Price"), or by Cashless Exercise referred to below.
Each Warrant shall terminate and become void as 5:00, New York City time, on May
15, 2009 (the "Expiration Date") if not previously exercised. The number of
shares issuable upon exercise of the Warrants and the Exercise Price per share
shall be subject to adjustment from time to time as set forth in the Warrant
Agreement.
This Warrant Certificate is issued under and in accordance
with a Warrant Agreement dated as of May 15, 1999 (the "Warrant Agreement"),
between the Company and United States Trust Company of New York (the "Warrant
Agent", which term includes any successor Warrant Agent under the Warrant
Agreement), and is subject to the terms and provisions contained in the Warrant
Agreement, to all of which terms and provisions the Holder of the Warrants
evidenced by this Warrant Certificate consents by acceptance hereof. The Warrant
Agreement is hereby incorporated herein by reference and made a part hereof.
Reference is hereby made to the Warrant Agreement for a full statement of the
respective rights, limitations of rights, duties and obligations of the Company,
the Warrant Agent and the Holders of the Warrants. Capitalized terms used but
not defined herein shall have the meanings ascribed thereto in the Warrant
Agreement. A copy of the Warrant Agreement may be obtained for inspection by the
Holder hereof upon written request to the Warrant Agent at 114 West 47th Street,
New York, New York, 10036, Attention: Corporate Trust Department.
Subject to the terms of the Warrant Agreement, the Warrants
may be exercised in whole (i) by presentation of this Warrant Certificate with
the Election to Purchase attached hereto duly executed and with the simultaneous
payment of the Exercise Price in cash (subject to adjustment) to the Warrant
Agent for the account of the Company at the office of the Warrant Agent or (ii)
by Cashless Exercise. Payment of the Exercise Price in cash shall be made by
certified or official bank check payable to the order of the Company or by wire
transfer of funds to an account designated by the Company for such purpose.
Payment by Cashless Exercise shall be made without the payment of cash by
reducing the amount of Common Stock that would be obtainable upon the exercise
of a Warrant and payment of the Exercise Price in cash so as to yield a number
of shares of Common Stock upon the exercise of such Warrant equal to the product
of (1) the number of shares of Common Stock for which such Warrant is
exercisable as of the Exercise Date (if the Exercise Price were being paid in
cash) and (2) a fraction, the numerator of which is the excess of the Current
Market Value per share of Common Stock on the Exercise Date over the Exercise
Price per share as of the Exercise Date and the denominator of which is the
Current Market Value per share of the Common Stock on the Exercise Date.
As provided in the Warrant Agreement and subject to the terms
and conditions therein set forth, the Warrants shall be exercisable at any
<PAGE>
2
time and from time to time on any Business Day on or after the Exercisability
Date; provided, however, that Holders of Warrants will be able to exercise their
Warrants only if the Warrant Share Shelf Registration Statement relating to the
Common Stock underlying the Warrants is effective or the exercise of such
Warrants is exempt from the registration requirements of the Securities Act of
1933 and such securities are qualified for sale or exempt from qualification
under the applicable securities laws of the states or other jurisdictions in
which such Holders reside; provided further, however, that no Warrant shall be
exercisable after May 15, 2009.
In the event of a Fundamental Transaction, the Holder hereof
will be entitled to receive upon exercise of the Warrants the kind and amount of
shares of capital stock or other securities or other property as the Holder
would have received had the Holder exercised its Warrants immediately prior to
such Fundamental Transaction; provided, however, that in the event that, in
connection with such Fundamental Transaction (other than with a subsidiary of
the Company), consideration to holders of Common Stock in exchange for their
shares is payable solely in cash or in the event of the dissolution, liquidation
or winding-up of the Company, the Holder hereof will be entitled to receive such
cash distributions on an equal basis with the holders of Common Stock or other
securities issuable upon exercise of the Warrants, as if the Warrants had been
exercised immediately prior to such Fundamental Transaction, less the Exercise
Price.
As provided in the Warrant Agreement, the number of shares of
Common Stock issuable upon the exercise of the Warrants and the Exercise Price
are subject to adjustment upon the happening of certain events.
The Company may require payment of a sum sufficient to pay all
taxes, assessments or other governmental charges in connection with the transfer
or exchange of the Warrant Certificates pursuant to Section 5.02 of the Warrant
Agreement, but not for any exchange or original issuance (not involving a
transfer) with respect to temporary Warrant Certificates, the exercise of the
Warrants or the Warrant Shares.
Upon any exercise of the Warrants for less than all of the
Warrants represented by this Warrant Certificate, there shall be countersigned
and issued to the Holder hereof a new Warrant Certificate representing those
Warrants which were not exercised. This Warrant Certificate may be exchanged at
the office of the Warrant Agent by presenting this Warrant Certificate properly
endorsed with a request to exchange this Warrant Certificate for other Warrant
Certificates evidencing an equal number of Warrants. No fractional Warrant
Shares will be issued upon the exercise of the Warrants, but the Company shall
pay an amount in cash equal to the Current Market Value per Warrant Share on the
day immediately preceding the date the Warrant is exercised, multiplied by the
fraction of a Warrant Share that would be issuable on the exercise of any
Warrant.
All shares of Common Stock issuable by the Company upon the
exercise of the Warrants shall, upon such issue, be duly and validly issued and
fully paid and non-assessable.
The holder in whose name this Warrant Certificate is
registered may be deemed and treated by the Company and the Warrant Agent as the
absolute owner of the Warrants evidenced by this Warrant Certificate for all
purposes whatsoever and neither the Company nor the Warrant Agent shall be
affected by notice to the contrary.
<PAGE>
3
The Warrants do not entitle any Holder hereof to any of the
rights of a stockholder of the Company.
This Warrant Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Warrant Agent.
CD RADIO INC.
by
_______________________________________
Name:
Title:
Countersigned:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Warrant Agent,
by
___________________________________
Authorized Signatory
<PAGE>
FORM OF ELECTION TO PURCHASE WARRANT SHARES
(to be executed only upon exercise of Warrants)
CD RADIO INC.
The undersigned hereby irrevocably elects to exercise
__________________ Warrants to acquire shares of Common Stock, par value $.001
per share, of CD Radio Inc., at an exercise price per share of Common Stock of
$28.60, and otherwise on the terms and conditions specified in the within
Warrant Certificate and the Warrant Agreement therein referred to, surrenders
this Warrant Certificate and all right, title and interest therein to CD Radio
Inc. and directs that the shares of Common Stock deliverable upon the exercise
of such Warrants be registered or placed in the name and at the address
specified below and delivered thereto.
Date:
(1)
____________________________________
(Signature of Owner)
____________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
____________________________________
- ----------
(1) The signature must correspond with the name as written upon the face of the
within Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, and must be guaranteed by a national bank or
trust company or by a member firm of any national securities exchange.
<PAGE>
2
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
A new Warrant Certificate evidencing any unexercised Warrants evidenced by the
within Warrant Certificate is to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE>
3
In connection with any transfer of any of the Warrants
evidenced by this certificate occurring prior to the expiration of the period
referred to in Rule 144(k) under the Securities Act after the later of the date
of original issuance of such Warrants and the last date, if any, on which such
Warrants were owned by the Company or any Affiliate of the Company, the
undersigned certifies that such Warrants are being transferred in accordance
with its terms:
CHECK ONE BOX BELOW
(1) [ ] to the Company; or
(2) [ ] pursuant to an effective registration statement under
the Securities Act of 1933; or
(3) [ ] pursuant to Rule 144A under the Securities Act of
1933; or
(4) [ ] pursuant to another available exemption from
registration provided by Rule 144 under the
Securities Act of 1933.
Unless one of the boxes is checked, the Warrant Agent will
refuse to register any of the Warrants evidenced by this certificate in the name
of any person other than the registered holder thereof; provided, however, that
if box (4) is checked, the Warrant Agent may require, prior to registering any
such transfer of the Warrants, such legal opinions, additional certifications
and other information as the Company has reasonably requested to confirm that
such transfer is being made pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act of 1933,
such as the exemption provided by Rule 144 under such Act.
----------------------------
Signature
Signature Guarantee:
- ---------------------------- ----------------------------
Signature must be guaranteed Signature
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS(2)
The following exchanges of a part of this Global Warrant Certificate for
definitive Warrants have been made:
<TABLE>
<CAPTION>
Number of
Amount of change Warrants in
in Number of this Global
Warrants in Warrant Signature of
this Global Certificate authorized
Date of Warrant following officer of
Exchange Certificate such change Warrant Agent
<S> <C> <C> <C>
</TABLE>
- ----------
(2) To be included only if the Warrant is in global form.
<PAGE>
EXHIBIT B TO
WARRANT AGREEMENT
FORM OF LEGEND FOR GLOBAL WARRANTS
Any Global Warrant authenticated and delivered hereunder shall bear a legend in
substantially the following form:
THIS WARRANT IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT AGREEMENT
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS WARRANT IS NOT
EXCHANGEABLE FOR WARRANTS REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
WARRANT AGREEMENT, AND NO TRANSFER OF THIS WARRANT (OTHER THAN A TRANSFER OF
THIS WARRANT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE>
EXHIBIT C TO
WARRANT AGREEMENT
FORM OF LEGEND FOR WARRANTS ISSUED AS PART OF A UNIT
THE WARRANT EVIDENCED BY THIS CERTIFICATE IS INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT OF 14-1/2%
SENIOR SECURED NOTES DUE 2009 OF CD RADIO INC. (THE "NOTES") AND THREE WARRANTS.
PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (I) AUGUST 16,
1999, (II) THE COMMENCEMENT OF A REGISTERED EXCHANGE OFFER FOR THE NOTES OR THE
EFFECTIVE DATE OF A SHELF REGISTRATION STATEMENT WITH RESPECT TO THE NOTES,
(III) THE OCCURRENCE OF AN EXERCISE EVENT, (IV) THE OCCURRENCE OF AN EVENT OF
DEFAULT, (V) THE REDEMPTION OF ALL OR PART OF THE NOTES IN ACCORDANCE WITH THE
INDENTURE OR (VI) SUCH EARLIER DATE AS DETERMINED BY MERRILL LYNCH IN ITS SOLE
DISCRETION (AS SUCH TERMS ARE DEFINED IN THE WARRANT AGREEMENT REFERRED TO
HEREIN), THE WARRANT EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR
EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER
WITH, THE NOTES.
<PAGE>
EXHIBIT D
TO THE WARRANT AGREEMENT
FORM OF TRANSFER RESTRICTION LEGEND
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION AS SET FORTH BELOW. EACH PURCHASER OF THIS SECURITY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER
("RULE 144A"). BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) OR AN INSTITUTIONAL
"ACCREDITED INVESTOR" AND (2) AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL
ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY)
ONLY (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A INSIDE THE UNITED STATES, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (D)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT.
<PAGE>
EXHIBIT 4.4.5
EXECUTION COPY
================================================================================
AMENDED AND RESTATED
PLEDGE AGREEMENT
Among
CD RADIO INC.
as Pledgor
IBJ WHITEHALL BANK AND TRUST COMPANY
as Trustee
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
and
IBJ WHITEHALL BANK AND TRUST COMPANY
as Collateral Agent
Dated as of May 15, 1999
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
1. Grant of Security Interest..............................................2
2. Security for Obligations................................................3
3. Delivery of Pledged Collateral..........................................4
4. Representations and Warranties..........................................5
5. As to the Pledged Collateral............................................7
6. Additional Shares.......................................................9
7. Payment of Taxes and Claims............................................10
8. Covenants and Agreements...............................................11
9. The Collateral Agent Appointed Attorney-in-Fact........................13
10. The Collateral Agent May Perform.......................................14
11. The Collateral Agent's Duties..........................................14
12. Events of Default......................................................14
13. Notice of Event of Default.............................................15
14. Remedies...............................................................15
15. Expenses...............................................................17
16. Repayment in Bankruptcy, etc...........................................17
17. No Segregation of Moneys; No Interest..................................18
18. Continuing Security Interest; Termination..............................18
19. Notices................................................................19
20. Margin Regulations.....................................................19
21. Other Provisions.......................................................19
</TABLE>
<PAGE>
AMENDED AND RESTATED PLEDGE AGREEMENT
AMENDED AND RESTATED PLEDGE AGREEMENT (this
"Agreement"), dated as of May 15, 1999, made by CD
RADIO INC., a Delaware corporation (the "Pledgor"),
to IBJ WHITEHALL BANK AND TRUST COMPANY (formerly
known as IBJ Schroder Bank and Trust Company), as
collateral agent (the "Collateral Agent") for the
holders (the "Holders") from time to time of the
Notes (as defined herein), IBJ WHITEHALL BANK AND
TRUST COMPANY, as trustee for the Old Notes (as
defined herein), and UNITED STATES TRUST COMPANY OF
NEW YORK, as trustee for the New Notes (as defined
herein).
The Pledgor and the Collateral Agent are parties to the Pledge
Agreement dated as of November 26, 1997 pursuant to which the Pledgor granted a
first priority security interest in the issued and outstanding capital stock
described in Schedule I hereto (the "Pledged Shares") representing 100% of the
issued and outstanding capital stock of Satellite CD Radio, Inc., a Delaware
corporation (the "Subsidiary"), to the Collateral Agent to secure the
obligations of the Pledgor pursuant to the Indenture dated as of November 26,
1997 (as amended, restated, supplemented or modified from time to time, the "Old
Note Indenture") between the Pledgor and IBJ Whitehall Bank and Trust Company
(formerly known as IBJ Schroder Bank and Trust Company), as trustee (in such
capacity, the "Old Note Trustee") pursuant to which the Pledgor issued
$296,930,000 aggregate principal amount at maturity of its 15% Senior Secured
Discount Notes due 2007 (the "Old Notes").
The Pledgor and United States Trust Company of New York, as
trustee (in such capacity, the "New Note Trustee"), have entered into that
certain indenture dated the date hereof (as amended, restated, supplemented or
otherwise modified from time to time, the "New Note Indenture"), pursuant to
which the Pledgor is issuing $200,000,000 aggregate principal amount of its
14-1/2% Senior Secured Notes due 2009 (the "New Notes", and together with the
Old Notes, the "Notes").
The Pledgor and the Collateral Agent desire to amend and
restate the Pledge Agreement to grant a first priority security interest in the
Pledged Shares to the Collateral Agent for the benefit of the Old Note Trustee,
the New Note Trustee and the ratable benefit of the Holders (the amount of such
ratable benefit to be determined in the case of the Old Notes, with respect to
the Accreted Value (as defined in the Old Note Indenture) of the Old Notes
<PAGE>
2
outstanding at such time, and in the case of the New Notes, with respect to the
principal amount of the New Notes outstanding at such time).
Capitalized terms used herein without definition are used
herein as defined in the New Note Indenture.
In consideration of the premises, the agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in order to induce the prospective holders
of the New Notes to purchase the New Notes, the Pledgor and the Collateral Agent
hereby agree to amend and restate the Pledge Agreement pursuant hereto and the
Pledgor hereby covenants and agrees with the Collateral Agent, the Old Note
Trustee and the New Note Trustee for their benefit and for the ratable benefit
of the Holders.
1. Grant of Security Interest. (a) The Pledgor hereby
unconditionally assigns, pledges and grants to the Collateral Agent for its
benefit, the benefit of the Old Note Trustee, the benefit of the New Note
Trustee and the ratable benefit of the Holders, a first priority security
interest in and to all of the Pledgor's right, title and interest in and to the
following, whether now owned or existing or hereafter arising or acquired and
wheresoever located (collectively, the "Pledged Collateral"):
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
(ii) all additional shares of issued and outstanding shares,
interests, participations, warrants or other equivalents (however
designated) of corporate stock ("Stock") of the Subsidiary from time to
time acquired by the Pledgor in any manner, and the certificates
representing such additional shares, and all dividends, cash,
instruments and other property from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of
such shares; and
(iii) all Proceeds (as defined herein) of any and all of the
foregoing Pledged Collateral (including, without limitation, proceeds
that constitute property of the types described in clauses (i) and (ii)
above).
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3
(b) As used herein, the term "Proceeds" shall have the meaning
assigned to such term under Article 9 of the Uniform Commercial Code from time
to time in effect in the State of New York (the "UCC"; provided that in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the Collateral Agent's security interest
in any Pledged Collateral is governed by the Uniform Commercial Code as in
effect in a jurisdiction other than the State of New York, the term "UCC" shall
mean the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions) and, to the
extent not otherwise included, shall include, but not be limited to: (i) any
stock dividend or distribution in connection with any increase or reduction of
capital, reclassification, merger, consolidation, sale of assets, combination of
shares, stock split, spin-off or split-off; (ii) any option or other right,
whether as an addition to, in substitution of or in exchange for any Pledged
Shares or otherwise; (iii) distributions payable in property (whether real,
personal, tangible, intangible, or mixed property; collectively "Property");
(iv) dividends or distributions on dissolution, or in partial or total
liquidation, or from capital, capital surplus or paid-in surplus; (v) any and
all payments (in any form whatsoever) made or due and payable to the Pledgor
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Pledged Collateral
by any nation or government, any state or other political subdivision thereof,
any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government and any court or
arbitrator (a "Governmental Body"); and (vi) any and all other amounts from time
to time paid or payable under or in connection with the Pledged Collateral.
2. Security for Obligations. This Agreement, together with the
Pledged Collateral, secures the payment of all of the obligations and
liabilities of any kind of the Pledgor under this Agreement, the Old Note
Indenture, the New Note Indenture or the Notes, whether liquidated,
unliquidated, direct, indirect, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured, and whether for principal,
interest, fees, costs, expenses or otherwise (whether arising or accruing before
or after the occurrence of any Event of Default (as defined herein) and whether
discharged, stayed or otherwise affected or allowed as a claim in any bankruptcy
proceeding of the Subsidiary), and all costs, fees and expenses of the
Collateral Agent, the Old Note Trustee, the New Note Trustee
<PAGE>
4
or the Holders (including reasonable attorneys' fees and expenses and with
respect to the Collateral Agent, reasonable allocated costs and expenses of
in-house counsel and legal staff) in enforcing, preserving and protecting its
rights against the Pledgor, whether or not suit is instituted (as the foregoing
obligations and liabilities may be amended, increased, modified, renewed,
refinanced, refunded or extended from time to time) (collectively, the "Secured
Obligations"), now or hereafter existing. Without limiting the generality of the
foregoing, this Agreement secures the payment of all amounts that constitute
part of the Secured Obligations and would be owed by the Pledgor to the
Collateral Agent, the Old Note Trustee, the New Note Trustee or the Holders
under this Agreement, the Old Note Indenture, the New Note Indenture and the
Notes but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving the
Pledgor. Notwithstanding anything herein to the contrary, the Old Note
Obligations (as defined in the Intercreditor Agreement) and the New Note
Obligations (as defined in the Intercreditor Agreement) are the only such
obligations that may be secured by the Pledged Collateral unless otherwise
permitted by both the Old Note Indenture and the New Note Indenture.
3. Delivery of Pledged Collateral. (a) All certificates and
other instruments at any time owned or acquired by the Pledgor representing or
evidencing the Pledged Shares shall be delivered to and held by or on behalf of
the Collateral Agent pursuant hereto and shall be in suitable form for transfer
by delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Collateral
Agent. Upon the occurrence and during the continuance of an Event of Default (as
defined herein), the Collateral Agent shall have the right, upon written
instructions from the Old Note Trustee or the New Note Trustee and without
notice to the Pledgor, to transfer to or to register in the name of the
Collateral Agent or any of its nominees any or all of the Pledged Collateral. In
addition, upon the occurrence and during the continuance of an Event of Default,
the Collateral Agent shall have the right at any time to exchange certificates
or instruments representing or evidencing Pledged Collateral for certificates or
instruments of smaller or larger denominations.
(b) If there shall occur a change in applicable law or
regulations regarding (i) the steps necessary to obtain and maintain a perfected
security interest in any Pledged Collateral or (ii) the ability to obtain a
security
<PAGE>
5
interest directly in any license granted by the Federal Communications
Commission or Governmental Body succeeding to the functions thereof (the "FCC"),
or if there is Pledged Collateral for which the foregoing procedures are not
effective to perfect a security interest, the Pledgor will immediately upon its
becoming aware thereof so notify the Collateral Agent and will deliver to the
Collateral Agent an Opinion of Counsel setting forth the steps necessary for the
Collateral Agent to obtain and maintain such a perfected security interest in
the Pledged Collateral affected by such change or for which the foregoing
procedures are not effective to perfect a security interest, and the Pledgor and
the Collateral Agent, instead of (or in addition to) the actions specified in
this Section 3, shall take such other action, as specified in such Opinion of
Counsel, as will create and maintain such perfected security interest.
(c) Upon the execution and delivery of this Agreement, the
Pledgor will file proper financing statements or amendments thereto with the
appropriate office or offices under the Uniform Commercial Code in the State of
New York, covering the Pledged Collateral described in this Agreement and,
thereafter, such renewals, amendments or continuations thereof or such
additional financing statements in such additional offices in such jurisdictions
or in the appropriate filing offices in such additional jurisdictions as shall
be required from time to time under the UCC in order to perfect and to continue
the perfection of the security interest in the Pledged Collateral.
4. Representations and Warranties. The Pledgor hereby
represents and warrants to the Collateral Agent as follows:
(a) Organization; Good Standing. The Pledgor is duly
organized, validly existing and in good standing under the laws of the
State of Delaware and is duly qualified and in good standing in every
other jurisdiction where it is doing business, except where the failure
to be so qualified or maintain good standing would not have a Material
Adverse Effect (as defined herein). The chief place of business and
chief executive office of the Pledgor are located at 1221 Avenue of the
Americas, New York, New York 10020.
(b) Corporate Power; Authorization. The execution, delivery
and performance by the Pledgor of this Agreement, and the consummation
of the transactions contemplated hereby, (i) are within the Pledgor's
corporate authority; (ii) have been duly authorized by all necessary or
proper corporate action;
<PAGE>
6
(iii) are not in contravention of any provision of the Pledgor's
by-laws or certificate of incorporation; (iv) will not violate any law
or regulation, or any order or decree of any court or governmental
instrumentality to which the Pledgor or its property is subject; and
(v) will not conflict with or result in the breach or termination of,
constitute a default under, or accelerate any performance required by,
any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which the Pledgor is a party or by which the Pledgor or
any of its property is bound (except for such conflict, breach,
termination, default or acceleration as could not reasonably be
expected to have a Material Adverse Effect (as defined herein)).
Subject to Section 21(f) hereof, no authorization, approval or action
by, or notice to, or filing with, any governmental authority or
regulatory body is required under existing laws and regulations on the
date hereof (A) for the grant or perfection of the security interests
contemplated hereby or for the execution, delivery or performance of
this Agreement by the Company, except as may be set forth in Section 3
with respect to actions to be taken by the Collateral Agent, the Old
Note Trustee or the New Note Trustee or a financial intermediary
holding Pledged Collateral and except for the filings referred to in
Section 3(b) that may be required in the future, or (B) for the
exercise by the Collateral Agent of the voting or other rights provided
for in this Agreement or its rights and remedies in respect of the
Pledged Collateral pursuant to this Agreement, except (1) as may be
required in connection with the disposition of Pledged Collateral by
laws affecting the offering and sale of securities, generally, and (2)
with respect to Pledged Shares, for authorizations, approvals, notices
and filings that may be required pursuant to regulations of the FCC (as
defined herein), or any successor laws or regulations.
(c) Enforceability. This Agreement is the legal, valid and
binding obligation of the Pledgor enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
or insolvent corporations generally, and except to the extent that
availability of the remedy of specific performance or injunctive relief
is subject to the discretion of the court before which any proceeding
therefor may be brought.
(d) Absence of Liens. It is the legal and beneficial owner of
the Pledged Collateral free and
<PAGE>
7
clear of all Liens other than the security interest created by this
Agreement. No effective financing statement or other instrument similar
in effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of the
Collateral Agent under this Agreement.
(e) Pledged Collateral. The Pledged Shares have been duly
authorized and validly issued and are fully paid and nonassessable. The
Pledged Shares represent 100% of the total number of shares of the
Subsidiary which are issued and outstanding or for which the Subsidiary
is obligated to issue after giving effect to the issuance of all such
shares.
(f) Security Interest. This Agreement and the pledge of the
Pledged Collateral pursuant hereto create a valid and perfected first
priority security interest in the Pledged Collateral in favor of the
Collateral Agent, securing the payment of all of the Secured
Obligations, and all filings and other actions necessary or desirable
as may be required by the Old Note Trustee or New Note Trustee or the
Holders to perfect and protect such security interest have been duly
taken.
5. As to the Pledged Collateral. (a) So long as no event or
circumstance which constitutes a Default shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Collateral
or any part thereof for any purpose not inconsistent with the terms of
this Agreement, the Old Note Indenture or the New Note Indenture;
provided, however, that the Pledgor shall not exercise or refrain from
exercising any such right without the consent of the Collateral Agent
if, in the Collateral Agent's judgment, such action or inaction would
have a Material Adverse Effect (as defined herein) on the fair market
value of any of the Pledged Collateral including, without limitation,
the validity, priority or perfection of the security interests granted
hereby or the remedies of the Collateral Agent hereunder.
(ii) Any and all dividends and other distributions (whether or
not in cash) paid or payable, and certificates, instruments and other
Property received, receivable or otherwise distributed in respect of,
or
<PAGE>
8
in exchange for, Pledged Collateral, shall be, and shall be forthwith
delivered to the Collateral Agent to be held as Pledged Collateral and
shall, if received by the Pledgor, be received in trust for the benefit
of the Old Note Trustee, the New Note Trustee and the Holders, be
segregated from the other Property of the Pledgor, and be forthwith
delivered to the Collateral Agent, as Pledged Collateral in the same
form as so received (with any necessary endorsement). Any cash
dividends or distributions delivered to or otherwise held by the
Collateral Agent pursuant to this Section 5, and any other cash
constituting Pledged Collateral delivered to the Collateral Agent,
shall be invested, at the written direction of the Pledgor, by the
Collateral Agent in Cash Equivalents.
(iii) The Collateral Agent shall execute and deliver (or cause
to be executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights which it
is entitled to exercise pursuant to subsection (i) or (ii) above.
(b) Upon the occurrence and during the continuance of a
Default (except as provided below), at the Collateral Agent's option and
following written notice by the Collateral Agent to the Pledgor:
(i) All rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to Section 5(a)(i) shall cease; provided, however, that the
Pledgor shall be entitled to exercise such rights without the prior
consent of the Collateral Agent if such rights are to be exercised to
vote in favor of a transaction which is reasonably expected to cure the
Default, not result in another Default and not result in a Material
Adverse Effect (as defined herein). Except as provided in the prior
sentence, after the occurrence and during the continuance of an Event
of Default, all such voting and other consensual rights shall thereupon
become vested in the Collateral Agent, who shall thereupon have the
sole right to exercise such voting and other consensual rights, subject
to the satisfaction of any regulatory requirements. Effective upon the
occurrence and during the continuance of an Event of Default, the
Pledgor hereby appoints the Collateral Agent the Pledgor's true and
lawful attorney-in-fact and grants to the Collateral Agent an
IRREVOCABLE PROXY to vote the Pledged Collateral in any
<PAGE>
9
manner the Collateral Agent deems advisable for or against all matters
submitted or which may be submitted to a vote of shareholders. The
power-of-attorney granted hereby is coupled with an interest and shall
be irrevocable.
(ii) The provisions of Section 5(a)(ii) shall continue in full
force and effect, except that no dividends or distributions may be paid
to the Pledgor.
As used in this Agreement, the term "Material Adverse Effect"
shall mean an effect resulting from any circumstance or event of whatever nature
(including any adverse determination in any litigation) which does, or could
reasonably be expected to, materially and adversely (A) impair the validity or
enforceability of any of the Old Note Indenture, the New Note Indenture, the
Notes, the Collateral Agent's, the Old Note Trustee's, the New Note Trustee's or
any Holder's rights or remedies with respect thereto; (B) cause a Default; (C)
affect the business, property, business prospects, operations, or financial or
other condition of the Subsidiary or Pledgor; or (D) impair or affect the
Pledged Collateral or the Collateral Agent's Liens on the Pledged Collateral or
the priority of such Liens.
(c) In the event that all or any part of the securities or
instruments constituting the Pledged Collateral are lost, mutilated, destroyed
or wrongfully taken while such securities or instruments are in the possession
of the Collateral Agent, the Pledgor agrees that it will cause the delivery of
new securities or instruments in place of the lost, mutilated, destroyed or
wrongfully taken securities or instruments upon request therefor by the
Collateral Agent without the necessity of any indemnity bond or other security
other than the Collateral Agent's agreement or indemnity therefor customary for
security agreements similar to this Agreement.
6. Additional Shares. (a) The Pledgor agrees that it will
cause the Subsidiary not to issue any Stock of any kind.
(b) Without derogating from paragraph (a) of this Section 6,
in the event that, during the term of this Agreement:
(i) any stock dividend, stock split, reclassification,
readjustment, or other change is declared or made in the capital
structure of the Subsidiary, all new, substituted, and additional
<PAGE>
10
shares, or other securities, issued by reason of any such change and
received by the Pledgor (directly or indirectly) or to which the
Pledgor shall be entitled shall be promptly delivered or otherwise
transferred to the Collateral Agent, together with undated stock powers
endorsed in blank by the Pledgor, and shall thereupon constitute
additional Pledged Collateral to be held by the Collateral Agent under
the terms of this Agreement; and
(ii) any subscriptions, warrants or any other rights or
options shall be issued in connection with the Pledged Shares, all new
stock or other securities acquired through such subscriptions,
warrants, rights or options, and all additional shares of capital stock
of the Subsidiary or any successor in interest thereto from time to
time acquired by the Pledgor (directly or indirectly) in any manner
whatsoever (including, without limitation, any shares of preferred
stock issued by the Subsidiary) together with appropriate undated stock
or similar powers endorsed in blank by the Pledgor, shall be promptly
delivered or otherwise transferred to the Collateral Agent and shall
thereupon constitute Pledged Collateral to be held by the Collateral
Agent under the terms of this Agreement.
7. Payment of Taxes and Claims. The Pledgor shall make payment
of (a) all taxes, assessments, license fees, levies and other charges of
Governmental Bodies imposed upon it which if unpaid, could reasonably be
expected to have a Material Adverse Effect or become a Lien on the Property of
the Pledgor, unless and to the extent only that such taxes, assessments,
charges, license fees, levies and other charges shall be contested in good faith
and by appropriate proceedings diligently conducted by the Pledgor and the
Collateral Agent has received prompt notice of such contest, (b) all taxes,
assessments, license fees, levies and other charges of Governmental Bodies on
any of the Pledged Collateral before any penalty or interest accrues thereon,
unless and to the extent only that such taxes, assessments, charges, license
fees, levies and other charges shall be contested in good faith and by
appropriate proceedings diligently conducted by the Pledgor and the Collateral
Agent has received prompt notice of such contest, before any penalty or interest
accrues thereon, and (c) all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums materially adversely affecting
the Pledged Collateral, which have become due and payable and which by law have
or may become a Lien upon any of the Pledged Collateral prior to the time when
any penalty or fine shall be incurred with respect
<PAGE>
11
thereto, unless and to the extent such claim is being contested in good faith
and by appropriate proceedings diligently conducted by the Pledgor, the
Collateral Agent has received prompt notice of such contest, any proceeding to
place a lien on the Pledged Collateral or to enforce a lien on the Pledged
Collateral has been stayed and such contest is not reasonably expected to have a
Material Adverse Effect.
8. Covenants and Agreements. The Pledgor covenants and agrees
that on and after the date hereof until the payment in full of the Secured
Obligations and the termination and discharge of both the Old Note Indenture and
the New Note Indenture, unless the Collateral Agent shall otherwise consent in
writing:
(a) At any time and from time to time, upon the reasonable
request of the Collateral Agent, and at the sole expense of the
Pledgor, the Pledgor shall promptly do, file, record, execute and
deliver any and all such further notices, instruments and documents and
will take such further action as may be reasonably deemed necessary or
desirable in the judgment of the Collateral Agent and its counsel to
obtain, protect and perfect the security interests granted hereby and
enforce and give effect to the rights, remedies and powers hereunder,
including, without limitation, the recording or filing of all
instruments and documents reasonably necessary to perfect and protect
the perfection of the security interests granted hereby under Article 8
or 9 of the Uniform Commercial Code in effect in any applicable
jurisdiction. In connection therewith, the Collateral Agent is hereby
irrevocably authorized and empowered as the Pledgor's attorney-in-fact,
solely to make, at the Collateral Agent's option, all filings and to
give all other notices as it shall reasonably deem necessary with
respect to any of the Pledged Collateral, all of which may be done with
or without the signature of the Pledgor. The Pledgor agrees that the
foregoing power constitutes a power coupled with an interest which
shall survive until the payment in full of all of the Secured
Obligations. The Pledgor agrees to reimburse the Collateral Agent on
demand for any actual and reasonable expenses (including reasonable
attorneys' fees and expenses with respect to the Collateral Agent,
including reasonable allocated costs and expenses of in-house counsel
and legal staff) incurred by the Collateral Agent in connection with
such matters and, until such reimbursement, such expenses shall be a
part of the Secured Obligations.
<PAGE>
12
(b) The Pledgor shall defend its ownership interest in and to
the Collateral and the Collateral Agent's security interest in and to
the Pledged Collateral against all claims and demands of all Persons at
any time claiming the same or any interest therein adverse to the
interests of the Collateral Agent.
(c) The Pledgor shall, at all times, maintain or cause to be
maintained accurate books and records with respect to the Pledged
Collateral, and shall furnish to the Collateral Agent such information
concerning such Pledged Collateral as the Collateral Agent may from
time to time reasonably request. The Collateral Agent and its designees
are hereby given the right, at the Pledgor's expense, to inspect and
copy, following prior notice to the Pledgor and during regular business
hours, or the Pledgor shall furnish the Collateral Agent with copies
of, all records and documents reasonably required by the Collateral
Agent relating to the Pledged Collateral.
(d) The Pledgor shall not further hypothecate, assign, pledge,
encumber, transfer, sell or otherwise dispose of, or grant any option
with respect to, or create or suffer to exist a security interest in,
or a Lien on, the Pledged Collateral or any portion thereof, except for
the pledge, assignment and security interest created by this Agreement
in favor of the Collateral Agent and except as contemplated by Article
12 of the Old Note Indenture and Article 12 of the New Note Indenture.
The inclusion of "Proceeds" of the Pledged Collateral under the
security interest granted herein shall not be deemed a consent by the
Collateral Agent to any sale or other disposition of any Pledged
Collateral except as expressly permitted herein.
(e) The Pledgor shall promptly notify the Collateral Agent of
any change occurring in or to the Pledged Collateral, of a change in
the Pledgor's mailing address, of any material change in any fact or
circumstance warranted or represented by the Pledgor in this Agreement
or furnished to the Collateral Agent, or if any Default or Event of
Default hereunder shall occur.
(f) The Pledgor shall not, without the prior written consent
of the Collateral Agent, sign or file or authorize the signing or
filing of any document, financing statement or instrument creating or
perfecting, or purporting to create or perfect, any
<PAGE>
13
Lien or other encumbrance on all or any part of its Pledged Collateral
except in favor of the Collateral Agent as required hereby and except
as contemplated in Article 12 of the Old Note Indenture and Article 12
of the New Note Indenture.
(g) The security interest granted hereby constitutes and shall
at all times constitute a perfected continuing first priority security
interest in the Pledged Collateral.
9. The Collateral Agent Appointed Attorney-in-Fact. Effective
upon the occurrence and during the continuance of an Event of Default, the
Pledgor hereby irrevocably appoints the Collateral Agent its attorney-in-fact,
with full authority in the place and stead of the Pledgor and in the name of the
Pledgor or otherwise, from time to time in the Collateral Agent's discretion, to
take any action and to execute any instrument which the Collateral Agent may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Pledged Collateral and/or extend
the time of payment, arrange for payment in installments, or otherwise
modify the terms of, or release, any Pledged Collateral or obligations,
without otherwise discharging or affecting the Secured Obligations, the
Pledged Collateral or the security interests granted by this Agreement,
(b) to file any claims or take any action or institute any
proceedings which the Collateral Agent may deem necessary or desirable
for the collection of any of the Pledged Collateral or otherwise to
enforce the rights of the Collateral Agent with respect to any of the
Pledged Collateral; and
(c) to receive, indorse and collect any drafts or other
instruments and documents made payable to the Pledgor in connection
with clause (a) above or representing any dividend or other
distribution in respect of the Pledged Collateral or any part thereof
and to give full discharge for the same.
The power-of-attorney granted hereby is coupled with an interest and shall be
irrevocable.
<PAGE>
14
10. The Collateral Agent May Perform. If the Pledgor fails to
perform any agreement contained herein or make payment of any amount required
hereunder, the Collateral Agent may itself perform, or cause performance of, or
provide payment for the performance thereof, and the reasonable expenses of the
Collateral Agent incurred in connection therewith shall be payable by the
Pledgor under Section 15 of this Agreement and any such payment made shall be
deemed an advance by the Collateral Agent to the Pledgor, payable on demand
together with interest at the highest rate then payable under the Old Note
Indenture or the New Note Indenture, as applicable, or if both the Old Note
Indenture and the New Note Indenture are applicable, then at the rate which is
the greater thereof.
11. The Collateral Agent's Duties. The powers conferred on the
Collateral Agent hereunder are solely to protect its interest in the Pledged
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Pledged Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Collateral Agent
shall have no duty as to any Pledged Collateral, including the filing of any
financing or continuation statements relating to the Pledged Collateral. The
Collateral Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Pledged Collateral in its possession if the
Pledged Collateral is accorded treatment substantially equal to that which the
Collateral Agent accords its own Property, it being understood that the
Collateral Agent shall not be under any obligation to (a) ascertain or take
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Pledged Collateral, whether or not the Collateral
Agent has or is deemed to have knowledge of such matters, or (b) take any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Pledged Collateral, but may do so at its option, and all
reasonable expenses incurred in connection therewith shall be for the sole
account of the Pledgor, and shall be added to the Secured Obligations.
12. Events of Default. If any of the following events shall
occur, then an "Event of Default" has occurred hereunder:
(a) if the Pledgor fails to fully and punctually pay, perform
or observe any debt, obligation or liability of the Pledgor under this
Agreement, the Old Note Indenture or the New Note Indenture; or
<PAGE>
15
(b) if any representation or warranty made herein, in the Old
Note Indenture, in the New Note Indenture or in any certificate, report
or other document furnished by the Pledgor in connection with this
Agreement, the Old Note Indenture or the New Note Indenture shall prove
to have been false in any material respect upon the date when made or
deemed to have been made or repeated; or
(c) if the Pledgor shall fail to observe or perform any term,
covenant or agreement contained in Sections 8(a), 8(d) or 8(f) of this
Agreement; or
(d) if the Pledgor shall fail to perform or observe any other
term, covenant or agreement on its part to be performed or observed
pursuant to this Agreement and such failure shall have continued
unremedied for a period of 30 days after the Pledgor shall become aware
of such failure; or
(e) the occurrence and continuance of an Event of Default
under and as defined in the Old Note Indenture or the New Note
Indenture.
13. Notice of Event of Default. The Pledgor agrees to notify
the Collateral Agent of the occurrence of an Event of Default promptly upon its
obtaining knowledge thereof.
14. Remedies. Upon the occurrence and during the continuation
of an Event of Default, the Collateral Agent may upon written instructions from
the Old Note Trustee or the New Note Trustee, as applicable, subject to
regulatory requirements and the terms and conditions of the Intercreditor
Agreement, exercise any and all remedies and other rights provided under this
Agreement and by applicable law, including, without limitation, the following:
(a) The Collateral Agent may exercise in respect of the
Pledged Collateral, in addition to other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies of
a secured party upon default under the UCC (whether or not the UCC
applies to the affected Pledged Collateral) and also may without
notice, except as specified below, sell, lease, assign, grant an option
or options to purchase or otherwise dispose of the Pledged Collateral
or any part thereof in one or more parcels at public or private sale,
at any exchange, broker's board or at any of the Collateral Agent's
offices or elsewhere, for cash, on credit or for future delivery, and
upon such
<PAGE>
16
other terms as the Collateral Agent may deem commercially reasonable.
The Pledgor agrees that, to the extent notice of sale shall be required
by law, at least 10 days' notice to the Pledgor of the time and place
of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Collateral Agent
shall not be obligated to make any sale of Pledged Collateral
regardless of notice of sale having been given. The Collateral Agent
may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned.
(b) Any cash held by the Collateral Agent as Pledged
Collateral and all cash proceeds received by the Collateral Agent in
respect of any sale of, collection from or other realization upon all
or any part of the Pledged Collateral may, in the discretion of the
Collateral Agent, be held by the Collateral Agent as Pledged Collateral
for, and then or at any time thereafter applied (after the payment of
any amounts payable to the Collateral Agent pursuant to Section 15
hereof) in whole or in part by the Collateral Agent for the ratable
benefit of the holders of the Old Notes or the New Notes, as
applicable, against all or any part of the Secured Obligations. Any
surplus of such cash or cash proceeds held by the Collateral Agent and
remaining after payment of all of the Secured Obligations shall be paid
over to the Pledgor or to whomsoever may be lawfully entitled to
receive such surplus.
(c) The Pledgor acknowledges and agrees that the Collateral
Agent may elect, with respect to the offer or sale of any or all of the
Pledged Collateral, to conduct such offer and sale in such a manner as
to avoid the need for registration or qualification of the Pledged
Collateral or the offer and sale thereof under any Federal or state
securities laws and that the Collateral Agent is authorized to comply
with any limitation or restriction in connection with such sale as
counsel may advise the Collateral Agent is necessary in order to avoid
any violation of applicable law, including, without limitation,
compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective
bidders and purchasers have certain qualifications, and restrict such
prospective bidders and purchasers to Persons who will represent and
agree that they are
<PAGE>
17
purchasing for their own account for investment and not with a view to
the distribution or resale of such Pledged Collateral, or in order to
obtain any required approval of the sale or of the purchaser by any
Governmental Body. The Pledgor further acknowledges and agrees that any
such transaction may be at prices and on terms less favorable than
those which may be obtained through a public sale and not subject to
such restrictions and agrees that, notwithstanding the foregoing, the
Collateral Agent is under no obligation to conduct any such public sale
and may elect to impose any or all of the foregoing restrictions, or
any other restrictions which may be necessary or desirable in order to
avoid any such registration or qualification, at its sole discretion or
with the consent or direction of the parties entitled to give direction
pursuant to the Intercreditor Agreement, and that any such offer and
sale shall, taking into account the possible restrictions on such offer
and sale described in this subsection (c), be conducted in a
commercially reasonable manner.
(d) The Pledgor hereby expressly waives and covenants not to
assert any appraisement, valuation, extension, redemption or similar
laws, now or at any time hereafter in force, which might delay, prevent
or otherwise impede the performance or enforcement of this Agreement.
15. Expenses. The Pledgor will upon demand make payment to the
Collateral Agent of any and all reasonable out-of-pocket sums, costs and
expenses, which the Collateral Agent may pay or incur pursuant to the provisions
of this Agreement or in perfecting, defending, protecting or enforcing this
Agreement or the security interests granted herein or in enforcing payment of
all of the Secured Obligations or otherwise in connection with the provisions
hereof, including, but not limited to court costs, reasonable collection
charges, reasonable travel expenses, and reasonable attorneys' fees (including
with respect to the Collateral Agent, the reasonable allocated costs and
expenses of in-house counsel and legal staff) all of which together with
interest at the highest rate then payable under the Old Note Indenture or the
New Note Indenture, as applicable, or if both the Old Note Indenture and the New
Note Indenture are applicable, then the greater thereof, shall be part of the
Secured Obligations.
16. Repayment in Bankruptcy, etc. Notwithstanding anything to
the contrary contained in this Agreement, if, at any time or times subsequent to
the
<PAGE>
18
payment of all or any part of the Secured Obligations, the Collateral Agent
shall be required to repay any amounts previously paid by or on behalf of the
Subsidiary or the Pledgor in reduction thereof by virtue of an order of any
court having jurisdiction thereof, including, without limitation, as a result of
an adjudication that such amounts constituted preferential payments or
fraudulent conveyances, the Pledgor unconditionally agrees to make payment to
the Collateral Agent within 10 days after demand of the amount of such
repayment, together with interest on such amount from the date of such repayment
by the Collateral Agent to the date of payment to the Collateral Agent at the
default interest rate set forth in the Old Note Indenture or the New Note
Indenture, as applicable, or if both the Old Note Indenture and the New Note
Indenture are applicable, then at the rate which is the greater thereof.
17. No Segregation of Moneys; No Interest. No moneys or any
other property received by the Collateral Agent hereunder need be segregated in
any manner except to the extent required by law, and any such moneys or other
property may be deposited under such general conditions as may be prescribed by
law applicable to the Collateral Agent, and the Collateral Agent shall not be
liable for any interest thereon.
18. Continuing Security Interest; Termination. (a) This
Agreement shall create a continuing perfected first security interest in the
Pledged Collateral and shall (i) remain in full force and effect until the
payment in full of all of the Secured Obligations, (ii) be binding upon the
Pledgor, its successors and assigns and (iii) inure, together with the rights
and remedies of the Collateral Agent hereunder, to the benefit of the Collateral
Agent, the Old Note Trustee and the New Note Trustee and the Holders and their
respective successors, transferees and assigns.
(b) Notwithstanding anything to the contrary in this Section
18, upon (i) satisfaction by the Old Note Trustee and the New Note Trustee of
the conditions set forth in Article Four of the Old Note Indenture and Article
Four of the New Note Indenture, upon the satisfaction and discharge of the Old
Note Indenture and the New Note Indenture, respectively, (ii) the payment in
full of all Secured Obligations or (iii) the defeasance of the Old Notes and the
Old Note Indenture as provided in Section 1302 of the Old Note Indenture, and
the defeasance of the New Notes and the New Note Indenture as provided in
Section 13.02 of the New Note Indenture, the security interests created under
this Agreement shall terminate and the Collateral Agent shall, at the request
and expense of the Pledgor, cause to
<PAGE>
19
be assigned, transferred and delivered, against receipt but without recourse,
warranty or representation whatsoever, any remaining Pledged Collateral, to or
on the order of the Pledgor, and shall execute and deliver to the Pledgor an
instrument or instruments acknowledging the release of such Pledged Collateral
from the Lien of this Agreement.
19. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telecopy, telex or cable
communication) and mailed, telegraphed, telecopied, telexed, cabled or delivered
to it, if to the Pledgor, addressed to it at CD Radio Inc., 1221 Avenue of the
Americas, New York, New York 10020, Attention of Patrick L. Donnelly, if to the
Collateral Agent or the Old Note Trustee, at the address of the Old Note Trustee
specified in the Old Note Indenture, if to the New Note Trustee, at the address
of the New Note Trustee as specified in the New Note Indenture or as to any
party at such other address as shall be designated by such party in a written
notice to each other party. All such notices and other communications shall,
when mailed, telegraphed, telecopied, telexed or cabled, be effective when
deposited in the mails, delivered to the telegraph company, transmitted by
telecopier, confirmed by telex answerback or delivered to the cable company,
respectively.
20. Margin Regulations. The Pledgor shall take such steps as
may be necessary so that it shall comply with Regulations G, U and X (in so far
as Regulation X applies to Regulations G and U) promulgated by the Board of
Governors of the Federal Reserve System, in each case as in effect from time to
time and to the extent such Regulations are at the time applicable to the Notes
issued by the Pledgor.
21. Other Provisions. (a) Except as expressly provided in this
Agreement, the Pledgor hereby waives presentment, demand for payment, notice of
default, nonperformance and dishonor, protest and notice of protest of or in
respect of this Agreement, the Old Note Indenture, the New Note Indenture, the
Notes or the Secured Obligations, notice of acceptance of this Agreement and
reliance hereupon by the Collateral Agent and notice of any sale of collateral
security or any default of any sort.
(b) The Pledgor waives all errors or omissions of the
Collateral Agent in connection with the administration of Security Interest
created hereby and the Pledged Collateral, except errors or omissions which
constitute gross negligence or wilful misconduct.
<PAGE>
20
(c) The Pledgor agrees that the Collateral Agent, the Old Note
Trustee, the New Note Trustee or the Holders may at any time, without notice to
or consent of the Pledgor, and without in any manner affecting the liability of
the Pledgor hereunder, amend, modify or waive any term or condition of the Old
Note Indenture and the New Note Indenture, as applicable, and the Old Notes and
the New Notes, as applicable, the Intercreditor Agreement and any of the other
respective Secured Obligations and any collateral security therefor and
otherwise deal with the Pledgor as if this Agreement did not exist.
(d) The Pledgor is not relying upon the Collateral Agent to
provide to the Pledgor any information concerning the Subsidiary, including,
without limitation, information which might have a Material Adverse Effect, and
the Pledgor has made arrangements satisfactory to the Pledgor to obtain from the
Subsidiary on a continuing basis such information concerning the Subsidiary as
the Pledgor may desire.
(e) In addition to all other rights it may have at law or
otherwise, upon the occurrence and during the continuance of an Event of
Default, the Collateral Agent is hereby authorized at any time and from time to
time, without notice, to set off against any and all obligations which the
Collateral Agent may owe to the Subsidiary or the Pledgor, of any kind or
nature, and the Pledgor shall continue to be liable to the Collateral Agent for
any deficiency with interest at the applicable interest rate set forth in the
Old Note Indenture or the Old Notes, or the New Note Indenture or the New Notes,
as applicable.
(f) Notwithstanding anything to the contrary contained in the
Old Note Indenture, the New Note Indenture or in any other agreement, instrument
or document executed by the Pledgor and delivered to the Collateral Agent, the
Collateral Agent will not take any action pursuant to any document referred to
above which would constitute or result in any assignment of any FCC license or
any change of control (whether de jure or de facto) of the Pledgor or the
Subsidiary if such assignment of any FCC license or change of control would
require, under then existing law or regulation of the FCC, the prior approval of
the FCC without first obtaining such prior approval of the FCC. Upon the
occurrence of an Event of Default or at any time thereafter during the
continuance thereof, subject to terms and conditions of this Agreement, the
Pledgor agrees to take any action which the Collateral Agent may reasonably
request in order to obtain from the FCC such approval as may be necessary to
enable the Collateral Agent to exercise and
<PAGE>
21
enjoy, the full rights and benefits granted to the Collateral Agent by this
Agreement and the other documents referred to above, including specifically, at
the cost and expense of the Pledgor, the use of its best efforts to assist in
obtaining approval of the FCC for any action or transaction contemplated by this
Agreement for which such approval is or shall be required by law, and
specifically, without limitation, upon request, to prepare, sign and file with
the FCC the assignor's or transferor's portion of any application or
applications for consent to the assignment of license or transfer of control
necessary or appropriate under the FCC's rules and regulations for approval of
(i) any sale or other disposition of the Pledged Collateral by or on behalf of
the Collateral Agent, or (ii) any assumption by the Collateral Agent of voting
rights in the Pledged Collateral effected in accordance with the terms of this
Agreement. It is understood and agreed that all foreclosure and related actions
will be made in accordance with the Communications Act of 1934, as amended, and
the rules and regulations promulgated thereunder, as from time to time in effect
(the "Communications Act") and other applicable FCC regulations and published
policies and decisions.
(g) The Pledgor agrees to indemnify and hold harmless the
Collateral Agent, the Old Note Trustee, the New Note Trustee, and the Holders,
the respective affiliates of the Collateral Agent, the Old Note Trustee, the New
Note Trustee, and the Holders, and the respective officers, directors,
employees, agents (including, without limitation each of their counsel), and
controlling persons of the Collateral Agent, the Old Note Trustee, the New Note
Trustee, and the Holders and each such affiliate (each, an "Indemnified Party")
from and against any and all claims, actions and suits whether groundless or
otherwise, and from and against any and all liabilities, losses, damages and
costs and expenses (including, without limitation, the reasonable fees and
disbursements of counsel and with respect to the Collateral Agent, reasonably
allocated costs and expenses of in-house counsel and legal staff) of every
nature and character arising out of or in connection with any actual or
threatened claim, litigation, investigation or proceeding relating to the Old
Note Indenture, the New Note Indenture, the Notes or this Agreement or the
transactions contemplated hereby (other than any such actions or expenses
resulting from the gross negligence or wilful misconduct of the Collateral
Agent, the Old Note Trustee, the New Note Trustee or the Holders), in each case
including, without limitation, the reasonable fees and disbursements of counsel
and allocated costs of in-house counsel and legal staff incurred in connection
with any such investigation,
<PAGE>
22
litigation or other proceeding whether or not such Indemnified Party is a party
thereto, and the Pledgor agrees to reimburse each Indemnified Party, upon
demand, for all out-of-pocket costs and expenses (including, without limitation,
the reasonable fees and disbursements of counsel and with respect to the
Collateral Agent, reasonably allocated costs and expenses of in-house counsel
and legal staff) incurred in connection with any of the foregoing. In
litigation, or the preparation therefor, the Collateral Agent, the Old Note
Trustee and the New Note Trustee shall be entitled to select their own counsel
and, in addition to the foregoing indemnity, the Pledgor agrees to pay promptly
the reasonable fees and expenses of such counsel. If, and to the extent that the
obligations of the Pledgor under this Section 21(g) are unenforceable for any
reason, the Pledgor hereby agrees to make the maximum contribution to the
payment in satisfaction of such obligations which is permissible under
applicable law.
The Pledgor shall not make any claim against any Indemnified
Party for any special, indirect or consequential damages in respect of any
breach or wrongful conduct (whether the claim therefor is based in contract,
tort or duty imposed by law) in connection with, arising out of or in any way
related to the transactions contemplated by, and the relationship established by
this Agreement, the Old Note Indenture, the New Note Indenture, the Notes, or
any act, omission or event occurring in connection therewith, and the Pledgor
hereby waives, releases and agrees not to sue upon any such claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in the Pledgor's favor.
The covenants contained in this Section 21(g) shall survive
payment or satisfaction in full of all other of the Secured Obligations.
(h) The Pledgor hereby appoints Patrick L. Donnelly, 1221
Avenue of the Americas, New York, New York 10020, as its legally authorized
process agent to accept service on behalf of the Pledgor.
(i) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York. The Pledgor agrees that any
suit for the enforcement of this Agreement may be brought in the courts of the
State of New York or any Federal court sitting therein and consents to the
nonexclusive jurisdiction of such court and service of process in any such suit
being made upon the Pledgor by mail to Patrick L. Donnelly at the address
specified in Section 21(h). The Pledgor hereby waives any
<PAGE>
23
objection that it may now or hereafter have to the venue of any such suit or any
such court or that such suit is brought in an inconvenient court.
(j) This Agreement and any amendment hereof may be executed in
several counterparts and by each party on a separate counterpart, each of which
when so executed and delivered shall be an original, and all of which together
shall constitute one instrument. In proving this Agreement it shall not be
necessary to produce or account for more than one such counterpart signed by the
party against whom enforcement is sought.
(k) This Agreement and any other documents executed in
connection herewith express the entire understanding of the parties with respect
to the transactions contemplated hereby. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated, except as provided in
Section 21(m).
(l) Each Holder, by its acceptance of the benefits of this
Agreement and the security interest created hereby, is deemed to agree to be
subject to the provisions of the Intercreditor Agreement.
(m) The Pledgor hereby waives its right to a jury trial with
respect to any action or claim arising out of any dispute in connection with
this Agreement, or any of the other loan documents, any rights or obligations
hereunder or thereunder or the performance of such rights and obligations.
Except as prohibited by law, the Pledgor hereby waives any right it may have to
claim or recover in any litigation referred to in the preceding sentence any
special, exemplary, punitive or consequential damages or any damages other than,
or in addition to, actual damages. The Pledgor (i) certifies that no agent or
representative of the Collateral Agent, the Old Note Trustee, the New Note
Trustee or any Holder has represented, expressly or otherwise, that the
Collateral Agent, the Old Note Trustee, the New Note Trustee or such Holder, as
the case may be, would not, in the event of litigation, seek to enforce the
foregoing waivers and (ii) acknowledges that the Old Note Trustee, the New Note
Trustee and the Collateral Agent have been induced to enter into this Agreement,
the Old Note Indenture and the New Note Indenture by, among other things, the
waivers and certifications contained herein.
(n) Any consent or approval required or permitted by this
Agreement to be given by the Collateral Agent may be given with, but only with,
the written consent of the Collateral Agent (subject to the terms of the
Intercreditor
<PAGE>
24
Agreement). Any term of this Agreement may be amended, and the performance or
observance by the Pledgor of any terms of this Agreement, or the continuance of
any Default or Event of Default may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but only
with, the written consent of the Pledgor, the written consent of the Collateral
Agent, the written consent of the Old Note Trustee and the written consent of
the New Note Trustee. No waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon. No course of dealing or
delay or omission on the part of the Collateral Agent, the Old Note Trustee, the
New Note Trustee or any Holder in exercising any right shall operate as a waiver
thereof or otherwise be prejudicial thereto. No notice to or demand upon the
Pledgor shall entitle the Pledgor to other or further notice or demand in
similar or other circumstances.
(o) Notwithstanding the foregoing, this Agreement may be
amended, revised and supplemented, as contemplated by Section 1203 of the Old
Note Indenture and Section 12.03 of the New Note Indenture, to assign and pledge
to the Collateral Agent for the benefit of the Holders and the equal and ratable
benefit of the Secured Parties (as defined in the Old Note Indenture and in the
New Note Indenture) a security interest in the Pledged Collateral. Any such
amendment, revision or supplement shall comply with the provisions of Section
1203 of the Old Note Indenture and Section 12.03 of the New Note Indenture.
(p) The Pledgor hereby waives any and all rights against
immunity from jurisdiction, attachment (both before and after judgment) and
execution to which it might be entitled.
(q) The provisions of this Agreement are severable and if any
one clause or provision hereof shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction, and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
<PAGE>
25
(r) The Collateral Agent shall not be required to exercise any
of the rights or powers vested in it by this Agreement, unless it shall have
received reasonable indemnity against costs, expenses and liabilities which may
be incurred in connection therewith. Any permissive right of the Collateral
Agent to act hereunder shall not be construed as a duty.
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to
be duly executed and delivered as of the date hereof.
CD RADIO INC.,
by: /s/Patrick L. Donnelly
--------------------------
Name: Patrick L. Donnelly
Title: Executive Vice
President & General
Counsel
Accepted and agreed to:
IBJ WHITEHALL BANK AND TRUST COMPANY,
as Collateral Agent,
by: /s/Luis Perez
--------------------------
Name: Luis Perez
Title: Assistant Vice President
IBJ WHITEHALL BANK AND TRUST COMPANY,
as Old Note Trustee,
by: /s/Luis Perez
--------------------------
Name: Luis Perez
Title: Assistant Vice President
UNITED STATES TRUST COMPANY OF NEW YORK,
as New Note Trustee,
by: /s/Patricia Gallagher
--------------------------
Name: Patricia Gallagher
Title: Assistant Vice President
<PAGE>
26
Schedule I
Pledged Shares
All issued and outstanding shares of capital stock of Satellite CD Radio, Inc.,
a Delaware corporation.
<PAGE>
EXHIBIT 4.4.6
EXECUTION COPY
================================================================================
COLLATERAL PLEDGE AND SECURITY AGREEMENT
Between
CD RADIO INC.
as Pledgor
and
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
Dated as of May 15, 1999
================================================================================
<PAGE>
COLLATERAL PLEDGE AND SECURITY AGREEMENT, dated as
of May 15, 1999, between CD RADIO INC., a Delaware
corporation ("CD Radio" and the "Pledgor"), and UNITED
STATES TRUST COMPANY OF NEW YORK, as trustee (the
"Trustee"), for the holders of the Notes (as defined
herein). Capitalized terms used but not otherwise defined
herein shall have the meanings given to such terms in the
Indenture (as defined herein).
The Pledgor and the Trustee have entered into that certain
Indenture, dated as of May 15, 1999 (as amended, restated, supplemented or
otherwise modified from time to time, the "Indenture"), pursuant to which the
Pledgor is issuing $200,000,000 aggregate principal amount of its 14-1/2% Senior
Secured Notes due 2009 (the "Notes").
The Pledgor has agreed, pursuant to the Indenture, to (i)
purchase a portfolio of U.S. Government Obligations (the "Pledged Securities")
with scheduled principal and interest payments that will result in the receipt
of United States dollars in an amount and at a time sufficient, based on the
schedule of interest and principal payments in respect of such Pledged
Securities (with reinvestment) (as calculated and set forth in a written
certificate furnished to the Trustee of an internationally recognized firm of
independent certified public accountants selected by the Pledgor), to provide
for payment in full of the six regularly scheduled interest payments due on the
Notes from November 15, 1999 through May 15, 2002 (the "Secured Payments") and
(ii) place the Pledged Securities in the Pledge Account (as defined herein) held
by the Trustee for the benefit of the holders of the Notes.
The Pledgor is to be the sole legal and beneficial owner of the
Pledged Securities; and
To secure the payment and performance by the Pledgor of its
obligations under the Indenture and the Notes (collectively, the "Obligations"),
the Pledgor has agreed to pledge to the Trustee for the ratable benefit of the
holders of the Notes a security interest in the Pledged Securities and the
Pledge Account and execute and deliver this Agreement.
<PAGE>
2
The parties hereto hereby agree as follows:
1. Pledge and Grant of Security Interest. The Pledgor hereby
pledges to the Trustee for the ratable benefit of the holders of the Notes, and
grants to the Trustee for the ratable benefit of the holders of the Notes, a
continuing first priority security interest in and to (i) all of the Pledgor's
right, title and interest in the Pledged Securities and the Pledge Account, (ii)
all certificates or other evidence of ownership representing the Pledged
Securities and the Pledge Account and (iii) all products and proceeds of any of
the Pledged Securities, including all dividends, interest payments, principal
payments, cash, options, warrants, rights, instruments, subscriptions and other
property or proceeds from time to time received, receivable or otherwise
distributed or distributable in respect of or in exchange for any or all of the
Pledged Securities (collectively, the "Collateral").
2. Security for Obligations. This Agreement and the Collateral
secure the prompt and complete payment and performance when due (whether at
stated maturity, by acceleration or otherwise) of all of the Obligations.
3. Delivery of Collateral; Pledge Account; Interest. (a) All
certificates or instruments representing or evidencing the Pledged Securities
shall be delivered to and held by or on behalf of the Trustee pursuant hereto
and shall be in suitable form for transfer and delivery, or shall be accompanied
by instruments of transfer or assignment duly executed in blank all in form
satisfactory to the Trustee, or shall be delivered to the Trustee through the
book-entry facilities of the applicable depositary.
(b) Concurrently with the execution and delivery of this
Agreement, the Trustee shall establish an account entitled the "CD RADIO PLEDGE
ACCOUNT" for the deposit of the Pledged Securities (the "Pledge Account").
Subject to the other terms and conditions of this Agreement, all funds or other
property accepted by the Trustee pursuant to this Agreement shall be held in the
Pledge Account for the ratable benefit of the holders of the Notes. The Pledged
Securities shall be registered in the name of the Trustee or its nominee, as
Trustee for the benefit of the holders of the Notes, and the proceeds of any
such Pledged Securities shall remain on deposit in the Pledge Account until
withdrawn in accordance with this Agreement. If and to the extent the Pledged
Securities comprise certificated securities (as defined in Section 8-102 of the
Uniform Commercial Code in the State of New York), such Pledged Securities shall
be registered in the name of the Trustee or
<PAGE>
3
its nominee, as Trustee for the benefit of the holders of the Notes, and
possession thereof shall be maintained by the Trustee within the State of New
York.
(c) All interest earned on or other distributions or amounts paid
with respect to any Collateral shall be retained in the Pledge Account and may
be reinvested by and at the direction of the Pledgor in other U.S. Government
Obligations and treated as Pledged Securities; provided, however, that the
Pledgor may only so reinvest such interest, distributions or amounts if, based
on a written report of an internationally recognized firm of independent public
accountants selected by the Pledgor and addressed to the Trustee, scheduled
principal and interest payments on the Pledged Securities retained in the Pledge
Account (after giving effect to such reinvestment) will result in receipt of
United States dollars in an amount and at a time sufficient, without further
reinvestment, to provide for payment in full when due of each of the Secured
Payments (or, in the event any such Secured Payments have been made, the
remaining unpaid Secured Payments).
4. Disbursements. (a) Not less than one Business Day prior to the
date of each of the Secured Payments, the Pledgor is entitled to direct the
Trustee in writing to transfer from the Pledge Account to the Trustee in its
capacity as Paying Agent (or, if applicable, any successor Paying Agent), United
States dollars in immediately available funds necessary to provide for payment
in full of or any portion of the next regularly scheduled interest payment on
the Notes. Upon receipt of such written request, the Trustee shall take such
action as is necessary to provide for the timely payment of such amount of
United States dollars in immediately available funds directly to the Trustee as
Paying Agent (or, if applicable, any successor Paying Agent) from proceeds of
the Pledged Securities held in the Pledge Account.
(b) If the Pledgor elects to pay any Secured Payment (or any
portion thereof) from a source of funds other than the Pledge Account (the
"Pledgor's Funds"), then the Pledgor may on at least two Business Days' prior
written notice, after payment in full in cash of such Secured Payment (evidenced
by an Officers' Certificate delivered to the Trustee stating that such regularly
scheduled interest payment has been made in accordance with the terms of the
Indenture), direct the Trustee in writing to release to the Pledgor (or as it
may direct) an amount of funds or Pledged Securities, at the Pledgor's sole
option, from the Pledge Account not to exceed the amount of Pledgor's Funds so
expended, without accounting for any Pledgor's Funds so
<PAGE>
4
expended in payment of Defaulted Interest. Upon receipt of such written
direction from the Pledgor, together with (i) the certificate described in the
preceding sentence and (ii) the written report of an internationally recognized
firm of independent certified public accountants selected by the Pledgor and
addressed to the Trustee certifying that the scheduled payments of principal of
and interest on the Pledged Securities exceeds 100% of the amount in cash
sufficient to provide for timely payment in full of the Secured Payments (or, in
the event any Secured Payments have been made, an amount in cash sufficient to
provide for timely payment in full of the remaining unpaid Secured Payments),
the Trustee shall take such action as is necessary to provide for the prompt
payment to the Pledgor of the amount of funds or Pledged Securities requested
from the Pledge Account.
(c) If at any time the scheduled payments of principal of and
interest on the Pledged Securities exceeds 100% of the amount in cash
sufficient, based on a written report of an internationally recognized firm of
independent certified public accountants selected by the Pledgor and addressed
to the Trustee, to provide for timely payment in full of the Secured Payments
(or, in the event any Secured Payments have been made, an amount in cash
sufficient to provide for timely payment in full of the remaining unpaid Secured
Payments), the Pledgor may direct the Trustee in writing to release to the
Pledgor (or as it may direct) an amount of funds or Pledged Securities, at the
Pledgor's sole option, not to exceed such excess. Upon receipt of such written
direction from the Pledgor, together with such report of such internationally
recognized firm of independent certified public accountants, the Trustee shall
take such action as is necessary to provide for the prompt payment to the
Pledgor of the amount of funds or Pledged Securities equal to such excess, as
identified in such report.
(d) Upon payment in full of the Secured Payments, evidenced by an
Officers' Certificate delivered to the Trustee stating that such regularly
scheduled interest payments have been made in full in accordance with the
Indenture, then so long as no Default or Event of Default shall have occurred
and be continuing, (i) the security interest in the Collateral evidenced by this
Agreement shall terminate and be of no further force and effect and (ii) any
funds remaining in the Pledge Account will be promptly returned to the Pledgor.
Furthermore, upon release of any Collateral from the Pledge Account in
accordance with the terms of this Agreement, the security interest evidenced by
<PAGE>
5
this Agreement in the Collateral so released shall terminate and be of no
further force and effect.
5. Representations and Warranties. The Pledgor hereby represents
and warrants that:
(a) the execution, delivery and performance by the Pledgor of
this Agreement has been duly authorized by the Pledgor and does not
contravene or constitute a default under any provision of applicable law
or regulation to which the Pledgor is subject, the certificate of
incorporation or the by-laws, as the case may be, of the Pledgor, or of
any judgment, injunction, order, decree or any material agreement or
instrument binding upon the Pledgor, and does not result in the creation
or imposition of any Lien on any asset of the Pledgor, except for the
security interests granted under this Agreement;
(b) no financing statement covering the Pledged Securities is on
file in any public office, other than financing statements filed
pursuant to this Agreement;
(c) upon the delivery to the Trustee of the certificates, if any,
representing the Pledged Securities, any filing of financing statements
required by the Uniform Commercial Code (the "UCC") and notation on the
records of the Trustee that it holds the Pledged Securities as pledgee,
the pledge of the Collateral pursuant to this Agreement will constitute
a valid and perfected first priority security interest in and to the
Collateral, securing the payment and performance of the Obligations for
the ratable benefit of the holders of the Notes, enforceable as such
against all creditors of the Pledgor and any persons purporting to
purchase any of the Collateral from the Pledgor;
(d) no consent of any other person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body in the United States or
otherwise, including any taxing authority, is required to be obtained or
made by the Pledgor as of the date hereof either (i) for the pledge by
the Pledgor of the Collateral pursuant to this Agreement or for the
execution, delivery or performance of this Agreement by the Pledgor
(except for any filings and notations necessary to perfect the security
interest created hereby in the Collateral) or (ii) for the exercise by
the Trustee of the rights provided for in this Agreement or the remedies
in respect of the Collateral
<PAGE>
6
pursuant to this Agreement (except as may be required by laws affecting
the offering and sale of securities generally); and
(e) the pledge of the Collateral pursuant to this Agreement is
not prohibited by any applicable law or government regulation, release,
interpretation or opinion of the Board of Governors of the Federal
Reserve System or other regulatory agency in the United States or
otherwise (including any taxing authority or Regulations T, U and X of
the Board of Governors of the Federal Reserve System).
6. Further Assurances. The Pledgor agrees to promptly take such
actions and to execute and deliver or cause to be executed and delivered, or use
its best efforts to procure, such stock or bond powers, proxies, assignments,
instruments and such other or different writings as the Trustee may reasonably
request, all in form and substance satisfactory to the Trustee, deliver any
instruments to the Trustee and take any other actions that are necessary or, in
the opinion of the Trustee, desirable, to perfect, continue the perfection of,
confirm and assure the first priority of the Trustee's security interest in the
Collateral, to protect the Collateral against the rights, claims or interests of
third persons, or to otherwise effect the purposes of this Agreement.
Notwithstanding the foregoing, the Trustee shall have no duty or obligation to
ensure the maintenance or perfection of any security interest hereunder.
7. Covenants. The Pledgor covenants and agrees with the Trustee
and the holders of the Notes from and after the date of this Agreement until the
earlier of payment in full of cash in United States dollars of (A) each of the
Secured Payments under the terms of the Indenture and (B) all Obligations due
and owing under the Indenture and the Notes in the event such Obligations become
due and payable prior to the payment in full of any of the Secured Payments, as
follows:
(a) The Pledgor agrees that it (i) will not sell or otherwise
dispose of, or grant any option or other interest with respect to, any of the
Collateral, (ii) will not create or permit to exist any Lien upon or with
respect to any of the Collateral, except for the Liens created pursuant to this
Agreement and (iii) will at all times be the sole beneficial owner of the
Collateral.
(b) The Pledgor agrees that it will not (i) enter into any
agreement or understanding that purports to or may
<PAGE>
7
restrict or inhibit the Trustee's rights or remedies hereunder, including the
Trustee's right to sell or otherwise dispose of the Collateral, or (ii) with
regard to the Collateral, fail to pay or discharge any tax, assessment or levy
of any nature due with respect thereto later than five days prior to the date of
any proposed sale under any judgment, writ or warrant of attachment.
8. Power of Attorney. (a) The Pledgor hereby appoints and
constitutes the Trustee as the Pledgor's attorney-in-fact to exercise to the
fullest extent permitted by law all of the following powers upon and at any time
after the occurrence and during the continuance of an Event of Default:
(i) collection of proceeds of any Collateral;
(ii) conveyance of any item of Collateral to any purchaser
thereof as specified herein;
(iii) giving of any notices or recording of any Liens pursuant to
Section 6 hereof;
(iv) making any payments or taking any acts pursuant to Section 9
hereof; and
(v) paying or discharging taxes or Liens levied or placed upon
the Collateral, the legality or validity thereof and the amounts
necessary to discharge the same to be determined by the Trustee in its
sole and reasonable discretion, and any such payments made by the
Trustee shall become Obligations of the Pledgor to the Trustee, due and
payable immediately upon demand.
(b) The Trustee's authority under this Section 8 shall include
the authority to endorse and negotiate any checks or instruments representing
proceeds of Collateral in the name of the Pledgor, execute and give receipt for
any certificate of ownership or any document constituting Collateral, transfer
title to any item of Collateral, to the extent permitted by applicable law, sign
the Pledgor's name on all financing statements or any other documents deemed
necessary or appropriate by the Trustee to preserve, process or perfect the
security interest in the Collateral, and to file the same, and to prepare, sign
the Pledgor's name and file any notice of Lien, and to take any other actions
arising from or incident to the powers granted to the Trustee in this Agreement.
This power of attorney is coupled with an interest and shall be irrevocable by
the Pledgor.
<PAGE>
8
9. Trustee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Trustee may, but shall not be obligated to,
itself perform or cause performance of such agreement, and the reasonable
expenses incurred by or on behalf of the Trustee in connection therewith shall
be payable by the Pledgor under Section 13 hereof.
10. No Assumption of Duties; Reasonable Cure. The rights and
powers granted to the Trustee hereunder are being granted in order to preserve
and protect the security interest of the holders of Notes in and to the
Collateral granted hereby and shall not be interpreted to, and shall not, impose
any duties on the Trustee in connection therewith other than those imposed under
applicable law.
11. Indemnity. The Pledgor shall indemnify, defend and hold
harmless the Trustee and its directors, officers, agents and employees from and
against all claims, actions, obligations, losses, liabilities and expenses,
including costs, fees and disbursements of counsel, the costs of investigations,
and claims for damages, arising from the Trustee's performance under this
Agreement, except insofar as the same may have been caused by such indemnified
person's own negligent action, its own negligent failure to act or its own
willful misconduct. The obligations of the Pledgor under this Section 11 shall
survive the resignation or removal of the Trustee and the termination of this
Agreement.
12. Remedies upon Event of Default. If an Event of Default shall
have occurred:
(a) The Trustee shall have and may exercise with reference to the
Collateral any or all of the rights and remedies of a secured party under the
UCC in effect in the State of New York, and as otherwise granted herein or under
any other applicable law or under any other agreement now or hereafter in effect
executed by the Pledgor, including the right and power to sell, at public or
private sale or sales, or otherwise dispose of, or otherwise utilize the
Collateral and any part or parts thereof, in any manner authorized or permitted
under said UCC after default by a debtor, and to apply the proceeds thereof
toward payment of any costs and expenses and attorneys' fees and expenses
thereby incurred by the Trustee and toward payment of the Obligations in
accordance with Section 12(c). Specifically, and without limiting the foregoing,
the Trustee shall have the right to take possession of all or any part of the
Collateral or any security therefor and of all books, records, papers and
documents of the Pledgor or in the Pledgor's possession or
<PAGE>
9
control relating to the Collateral that are not already in the Trustee's
possession. To the extent permitted by law, the Pledgor expressly waives any
notice of sale or other disposition of the Collateral and all other rights or
remedies of the Pledgor or formalities prescribed by law relative to sale or
disposition of the Collateral or exercise of any other right or remedy of the
Trustee existing after Default or Event of Default hereunder. To the extent any
such notice is required and cannot be waived, the Pledgor agrees that if such
notice is given in the manner provided in Section 17 hereof at least three days
before the time of the sale or disposition, such notice shall be deemed
reasonable and shall fully satisfy any requirement for giving of said notice.
The Trustee shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Trustee may adjourn any public or private
sale. The Pledgor further agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to effect the intention of this
Section 12.
(b) All rights to marshalling of assets of the Pledgor, including
any such right with respect to the Collateral, are hereby waived by the Pledgor.
The Pledgor shall not contest or support any other person in contesting the
validity or priority of the security interests created under this Agreement.
(c) Any money collected by the Trustee pursuant to this Section
12 shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any), upon presentation of the Notes and the notation thereon of
the payment if only partially paid and upon surrender thereof if fully paid:
(i) FIRST: to the payment of all amounts due the Trustee under
Sections 11 and 13 hereof; and
(ii) SECOND: to the payment of the amounts then due and unpaid
for interest on the Notes, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Notes for
interest; and
(iii) THIRD: to the payment of the amounts then due and unpaid
for principal of (and premium, if any) on the Notes, ratably without
preference or priority of any kind, according to the amounts due and
payable on such Notes for principal (and premium, if any); and
<PAGE>
10
(iv) FOURTH: to the Pledgor.
The Trustee may fix a record date and payment date for any
payment to holders of the Notes pursuant to this Section 12. At least 15
calendar days before such record date, the Trustee at the expense of the Pledgor
shall send to each holder of a Note by first class mail, postage prepaid, a
notice prepared by the Pledgor that states such record date, the payment date
and amount to be paid.
13. Fees and Expenses. The Pledgor shall, upon demand, pay to the
Trustee the amount of its fees (which shall be in an amount previously agreed to
by the Pledgor and the Trustee) and any and all reasonable expenses (including
the reasonable fees, expenses and disbursements of counsel, experts and agents
retained by the Trustee) that the Trustee may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from or other realization upon, any of the Collateral, (iii)
the exercise or enforcement of any of the rights of the Trustee and the holders
of the Notes hereunder or (iv) the failure by the Pledgor to perform or observe
any of the provisions hereof. The obligations of the Pledgor under this Section
13 shall survive the resignation or removal of the Trustee and the termination
of this Agreement.
14. Security Interest Absolute. All rights of the Trustee and the
holders of the Notes, and the security interests created hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
(except to the extent prohibited by law) irrespective of:
(a) any lack of validity or enforceability of the Indenture or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment
or waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or nonperfection of any
Liens on any other collateral for all or any of the Obligations; or
(d) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Pledgor in respect of the
Obligations or of this Agreement.
<PAGE>
11
15. Continuing Security Interest; Termination. (a) This Agreement
shall create a continuing security interest in and to the Collateral and shall
be binding upon the Pledgor, its successors and assigns, and shall inure,
together with the rights and remedies of the Trustee hereunder, to the benefit
of the Trustee and the holders of the Notes and their respective successors,
transferees and assigns.
(b) This Agreement shall terminate upon the earliest of (i)
payment in full in cash in United States dollars of each of the Secured Payments
to the holders thereof under the terms of the Indenture, (ii) the date on which
all Obligations due and owing under the Indenture and the Notes have been paid
in full in the event such Obligations become due and payable prior to the
payment of any of the Secured Payments or (iii) the exercise by the Pledgor of
its, and the effectiveness in accordance with the terms of the, legal defeasance
option pursuant to Article Thirteen of the Indenture. At such time, the Trustee
shall, at the written request of the Pledgor, reassign and promptly redeliver to
the Pledgor all of the Collateral hereunder that has not been sold, disposed of,
retained or applied by the Trustee in accordance with the terms of this
Agreement and the Indenture; provided, however, that no Default or Event of
Default shall have occurred and be continuing. Such reassignment and redelivery
shall be without warranty (either express or implied) by or recourse to the
Trustee, except as to the absence of any prior assignments by the Trustee of its
interest in the Collateral, and shall be at the expense of the Pledgor.
16. Authority of the Trustee. (a) The Trustee shall have and be
entitled to exercise all powers hereunder that are specifically granted to the
Trustee by the terms hereof, together with such powers as are reasonably
incident thereto. The Trustee may perform any of its duties hereunder or in
connection with the Collateral by or through agents or employees and shall be
entitled to retain counsel and to act in reliance upon the advice of counsel
concerning all such matters. None of the Trustee or any director, officer,
employee, attorney or agent of the Trustee shall be liable to the Pledgor for
any action taken or omitted to be taken by it or them hereunder, except for its
or their own negligent action, negligent failure to act or willful misconduct;
provided, however, that (i) each such person shall not be liable for any error
of judgment made in good faith by it unless it is proved that such person was
negligent in ascertaining the pertinent facts and (ii) the Trustee shall not be
liable with respect to any action it
<PAGE>
12
takes or omits to take in good faith in accordance with a direction or request
received by it pursuant to Section 5.12 of the Indenture or Section 16(d)
hereof. The Trustee shall not be responsible for the validity, effectiveness or
sufficiency hereof or of any document or security furnished pursuant hereto. The
Trustee and its directors, officers, employees, attorneys and agents shall be
entitled to rely on any communication, instrument or document believed by it or
them to be genuine and correct and to have been signed or sent by the proper
Person or Persons.
(b) The Pledgor acknowledges that the rights and responsibilities
of the Trustee under this Agreement with respect to any action taken by the
Trustee or the exercise or nonexercise by the Trustee of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Agreement shall, as between the Trustee and the holders of
the Notes, be governed by the Indenture and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Trustee and the Pledgor, the Trustee shall be conclusively presumed to be acting
as agent for the holders of the Notes with full and valid authority so to act or
refrain from acting, and the Pledgor shall not be obligated or entitled to make
any inquiry respecting such authority.
(c) The Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement and no implied covenants
or obligations shall be read in this Agreement against the Trustee. The Trustee
shall not be deemed to have knowledge of a Default or an Event of Default under
the Indenture unless informed in writing by the Pledgor or the holder of any
Note or unless a officer of the Trustee shall have actual knowledge thereof.
(d) The Trustee shall not be required to exercise any remedies
hereunder unless requested in writing to do so by the holders of not less than a
majority in principal amount of the outstanding Notes and only if furnished with
indemnity satisfactory to the Trustee. The Trustee may consult with counsel and
shall not be liable for any action taken in good faith in reliance upon advice
of counsel except for its bad faith, its own negligent action, its own negligent
failure to act or its own wilful misconduct. The Trustee makes no representation
or warranty and shall have no responsibility concerning the value or validity of
the Collateral or the validity or perfection of the pledge thereof.
(e) Any resignation or removal of the Trustee under the Indenture
shall, upon the effective date thereof,
<PAGE>
13
result in the simultaneous resignation or removal, as the case may be, of the
Trustee hereunder and any appointment of a successor Trustee under the Indenture
shall, upon the effectiveness thereof, result in the simultaneous appointment of
the same successor Trustee hereunder.
(f) The Trustee shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which a reasonable
person accords its own property, it being understood that neither the Trustee
nor the holders of the Notes shall have responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relative to any Collateral, whether or not any such Person has
or is deemed to have knowledge of such matters, or (ii) taking any necessary
steps to preserve rights against any parties with respect to any Collateral.
(g) Notwithstanding anything herein to the contrary, the
exculpations, immunities and protections available to the Trustee under the
Indenture shall be available to the Trustee hereunder.
17. Notices. Any communication, notice or demand to be given
hereunder shall be in writing and delivered in person or mailed by first class
mail, postage prepaid, addressed as follows: If to the Trustee: United States
Trust Company of New York, 114 West 47th St., New York, NY 10036, Attention:
Patricia Gallagher; if to the Company: CD Radio Inc., 1221 Avenue of the
Americas, 36th Floor, New York, New York 10020, Attention: Patrick L. Donnelly.
Notice may also be given in such other form and manner or to such other address
as shall be designated by any party hereto to each other party hereto in a
written notice delivered in accordance with the terms of the Indenture.
18. No Waiver; Cumulative Rights. No failure on the part of the
Trustee to exercise, and no delay in exercising, any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise by the Trustee of any right, remedy or power hereunder preclude any
other or future exercise of any other right, remedy or power. Each and every
right, remedy and power hereby granted to the Trustee or allowed it by law or
other agreement shall be cumulative and not exclusive the one of any other, and
may be exercised by the Trustee from time to time.
19. Benefits of Agreement. Nothing in this Agreement, whether
express or implied, shall give to any
<PAGE>
14
Person other than the parties hereto and their successors hereunder, and the
holders of the Notes, any benefit or any legal or equitable right, remedy or
claim under this Agreement.
20. Applicable Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES
OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY.
21. Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute one and the same instrument.
22. Trust Indenture Act. The Pledgor shall provide the annual
opinion required by Section 314(b) of the Trust Indenture Act and shall comply
with Section 314(d) thereof, to the extent applicable, in connection with any
release or substitution of Collateral hereunder.
<PAGE>
15
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 /s/Patrick L. Donnelly
------------------------------
Patrick L. Donnelly
Executive Vice President,
General Counsel and
Secretary
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee,
by /s/Patricia Gallagher
------------------------------
Name: Patricia Gallagher
Title: Assistant Vice
President
<PAGE>
EXHIBIT 4.4.7
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT, dated May 15, 1999 (this "Agreement"), is
by and between IBJ Whitehall Bank & Trust Company (formerly IBJ Schroder Bank &
Trust Company), a bank duly organized and existing under the laws of the State
of New York ( "IBJ") in its capacity as trustee for the holders from time to
time of certain indebtedness issued pursuant to the IBJ Indenture referred to
below, and United States Trust Company of New York, a bank duly organized and
existing under the laws of the State of New York ("US Trust") in its capacity as
trustee for the holders from time to time of certain indebtedness issued
pursuant to the US Trust Indenture referred to below.
R E C I T A L:
IBJ has entered into an Indenture, dated as of November 26, 1997 (as
amended, supplemented, restated or otherwise modified from time to time, the
"IBJ Indenture"), with CD Radio Inc. (the "Company") as trustee for the holders
(the "IBJ Noteholders") of the Company's 15% Senior Secured Notes due 2007 (the
"Old Notes"), and in connection therewith the Company has executed and delivered
or will hereafter execute and deliver certain other agreements, guaranties,
pledges, documents and other instruments (as amended, supplemented, restated or
otherwise modified from time to time, collectively, together with the IBJ
Indenture, the "IBJ Documents");
The obligations of the Company under the IBJ Indenture and the Old Notes
issued thereunder are secured by the Pledged Collateral as more specifically set
forth in the IBJ Documents;
US Trust has entered into an Indenture, dated as of May 15, 1999 (as
amended, supplemented, restated or otherwise modified from time to time, the "US
Trust Indenture"), with the Company as trustee for the holders (the "US Trust
Noteholders") of the Company's 14-1/2% Senior Secured Notes due 2009 (the "New
Notes", and together with the Old Notes, the "Notes") and in connection
therewith the Company has executed and delivered or will hereafter execute and
deliver certain other agreements, guaranties, pledges, documents and other
instruments (as amended, supplemented, restated or otherwise modified from time
to time, collectively, together with the US Trust Indenture, the "US Trust
Documents");
The obligations of the Company under the US Trust Indenture and the New
Notes issued thereunder are secured by the Pledged Collateral as more
specifically set forth in the US Trust Documents;
Pursuant to the Amended and Restated Pledge Agreement dated as of May
15, 1999 (the "Pledge Agreement") among the Company, IBJ and US Trust, the
Pledged Collateral shall be held by IBJ, as collateral agent (the "Collateral
Agent") for IBJ, as trustee for the IBJ Noteholders and for US Trust, as trustee
for the US Trust Noteholders; and
The parties hereto desire to agree among themselves on certain rights,
priorities and interests in the Pledged Collateral now or hereafter granted by
the Company.
<PAGE>
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"Accreted Value" shall have the meaning provided therefor in the
IBJ Indenture.
"Lien" shall mean any mortgage, pledge, lien, security interest,
setoff right or other encumbrance, whether now existing or hereafter created,
acquired or arising.
"New Note Obligations" shall mean, collectively, all debts,
liabilities and obligations of the Company, whether now or hereafter existing,
arising pursuant to the terms of the New Notes, the US Trust Indenture and the
other US Trust Documents.
"Obligations" shall mean, collectively, the Old Note Obligations
and the New Note Obligations.
"Old Note Obligations" shall mean, collectively, all debts,
liabilities and obligations of the Company, whether now or hereafter existing,
arising pursuant to the terms of the Old Notes, the IBJ Indenture and the IBJ
Documents.
"Paid in full" shall mean indefeasible payment in full in lawful
cash currency of the United States of America.
"Pledged Collateral" shall have the meaning provided therefor in
the Pledge Agreement.
"Remedial Action" shall mean any claim, proceeding or action to
foreclose upon, take possession or control of, sell, lease or otherwise dispose
of, or in any other manner realize, take steps to realize or seek to realize
upon, the whole or any part of any Pledged Collateral, whether pursuant to the
UCC, by foreclosure, by setoff, by self-help repossession, by notification to
account debtors, by deed in lieu of foreclosure, by exercise of power of sale,
by judicial action or otherwise, or the exercise of any other remedies with
respect to any Pledged Collateral, or under applicable law.
"Required Parties" shall mean, at any time, IBJ Noteholders and
US Trust Noteholders holding Notes having an aggregate Accreted Value or
principal amount, as applicable, greater than fifty percent (50%) of the sum of
the following amounts at such time: (i) the Accreted Value or principal amount,
as applicable, of Old Notes outstanding at such time and (ii) the principal
amount of New Notes outstanding at such time.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the State of New York, or, if another jurisdiction is specified
in this Agreement, the Uniform Commercial Code as in effect from time to time in
such jurisdiction.
2
<PAGE>
2. Rights and Remedies. The Old Note Obligations and New Note
Obligations are each secured by the Pledged Collateral. IBJ and US Trust, as
trustees under the respective Indentures and on behalf of the respective
Noteholders thereunder, agree that the priorities of the security interests
which secure the Obligations under the respective Indentures and their rights in
and to the Pledged Collateral shall at all times be equal and that each shall
share and be equal in priority and rights with the other. IBJ agrees that it
will not contest the validity, perfection, priority (as provided in this
Agreement) or enforceability of US Trust's security interest in the Pledged
Collateral for the benefit of the US Trust Noteholders. US Trust agrees that it
will not contest the validity, perfection, priority (as provided in this
Agreement) or enforceability of IBJ's security interest in the Pledged
Collateral for the benefit of the IBJ Noteholders.
3. Pledge Agreement. Each of the parties hereto acknowledges that the
Pledged Collateral shall be held by the Collateral Agent in accordance with the
terms of the Pledge Agreement.
4. Foreclosure on Pledged Collateral. The Collateral Agent shall have
the sole and exclusive right to take or exercise Remedial Actions with respect
to the Pledged Collateral in accordance with the terms of the Pledge Agreement.
The Required Parties shall have the sole and exclusive right to direct the
Collateral Agent to take or fail to take any Remedial Action with respect to the
Pledged Collateral as provided herein, in the Pledge Agreement or under
applicable laws in any manner deemed appropriate by the Required Parties in
their sole discretion and neither IBJ, US Trust, any IBJ Noteholder nor any US
Trust Noteholder shall have the right itself (other than IBJ as Collateral
Agent) to take any Remedial Action with respect to the Pledged Collateral.
Notwithstanding the foregoing, nothing contained in this Section shall prohibit
IBJ, US Trust, the IBJ Noteholders, the US Trust Noteholders or the Collateral
Agent from filing a proof of claim in any case involving the Company, as debtor,
under Title 11 of the United States Code, as amended, nor from intervening or
participating in any other judicial proceeding to the extent necessary to
establish or preserve its interests, subject in each case to the provisions of
this Agreement.
5. Notice of Acceleration. IBJ agrees to provide US Trust with prompt
written notice of the acceleration of the Old Note Obligations pursuant to the
IBJ Indenture. US Trust agrees to provide IBJ with prompt written notice of the
acceleration of the New Note Obligations pursuant to the US Trust Indenture.
Although the parties have agreed to provide notices of acceleration, the failure
of a party to provide such notice shall not negate or in any way adversely
affect or impair the validity of the declaration of such acceleration by the
party making such declaration.
6. Further Assurances. At any time and from time to time, IBJ, on the
one hand, and US Trust, on the other hand, shall take any further action and
execute and deliver to the other such additional documents and instruments as
the other may reasonably request to effectuate the terms of and priorities
contemplated by this Agreement.
7. Termination, Rescission or Modification. The agreements and
priorities set forth in this Agreement shall remain in full force and effect
regardless of whether either party hereto in
3
<PAGE>
the future seeks to rescind, amend, terminate or reform, by liquidation or
otherwise, its respective agreements with the Company.
8. Notices. All notices and other written communications provided for in
this Agreement shall be given in writing and sent by overnight delivery service
(with charges prepaid) or by facsimile transmission with the original being sent
by overnight delivery service (with charges prepaid) by the next succeeding
business day, in each case addressed to the party to be notified as follows, or
to such other address as a party may designate as to itself by like notice:
If to IBJ at: IBJ Whitehall Bank & Trust Company
One State Street, 10th Floor
New York, New York 10004
Attention: Corporate Trust Administration
Fax No.: (212) 858-2952
with copies to: Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Attention: Mitchel H. Perkiel, Esq.
Fax No.: (212) 836-8689
If to US Trust at: United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Patricia Gallagher
Fax No.: (212) 852-1626
with copies to: Dow, Lohnes & Albertson
1305 Franklin Avenue
Suite 180
Garden City, New York 11530
Attention: Larry I. Glick, Esq.
Fax No.: (516) 739-0896
9. Rights are Independent of Time of Attachment or Perfection. The
parties agree that their respective rights and priorities set forth herein shall
exist and be enforceable independent of (i) the initiation of any bankruptcy,
moratorium, reorganization or other insolvency proceeding with respect to the
Company; (ii) the priorities which would otherwise result from the order of
creation, attachment or perfection of any such security interests; (iii) the
taking of possession of any of the Pledged Collateral by IBJ, US Trust, any IBJ
Noteholder or any US Trust Noteholder; (iv) the time or order of attachment or
perfection of the respective security interests or creation of the New Note
Obligations or Old Note Obligations; (v) the time or order of filing of
financing statements or (vi) any other matter whatsoever; and shall continue in
full force and effect unless and until this Agreement shall have terminated in
accordance with Section 18 hereof.
4
<PAGE>
10. No Additional Rights for the Company Hereunder. Nothing in this
Agreement shall be construed to modify or relieve, in any way, the Company's
obligation to perform its agreements under the IBJ Documents or under the US
Trust Documents.
11. No Third Party Rights. This Agreement shall not affect the rights of
IBJ, on the one hand, and US Trust, on the other hand, relative to the rights of
any person not specifically a party to this Agreement, including, but not
limited to, the Company or any guarantors or other creditors thereof. Nothing in
this Agreement is intended to affect, limit, or in any way diminish the security
interests which IBJ or US Trust claim in the assets of the Company insofar as
the rights of the Company and third parties are concerned. The parties hereto
specifically reserve any and all of their respective rights, security interests
and mortgage liens and right to assert security interests and mortgage liens
against the Company and any third parties, including guarantors.
12. Waiver of Marshaling. Each party to this Agreement hereby waives any
right to require the other party to marshal any security or Pledged Collateral
or otherwise to compel the other party to seek recourse against or satisfaction
of the indebtedness owed under its respective Indenture from one source before
seeking recourse or satisfactions from another source.
13. Relation of Parties. This Agreement is entered into solely for the
purposes set forth in the Recitals above, and, except as is expressly provided
otherwise herein, neither party to this Agreement assumes any responsibility to
the other party to advise such other party of information known to such party
regarding the financial condition of the Company or regarding the Pledged
Collateral or of any other circumstances bearing upon the risk of nonpayment of
the obligations of the Company to the parties hereto. Each party shall be
responsible for managing its relation with the Company and neither party shall
be deemed the agent of the other party for any purpose, except to the extent
that IBJ is acting as Collateral Agent with respect to the Pledged Collateral.
IBJ may alter, amend, supplement, release, discharge or otherwise modify any
terms of the IBJ Documents and US Trust may alter, amend, supplement, release,
discharge or otherwise modify any terms of the US Trust Documents, without
notice to or consent of the other.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the respective successors and permitted assigns of each
of the parties hereto, provided that such successor or assign shall have agreed
in writing to be bound by the terms of this Agreement and the Pledge Agreement.
15. Copies of Documents; Consents. (a) IBJ hereby acknowledges and
confirms that it has read and is familiar with the terms and provisions of the
US Trust Indenture (as in effect on the date hereof) and the other US Trust
Documents contemplated therein. US Trust hereby acknowledges and confirms that
it has read and is familiar with the terms and provisions of the IBJ Indenture
(as in effect on the date hereof) and the other IBJ Documents contemplated
therein. The provisions of this Agreement are intended by the parties hereto to
control any conflicting provisions which are contained in any IBJ Documents or
US Trust Documents.
5
<PAGE>
(b) IBJ, for itself and on behalf of the IBJ Noteholders,
consents to (i) the execution and delivery of the US Trust Indenture, any New
Notes and any other US Trust Documents; (ii) the incurrence of any New Note
Obligations and (iii) the granting of any Lien on the Pledged Collateral
permitted by the US Trust Indenture to secure the New Note Obligations. US
Trust, for itself and on behalf of the US Trust Noteholders, consents to (i) the
execution and delivery of the IBJ Indenture, any Old Notes and any other IBJ
Documents; (ii) the incurrence of any Old Note Obligations and (iii) the
granting of any Lien on the Pledged Collateral permitted by the IBJ Indenture to
secure the Old Note Obligations.
16. Effective Date. This Agreement shall be effective as of the date on
which it is designated as being executed, independent of the actual date each
party hereto executes this Agreement.
17. Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
18. Term of Agreement. This Agreement shall continue in full force and
effect and shall be irrevocable by either party hereto until the earlier to
occur of the following:
(a) the parties mutually agree in writing to terminate this
Agreement; or
(b) all of the New Note Obligations or all of the Old Note
Obligations owed by the Company are Paid in full.
19. Section Titles. The section titles contained in this Agreement are
for convenience only and are without substantive meaning or content of any kind
and shall not be considered part of this Agreement.
20. Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
21. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. (a) EACH OF THE
PARTIES HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER
THIS AGREEMENT.
(b) EACH OF THE PARTIES HERETO SUBMITS FOR ITSELF AND ITS PROPERTY
IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR FOR
RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT HEREOF TO
6
<PAGE>
THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
AND THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND APPELLATE COURTS FROM ANY THEREOF. EACH OF THE PARTIES HERETO HEREBY
WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH
LEGAL ACTION, PROCEEDING OR JUDGMENT OR ANY SUCH COURT OR THAT SUCH LEGAL
ACTION, PROCEEDING OR JUDGMENT IS BROUGHT OR OBTAINED IN AN INCONVENIENT COURT.
22. Governing Law. This Agreement shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first above written.
IBJ WHITEHALL BANK & TRUST
COMPANY, as Old Note Trustee
By: /s/ Luis Perez
------------------------
Title: Assistant Vice President
------------------------
UNITED STATES TRUST COMPANY OF
NEW YORK, as New Note Trustee
By: /s/ Patricia Gallagher
------------------------
Title: Assistant Vice President
------------------------
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<PAGE>
EXHIBIT 4.5.1
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 THIS WARRANT NOR
SUCH 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 Ford Motor Company, a Delaware
corporation ("Ford"), or registered assigns (including Ford, the
"Warrantholder"), the right to subscribe for and purchase from the Company
4,000,000 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 equal to the greater of (i) $30 or (ii)
115% of the closing offer price for the Common Stock on the Nasdaq National
Market on June 11, 1999 (the "Exercise Price"), at any time and from time to
time, during the period from and including 9:00 AM, New York City time,
on the date the Company commences its commercial broadcasts from orbiting
satellites until 5:00 PM, New York City time, on the earlier of (a) June 11,
2009 and (b) the date of the termination or expiration of the Agreement, dated
as of June 11, 1999, between the Company and Ford (the "Expiration Date"), all
subject to the terms, conditions and adjustments herein set forth.
Certain capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in Section 10.
Certificate No. 1
Number of Shares: 4,000,000
Name of Warrantholder: Ford Motor Company, a Delaware corporation
<PAGE>
1. Duration and Exercise of Warrant; Limitations on Exercise; Payment of
Taxes.
1.1 Exercisability of Warrant. Subject to the terms and conditions set
forth herein, the right to exercise this Warrant shall vest, and this Warrant
shall become exercisable, as follows:
(a) with respect to 1,000,000 shares of Common Stock, on the date that
Ford has manufactured 500,000 Ford Enabled Vehicles;
(b) with respect to an additional 500,000 shares of Common Stock, on the
date that Ford has manufactured an aggregate of 1,000,000 Ford Enabled Vehicles;
(c) with respect to an additional 500,000 shares of Common Stock, on the
date that Ford has manufactured an aggregate of 2,000,000 Ford Enabled Vehicles;
(d) with respect to an additional 1,000,000 shares of Common Stock, on the
date that Ford has manufactured an aggregate of 3,000,000 Ford Enabled Vehicles;
and
(e) with respect to an additional 1,000,000 shares of Common Stock, on the
date that Ford has manufactured an aggregate of 4,000,000 Ford Enabled Vehicles.
The Warrantholder shall have no right to exercise this Warrant with respect to
shares of Common Stock which are not vested and exercisable as described in this
Section 1.1.
1.2 Duration and Exercise of Warrant. Subject to the terms and conditions
set forth herein, including Section 1.1, 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 by the Company 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.
1.3 Limitations on Exercise. Notwithstanding anything to the contrary
herein, this Warrant may be exercised only upon (i) the delivery to the
Company of any certificates, legal
<PAGE>
opinions, and 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, (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 and (iii) receipt by the Company of approval of any other
applicable Governmental Authority of the proposed exercise. 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. The cost of such approvals, certificates,
legal opinions and other documents, if required, shall be borne by the
Warrantholder.
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 five 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 documentary, stamp or
similar 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) This Warrant may
only be transferred by the Warrantholder with the prior written consent of the
Company. Any transfer of this Warrant without the prior written consent of the
Company shall be void and of no force and effect.
(b) Subject to the provisions of this Section, this Warrant may be divided
into warrants of one thousand shares or multiples thereof, upon surrender at the
office of the Company located at 1221 Avenue of the Americas, New York, New York
10020, without charge to any Warrantholder. Subject to the provisions of this
Section, 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).
(c) Subject to the provisions of this Section, 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. 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
<PAGE>
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 to the restrictions contained in this Section,
the Warrantholder shall not be entitled to transfer this Warrant, or any part
thereof, if such legal opinion is not reasonably acceptable to the Company. 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 THIS WARRANT NOR SUCH 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:
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
<PAGE>
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.
By acceptance of this Warrant, the Warrantholder expressly agrees that it
will at all times comply with the restrictions contained in Rule 144(e) under
the Securities Act (as in effect on the date hereof) when selling, transferring
or otherwise disposing Warrant Shares, even if such restrictions would not then
be applicable to the Warrantholder.
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 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
<PAGE>
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 such 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 (g).
(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 (g).
(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 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) 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
<PAGE>
evidences of its indebtedness or assets (not including regular quarterly 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 this 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 Subsection. 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.
(e) 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.
(f) 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 0.10% 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 0.10% or more of the number of shares to be so
delivered.
(g) 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, 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
<PAGE>
of independent public accountants of recognized national standing selected by
the Board of Directors of the Company (which shall be appointed at the Company's
expense and 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 the 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 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. 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:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
<PAGE>
(b) 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
(c) furnish to each Holder so long as such Holder owns Warrants, 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.
8. Amendments. Any provision of this Warrant 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 or
approval of the Company and the Holders who hold a majority in interest of the
Warrants; provided that it is not necessary that the exact form of the amendment
be approved by the holders of a majority in interest of the Warrants if such
holders have approved the substance of such amendment. Any amendment or waiver
effected in accordance with this Section 8 shall be binding upon each Holder and
the Company.
9. Expiration of the Warrant. The obligations of the Company pursuant to
this Warrant shall terminate on the Expiration Date.
10. Definitions.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Assignment Form: an instrument of transfer of a warrant in the form
annexed hereto as Exhibit B.
Board: the Board of Directors of the Company or any duly authorized
Committee thereof.
Business Day: any day other than a Saturday, Sunday or a day on which
banks are required or 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 be amended and in
effect from time to time.
CD Radio Receiver: a Head Unit which is capable of providing the user
interface for CD Radio broadcasts, including displaying the artist and title
information transmitted as part of the CD Radio broadcast, and receiving the CD
Radio signal, either as a result of circuitry included in the unit itself or as
a result of another device, and an antenna suitable for receiving the CD Radio
signal.
<PAGE>
Certificate of Incorporation: the Certificate of Incorporation of the
Company, as the same may be amended and in effect from time to time.
Common Stock: the meaning specified on the cover of this Warrant.
Company: the meaning specified on the cover of this Warrant.
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.
Ford: the meaning specified on the cover of this Warrant.
Exchange Act: the Securities Exchange Act of 1934 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: a request to exercise a warrant in the form annexed hereto
as Exhibit A.
Exercise Price: the meaning specified on the cover of this Warrant.
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 registered under the Exchange Act, (a) the
average of the daily closing sales prices of the Common Stock for the 20
consecutive trading days immediately preceding such date, or (b) if the
securities have been registered under the Exchange Act for less than 20
consecutive trading days before such date, then the average of the daily closing
sales prices for all of trading days before such date for which closing sales
prices are available, in the case of each of (a) and (b), as certified by any
Vice President or the Chief Financial Officer of the Company; or
(ii) If the Common Stock is not registered under the Exchange Act, 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).
For the purposes of clause (i) of this definition, the closing sales price
for each such trading day shall be: (1) in the case of a security listed or
admitted to trading on any United States national securities exchange or
quotation system, the closing sales price, regular way, on such day, or if no
sale takes place on such day, the average of the closing bid and asked prices on
such day; (2) in the case of a security not then listed or admitted to trading
on any national
<PAGE>
securities exchange or quotation system, the last reported sale price on such
day, or if no sale takes place on such day, the average of the closing bid and
asked prices on such day, as reported by a reputable quotation source designated
by the Company; (3) in the case of a security not then listed or admitted to
trading on any national securities exchange or quotation system and as to which
no such reported sale price or bid and asked prices are available, the average
of the reported high bid and low asked prices on such day, as reported by a
reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, City and State of New York, customarily published on each
Business Day, designated by the Company, or if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 30 days prior to the date in
question) for which prices have been so reported; and (4) if there are no bid
and asked prices reported during the 30 days prior to the date in question, the
Fair Market Value shall be determined as if the securities were not registered
under the Exchange Act.
FCC: the Federal Communications Commission.
Ford Enabled Vehicle: any new vehicle which contains a CD Radio Receiver
that was installed in a factory owned or operated by Ford, a mass customization
center which is owned or operated by Ford or another service facility designated
in writing by Ford which may include dealerships as long as such installation
principally results from a program authorized by Ford.
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.
Head Unit: a device, which is integrated in the dashboard of a vehicle,
which provides the user interface for the reception of radio signals and, in
some cases, the playback of recorded media, such as cassette tapes, compact
discs, minidiscs and DVDs.
Holder(s): holder(s) of Warrants.
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.
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.
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,
<PAGE>
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 7.
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 SEC 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.
Series A Junior Preferred Stock: the meaning specified in Section
13.10(c).
Series C Preferred Stock: the meaning specified in Section 13.10(c).
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.
Warrantholder: the meaning specified on the cover of this Warrant.
Warrant Shares: the meaning specified on the cover of this Warrant.
11. Preemptive Right. (a) If at any time after the date hereof and prior
to the Expiration Date, the Company proposes to issue shares of Common Stock
(excluding any warrants, options or securities or units comprising securities
convertible into or exchangeable for Common Stock or rights to acquire the same
issued as part of or simultaneously with any preferred stock or debt securities
of the Company) in an underwritten public offering, then the Company shall (i)
prior to the completion of such underwritten public offering, notify the
Warrantholder of such underwritten public offering and (ii) offer to issue to
the Warrantholder as part of such underwritten public offering, for cash, a
number of shares of Common Stock such that, after giving effect to the shares of
Common Stock issued in such underwritten public offering, the number of shares
of Common Stock owned by Warrantholder plus the shares of Common Stock
receivable by the Warrantholder upon exercise of any Warrants equals the same
percentage of the total number of shares of Common Stock issued and outstanding
immediately prior to the consummation of such offering as after giving effect to
such offering. The purchase price for such shares of Common Stock shall be equal
to the price of the shares of Common Stock sold in such underwritten public
offering (prior to deducting any underwriting discounts and commissions). The
Warrantholder must exercise its purchase rights hereunder in whole within five
Business Days after receipt of such notice from the Company and close such
purchase, by payment of immediately available funds,
<PAGE>
simultaneously with the closing of such underwritten public offering. If after
the date that the Company notifies the Warrantholder of the proposed
underwritten public offering of Common Stock the actual number of shares of
Common Stock offered is increased or decreased as a result of demand for such
Common Stock offering, then the Company shall not be required to make an
additional offer to the Warrantholder to give effect to the increased or
decreased size of such offering.
(b) Upon the expiration of any offer to the Warrantholder described above,
or if the Warrantholder shall default in paying for or purchasing the Common
Stock on the terms offered by the Company, the Company will be under no further
obligation to offer any Common Stock to the Warrantholder pursuant to the terms
of this Section.
12. No Impairment. The Company shall not by any action, including, without
limitation, amending the Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
time in good faith assist in the carrying out of all such terms and in the
taking of all such reasonable actions as may be necessary or appropriate to
protect the rights of the Warrantholder against impairment. Without limiting the
generality of the foregoing, the Company shall (a) take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassesable shares of Common Stock upon the exercise of
this Warrant, and (b) provide reasonable assistance to the Warrantholder in
obtaining all authorizations, exemptions or consents from any Governmental
Authority which may be necessary in connection with the exercise of this
Warrant.
13. Miscellaneous.
13.1 Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to the Warrants.
13.2 Binding Effects; Benefits. This Warrant shall inure to the
benefit of and shall be binding upon the Company and the Warrantholders 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 Warrantholders, or their respective heirs,
legal representatives, successors or assigns, any rights, remedies, obligations
or liabilities under or by reason of this Warrant.
13.3 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.
13.4 Pronouns. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
13.5 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
<PAGE>
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 Warrant.
13.6 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
recognized overnight courier or 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:
if to the Company, addressed to:
CD Radio Inc.
1221 Avenue of the Americas
36th Floor
New York, New York 10020
Attention: Chief Financial Officer
if to the Warrantholder, addressed to:
Ford Motor Company
The American Road
Dearborn, Michigan
Attention: Chief Financial Officer
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received (a) on the date of delivery thereof, if
delivered personally or sent by facsimile, (b) on the second Business Day
following delivery into the custody of an overnight courier service, if sent by
overnight courier, provided that such delivery is made before such courier's
deadline for next-day delivery, or (c) on the third Business Day after the
mailing thereof.
13.7 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.
13.8 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.
13.9 No Rights or Liabilities as Stockholder. Nothing contained in
this Warrant shall be deemed to confer upon the Warrantholder any rights as a
stockholder of the
<PAGE>
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.
13.10 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) 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; 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. 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 the Certificate of
Incorporation or Bylaws.
(c) Capitalization of the Company. The authorized capital stock of
the Company consists of (i) 200,000,000 shares of Common Stock, of which, as of
May 31, 1999 (a) 23,243,279 shares were issued and outstanding and (b)
34,877,533 shares were reserved for issuance upon the exercise of outstanding
stock options, warrants to purchase Common Stock and conversion of outstanding
shares of 10-1/2% Series C Convertible Preferred Stock (the "Series C Preferred
Stock"), 9.2% Series A Junior Cumulative Convertible Preferred Stock (the
"Series A Junior Preferred Stock") and shares of Series C Preferred Stock
issuable pursuant to warrants to purchase Series C Preferred Stock, and (ii)
50,000,000 shares of Preferred Stock, of which 1,467,416 shares of Series C
Preferred Stock were issued and outstanding as of May 31, 1999 and 1,350,000
shares of Series A Junior Preferred Stock were issued and outstanding as of May
31, 1999. Each share of Series C Preferred Stock may be converted at any time,
at the option of the holder, unless previously redeemed, into a number of shares
of Common Stock calculated by dividing the $100 liquidation preference of the
Series C Preferred Stock (without accrued and unpaid dividends) by $18 (as
adjusted from time to time). Each share of Series A Junior Preferred Stock may
be converted at any time, at the option of the holder, unless previously
redeemed, into a number of shares of Common Stock calculated by dividing the
$100 liquidation preference of the Series A Junior Preferred Stock (with accrued
and unpaid dividends) by $30 (as adjusted from time to time).
<PAGE>
(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 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.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
CD RADIO INC.
By: /s/ Andrew J. Greenebaum
-------------------------------
Andrew J. Greenebaum
Executive Vice President and
Chief Financial Officer
Dated: June 11, 1999
Attest:
By: /s/ Patrick L. Donnelly
-------------------------------
Patrick L. Donnelly
Executive Vice President,
General Counsel and Secretary
<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 __________ shares of Common Stock
and herewith tenders payment for such Common Stock to the order of CD
Radio Inc. in the amount of $__________, which amount includes payment of
the par value for _________ of the Common Stock, in accordance with the
terms of this Warrant. The undersigned requests that a certificate for
such shares of Common Stock 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:
__________________________
<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. This sale, assignment and transfer has been previously
approved in writing by CD Radio Inc.
Dated:______________
Signature______________________________
______________________________
(Print Name)
______________________________
(Street Address)
______________________________
(City) (State) (Zip Code)
Signed in the Presence of:
__________________________
<PAGE>
EXHIBIT 5.1
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 Avenue of the Americas
New York, New York 10019
July 2, 1999
CD Radio Inc.
1221 Avenue of the Americas
New York, New York 10020
Registration Statement on Form S-4
of CD Radio Inc.
----------------------------------
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4 (the
"Registration Statement") filed by CD Radio Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission (the "Commission") on
the date of this letter, as provided by the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations under the Act, we have been requested
to render our opinion as to the legality of the securities being registered
under the Registration Statement. The Registration Statement relates to the
registration under the Act of the Company's $200,000,000 aggregate principal
amount of 14 1/2% Senior Secured Notes
<PAGE>
CD Radio Inc. 2
due 2009 (the "Exchange Notes"). The Exchange Notes are to be offered in
exchange for the outstanding $200,000,000 aggregate principal amount of 14 1/2%
Senior Secured Notes due 2009 (the "Initial Notes") issued and sold by the
Company on May 18, 1999 as part of an offering exempt from registration under
the Act. The Exchange Notes will be issued by the Company under the Indenture
(the "Indenture"), dated as of May 15, 1999, between the Company and United
States Trust Company of New York, as trustee (the "Trustee"). Capitalized terms
used in this letter and not otherwise defined have the respective meanings given
those terms in the Registration Statement.
In connection with this opinion, we have examined originals, conformed
copies or photocopies, certified or otherwise identified to our satisfaction, of
the following documents (collectively, the "Documents"):
(i) the Registration Statement;
(ii) the Indenture included as Exhibit 4.4.2 to the Registration
Statement;
(iii) the form of the Exchange Notes included as Exhibit 4.4.3 to the
Registration Statement; and
(iv) The Notes Registration Rights Agreement included as Exhibit 4.4.1
to the Registration Statement.
In addition, we have examined: (i) those corporate records of the
Company as we have considered appropriate, including copies of its Amended and
<PAGE>
CD Radio Inc. 3
Restated Certificate of Incorporation and Amended and Restated By-laws, as in
effect on the date of this letter (collectively, the "Charter Documents"), and
certified copies of resolutions of the executive committee of the board of
directors of the Company relating to the Exchange Notes; and (ii) those other
certificates, agreements and documents as we deemed relevant and necessary as a
basis for the opinions expressed below.
In our examination of the documents referred to above, we have
assumed, without independent investigation, (i) that the Exchange Notes will be
issued substantially as described in the Registration Statement and in the form
reviewed by us and that any information omitted from the form will be properly
added, (ii) the genuineness of all signatures, (iii) the authenticity of all
documents submitted to us as originals, (iv) the conformity to the original
documents of all documents submitted to us as certified, photostatic, reproduced
or conformed copies of validly existing agreements or other documents, (v) the
authenticity of the latter documents; (vi) that the statements regarding matters
of fact in the certificates, records, agreements, instruments and documents that
we examined are accurate and complete, and (vii) the legal capacity of all
individuals who have executed any of the documents which we examined.
We have also assumed, without independent investigation, that (i) the
Indenture was duly authorized, executed and delivered by the Trustee, (ii) the
Indenture is a valid and binding obligation of the Trustee, (iii) the Exchange
Notes
<PAGE>
CD Radio Inc. 4
will be issued in accordance with the Indenture as described in the Registration
Statement and (iv) the Exchange Notes will be duly authenticated by the Trustee
in accordance with the Indenture.
In expressing the opinion set forth below, we have relied upon the
factual matters contained in the representations and warranties of the Company
made in the documents and upon certificates of public officials and officers of
the Company.
Based on the foregoing, and subject to the stated assumptions,
exceptions and qualifications, we are of the opinion that:
1. The Indenture represents a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
enforceability may be subject to (a) bankruptcy, insolvency, fraudulent
conveyance or transfer, reorganization, moratorium or other similar laws
affecting creditors' rights generally and (b) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
2. When issued, authenticated and delivered in accordance with the
terms of the Indenture, the Exchange Notes will be legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as enforceability may be limited by (a) bankruptcy,
insolvency, fraudulent conveyance or transfer, reorganization, moratorium and
other similar laws
<PAGE>
CD Radio Inc. 5
affecting creditors' rights generally and (b) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
Our opinions expressed above are limited to the laws of the State of
New York and the federal laws of the United States of America. Our opinions are
rendered only with respect to the laws, and the rules, regulations and orders
under those laws, that are currently in effect. Please be advised that no member
of this firm is admitted to practice in the State of Delaware.
We consent to the use of our name in the Registration Statement and in
the prospectus in the Registration Statement as it appears in the caption "Legal
Matters" and to the use of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not admit that we come within the
category of persons whose consent is required by the Act or by the rules and
regulations under the Act.
Very truly yours,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
EXHIBIT 8.1
Paul, Weiss, Rifkind, Wharton & Garrison
July 2, 1999
CD Radio Inc.
1221 Avenue of the Americas
New York, New York 10020
CD Radio Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as United States federal income tax counsel for
CD Radio Inc., a Delaware corporation (the "Company"), in connection with the
offer to exchange up to $200,000,000 aggregate principal amount of the Company's
14 1/2% Senior Secured Notes due 2009 (the "New Notes"), which are proposed to
be registered under the Securities Act of 1933, as amended (the "Securities
Act"), for a like principal amount of the Company's issued and outstanding
14 1/2% Senior Secured Notes due 2009.
We are giving this opinion in connection with the Registration
Statement on Form S-4 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission (the "Commission") on the date of this
letter, in accordance with the Securities Act and the rules and regulations of
the Commission under the Securities Act, relating to the registration by the
Company of the New Notes. Capitalized terms used but not defined in this letter
have the respective meanings ascribed to them in the Registration Statement.
<PAGE>
2
In rendering our opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Registration
Statement and those agreements and other documents which we have deemed relevant
and necessary and we have made those investigations of law which we have deemed
appropriate as a basis for the opinion expressed below. In our examination, we
have assumed the authenticity of original documents, the accuracy of copies and
the genuineness of signatures. We understand and assume that (i) each of these
agreements represents the valid and binding obligation of the respective parties
to the agreements, enforceable in accordance with its respective terms and the
entire agreement between the parties with respect to the subject matter of the
agreement, (ii) the parties to each agreement have complied, and will comply,
with all of their respective covenants, agreements and undertakings contained in
the agreement and (iii) the transactions provided for by each agreement were and
will be carried out in accordance with their terms.
The opinion set forth in this letter is limited to the Internal
Revenue Code of 1986, as amended (the "Code"), administrative rulings, judicial
decisions, Treasury regulations and other applicable authorities, all as in
effect on the date of this letter. The statutory provisions, regulations and
interpretations upon which our opinion is based are subject to change, and any
change could apply retroactively. Any change could affect the continuing
validity of the opinion described in this letter. We assume no responsibility to
advise you of any subsequent changes in existing law or facts, nor do we assume
any responsibility to update this opinion with respect to any matters expressly
described in this letter, and no opinions are to be implied or may be inferred
beyond the matters expressly so stated.
The opinion in this letter has no binding effect on the United
States Internal Revenue Service or the courts of the United States. No assurance
can be given that, if the matter were contested, a court would agree with the
opinion in this letter.
Based upon and subject to the above, the discussion in the
Registration Statement under the heading "Certain United States Federal Income
Tax Considerations" constitutes our opinion with respect to those matters. While
this description discusses the material anticipated United States federal income
tax consequences applicable to particular holders who are United States Persons,
it does not purport to discuss all United States federal income tax consequences
and our opinion is limited to those United States federal income tax
consequences specifically discussed under that heading.
In giving the above opinion, we express no opinion other than
as to the federal income tax laws of the United States of America.
<PAGE>
3
We are furnishing this letter in our capacity as United States
federal income tax counsel to the Company. This letter is not to be used,
circulated, quoted or otherwise referred to for any other purpose, except as
described below.
We consent to the use of our name in the Registration Statement
as our name appears under the caption "Legal Matters" and to the use of this
letter as an exhibit to the Registration Statement. In giving this consent, we
do not admit that we come within the category of persons whose consent is
required by the Securities Act or by the rules and regulations under the
Securities Act.
Very truly yours,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
CD RADIO INC.
CALCULATION OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax loss from continuing operations $(4,065) $(2,107) $ (2,831) $(4,737) $(46,101) $(5,838) $(10,444)
Add:
Interest and other financial charges expensed 40 20 13 1,946 14,272 5,823 1,433
Interest factor attributable to rentals 40 50 66 92 647 54 458
------- ------- -------- ------- -------------------- --------
Earnings, as adjusted, from continuing operations $(3,985) $(2,038) $ (2,752) $(2,699) $(31,182) $ 39 $(8,553)
------- ------- -------- ------- -------------------- --------
------- ------- -------- ------- -------------------- --------
Fixed charges:
Interest and other financial charges expensed $ 40 $ 20 $ 13 $ 1,946 $ 14,272 $ 5,823 $ 1,433
Interest capitalized - - - 23 16,243 277 10,127
Interest factor attributable to rentals 40 50 66 92 647 54 458
------- ------- -------- ------- -------------------- --------
Total fixed charges $ 80 $ 70 $ 79 $ 2,061 $ 31,162 $ 6,154 $12,018
------- ------- -------- ------- -------------------- --------
------- ------- -------- ------- -------------------- --------
Ratio of earnings to fixed charges (1) - - - - - - -
Deficiency of earnings to fixed charges $ 4,065 $ 2,107 $ 2,831 $ 4,760 $ 62,344 $ 6,115 $20,571
</TABLE>
(1) The ratio of earnings to fixed charges was less than 1.00 for all periods
presented and thus earnings available for fixed charges were inadequate to
cover fixed charges for these periods.
<PAGE>
EXHIBIT 23.1
CONSENTS OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of this Registration Statement on Form S-4 of CD
Radio Inc. of our report dated February 5, 1999 relating to the consolidated
financial statements of CD Radio Inc., which appears in such Registration
Statement. We also consent to the incorporation by reference of our report dated
February 5, 1999 relating to the financial statement schedule appearing in CD
Radio Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
PRICEWATERHOUSECOOPERS LLP
New York, New York
June 28, 1999
<PAGE>
July 2, 1999
CD Radio Inc.
1221 Avenue of the Americas
New York, NY 10020
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4 (the
"Registration Statement") filed by CD Radio Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission (the "Commission") on
July 2, 1999, as provided by the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations under the Act, we consent to the use of our name
in the Registration Statement and in the prospectus in the Registration
Statement as it appears in the caption "Legal Matters" and to the use of this
consent as an exhibit to the Registration Statement. In giving this consent, we
do not admit that we are "Experts" or that we come within the category of
persons whose consent is required by the Act or by the rules and regulations
under the Act.
Our consent to having passed upon certain regulatory issues arising
under the Communications Act is limited to matters arising under or involving
federal communications laws, communications treaties and federal communications
regulations relevant to the proposed satellite radio operations of the Company
in the United States as described in the prospectus, including the
Communications Act of 1934, as amended, and the rules, regulations and written
policies promulgated thereunder by the Federal Communications Commission, the
International Telecommunication Union Constitution and Convention dated 1992,
and the International Radio Regulations promulgated thereunder dated 1992
(collectively, "Communications Laws"). We have not passed upon and do not
consent to be listed as having passed upon matters arising under or involving
any laws other than the Communications Laws, any jurisdiction other than the
United States, or any state of the United States.
This consent is being furnished to you subject to the qualifications
and limitations expressed herein, and has been prepared solely for the use and
benefit of the Company in connection with the Registration Statement. The
consent expressed herein is as of the date hereof.
Very truly yours,
Wiley, Rein & Fielding
<PAGE>
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)______
------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U. S. national bank) Identification No.)
114 West 47th Street 10036
New York, New York (Zip Code)
(Address of principal
executive offices)
------------------------
CD RADIO, INC.
(Exact name of REGISTRANT as specified in its charter)
Delaware 52-1700207
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1221 Avenue of the Americas, 36th Floor 10020
New York, NY (Zip code)
(Address of principal executive offices)
------------------------
14 1/2% Senior Secured Notes due 2009
(Titles of the indenture securities)
================================================================================
<PAGE>
-2-
GENERAL
1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System).
Federal Deposit Insurance Corporation, Washington, D. C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3,4,5,6,7,8,9,10,11,12,13,14 and 15.
The registrant is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. List of Exhibits
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to Form T-1
filed on September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No. 33-97056).
<PAGE>
-3-
16. List of Exhibits
(cont'd)
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to Form T-1
filed on September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee pursuant
to law or the requirements of its supervising or examining
authority.
NOTE
As of June 22, 1999, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U. S. Trust
Corporation. The term 'trustee' in Item 2, refers to each of United States Trust
Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility, as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------------
<PAGE>
-4-
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust Company of New York, a corporation organized
and existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New
York, on the 22nd day of June 1999.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: /s/ Patricia Gallagher
________________________________
Patricia Gallagher
Assistant Vice President
PG/kk
(rev:pg062199)
<PAGE>
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ('U.S.
Trust') hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/ Gerard F. Ganey
-----------------------
By: Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1999
--------------
($ IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and Due from Banks $ 139,755
Short-Term Investments 85,326
Securities, Available for Sale 528,160
Loans 2,081,103
Less: Allowance for Credit Losses 17,114
----------
Net Loans 2,063,989
Premises and Equipment 57,765
Other Assets 125,780
----------
TOTAL ASSETS $3,000,775
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 623,046
Interest Bearing 1,875,364
----------
TOTAL DEPOSITS 2,498,410
Short-Term Credit Facilities 184,281
Accounts Payable and Accrued Liabilities 126,652
----------
TOTAL LIABILITIES $2,809,343
==========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 53,041
Retained Earnings 121,759
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 1,637
----------
TOTAL STOCKHOLDER'S EQUITY 191,432
TOTAL LIABILITIES AND ----------
STOCKHOLDER'S EQUITY $3,000,775
==========
</TABLE>
I, Richard E. Brinkmann, Managing Director & Comptroller of the named bank do
hereby declare that this Statement of Condition has been prepared in conformance
with the instructions issued by the appropriate regulatory authority and is true
to the best of my knowledge and belief.
Richard E. Brinkmann, Managing Director & Controller
May 18, 1999
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
CD RADIO INC.
OFFER TO EXCHANGE $200,000,000 OF ITS
14 1/2% SENIOR SECURED NOTES DUE 2009
(THE 'EXCHANGE NOTES')
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR $200,000,000 OF ITS OUTSTANDING
14 1/2% SENIOR SECURED NOTES DUE 2009
(THE 'INITIAL NOTES')
PURSUANT TO THE PROSPECTUS, DATED , 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999
OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE
'EXPIRATION DATE').
- --------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
UNITED STATES TRUST COMPANY OF NEW YORK
By Registered or Certified Mail:
United States Trust Company of New York
P.O. Box 844
Cooper Station
New York, NY 10276-0844
Attention: Corporate Trust Services
By Overnight Delivery and By Hand after 4:30 p.m. on the Expiration Date:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, NY 10003
Attention: Corporate Trust Services
By Hand before 4:30 p.m.:
United States Trust Company of New York
111 Broadway
Lower Level
New York, NY 10006
Attention: Corporate Trust Services
By Facsimile for Eligible Institutions:
(212) 780-0592
Attention: Corporate Trust Services
For confirmation and/or information call:
(800) 548-6565
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW
------------------------
List below the Initial Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the certificate numbers and principal
amount of Initial Notes should be listed on a separate signed schedule affixed
hereto.
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF INITIAL NOTES (1) (2) (3)
PRINCIPAL AMOUNT OF
INITIAL NOTES
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE PRINCIPAL AMOUNT OF TENDERED
(PLEASE FILL IN, IF BLANK) NUMBER(S)* INITIAL NOTES (IF LESS THAN ALL)**
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount represented by
such Initial Notes.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1999 (the 'Prospectus'), of CD Radio Inc., a
Delaware corporation (the 'Company'), and this Letter of Transmittal (the
'Letter of Transmittal' or this 'Letter'), which together constitute the
Company's offer (the 'Exchange Offer') to exchange up to $200,000,000 aggregate
principal amount of its 14 1/2% Senior Secured Notes due 2009 (the 'Exchange
Notes') for a like principal amount of the Company's issued and outstanding
14 1/2% Senior Secured Notes due 2009 (collectively, the 'Initial Notes').
The undersigned has completed the appropriate boxes above and below and
signed this Letter to indicate the action the undersigned desires to take with
respect to the Exchange Offer.
This Letter is to be used either if certificates of Initial Notes are to be
forwarded herewith or if delivery of Initial Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company, pursuant to the procedures set forth in 'The Exchange Offer -- Terms of
the Exchange Offer -- Procedures for Tendering' in the Prospectus. Delivery of
this Letter and any other required documents should be made to the Exchange
Agent. Delivery of documents to a book-entry transfer facility does not
constitute delivery to the Exchange Agent.
Holders whose Initial Notes are not immediately available or who cannot
deliver their Initial Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date must tender their Initial
Notes according to the guaranteed delivery procedure set forth in the Prospectus
under the caption 'The Exchange Offer Terms of the Exchange Offer Procedures for
Tendering.' See Instruction 1.
[ ] CHECK HERE IF INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE
TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution __________________________________________________
[ ] The Depository Trust Company
Account Number _________________________________________________________________
Transaction Code Number ________________________________________________________
[ ] CHECK HERE IF INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) ___________________________________________________
Name of Eligible Institution that Guaranteed Delivery __________________________
If delivered by book-entry transfer:
Account Number _________________________________________________________________
Date of execution of Notice of Guaranteed Delivery _____________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
2
<PAGE>
If the undersigned is not a broker-dealer, the undersigned represents that
it is acquiring the Exchange Notes in the ordinary course of business of the
undersigned, that it is not engaged in, and does not intend to engage in, or has
no arrangement or understanding with any person to participate in, a
distribution of Exchange Notes and that it is not an 'affiliate' of the Company
within the meaning of Rule 405 under the Securities Act of 1933, as amended (the
'Securities Act'). If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Initial Notes that were
acquired as a result of market-making activities or other trading activities, it
may be deemed to be an 'underwriter' within the meaning of the Securities Act
and must acknowledge that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an 'underwriter' within the meaning of
the Securities Act.
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Initial Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Initial Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to such Initial Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Initial Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the sale, assignment and transfer of the Initial Notes tendered hereby.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on the Company's belief, based on interpretations by the staff of the
Securities and Exchange Commission (the 'SEC') to third parties in unrelated
transactions, that the Exchange Notes issued in exchange for the Initial Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any such holder that is an
'affiliate' of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases Notes from the Company to resell
pursuant to Rule 144A under the Securities Act ('Rule 144A') or any other
available exemption) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and are not participating in, and do not
intend to participate in, the distribution of such Exchange Notes. The
undersigned acknowledges that any holder of Initial Notes using the Exchange
Offer to participate in a distribution of the Exchange Notes (i) cannot rely on
the position of the staff of the SEC enunciated in its interpretive letter with
respect to Exxon Capital Holdings Corporation (available April 13, 1989) or
similar letters and (ii) must comply with the registration and prospectus
requirements of the Securities Act in connection with a secondary resale
transaction.
The undersigned represents that (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the holder,
(ii) such holder or such other person has no arrangement or understanding with
any person to participate in the distribution of such Exchange Notes within the
meaning of the Securities Act and is not participating in, and does not intend
to participate in, the distribution of such Exchange Notes within the meaning of
the Securities Act, and (iii) such holder or such other person is not an
'affiliate,' as defined in Rule 405 under the Securities Act, of the Company or,
if such holder or such other person is an affiliate, such holder or such other
person will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Initial Notes, it represents that the
Initial Notes to be exchanged for Exchange Notes were acquired by it as a result
of market-making activities or other trading activities and acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes pursuant to the Exchange
Offer; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an 'underwriter' within the
meaning of the Securities Act.
The undersigned, if a California resident, hereby further represents and
warrants that the undersigned (or the beneficial owner of the Initial Notes
tendered hereby, if not the undersigned) (i) is a bank, savings and loan
association, trust company, insurance company, investment company registered
under the Investment Company Act of 1940, pension or profit-sharing trust (other
than a pension or profit-sharing trust of the Company, a self-employed
individual retirement plan, or individual retirement account), or a corporation
which has a net worth on a consolidated basis according to its most recent
audited financial statement of not less than $14,000,000, and (ii) is acquiring
the Exchange Notes for its own account for investment purposes (or for the
account of the beneficial owner of such Exchange Notes for investment purposes).
4
<PAGE>
All authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in the instructions
contained in this Letter.
The undersigned understands that tenders of the Initial Notes pursuant to
any one of the procedures described under 'The Exchange Offer -- Terms of the
Exchange Offer -- Procedures for Tendering Initial Notes' in the Prospectus and
in the instructions hereto will constitute a binding agreement between the
undersigned and the Company in accordance with the terms and subject to the
conditions of the Exchange Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus under 'The Exchange Offer -- Terms of the Exchange
Offer -- Conditions to the Exchange Offer,' the Company may not be required to
accept for exchange any of the Initial Notes tendered. Initial Notes not
accepted for exchange or withdrawn will be returned to the undersigned at the
address set forth below unless otherwise indicated under 'Special Delivery
Instructions' below.
Unless otherwise indicated herein in the box entitled 'Special Issuance
Instructions' below, please issue the Exchange Notes (and, if applicable,
substitute certificates representing Initial Notes for any Initial Notes not
exchanged) in the name of the undersigned. Similarly, unless otherwise indicated
under the box entitled 'Special Delivery Instructions' below, please deliver the
Exchange Notes (and, if applicable, substitute certificates representing Initial
Notes for any Initial Notes not exchanged) to the undersigned at the address
shown above in the box entitled 'Description of Initial Notes.'
THE BOOK-ENTRY TRANSFER FACILITY, AS THE HOLDER OF RECORD OF CERTAIN
INITIAL NOTES, HAS GRANTED AUTHORITY TO BOOK-ENTRY TRANSFER FACILITY
PARTICIPANTS WHOSE NAMES APPEAR ON A SECURITY POSITION LISTING WITH RESPECT TO
SUCH INITIAL NOTES AS OF THE DATE OF TENDER OF SUCH INITIAL NOTES TO EXECUTE AND
DELIVER THE LETTER OF TRANSMITTAL AS IF THEY WERE THE HOLDERS OF RECORD.
ACCORDINGLY, FOR PURPOSES OF THIS LETTER OF TRANSMITTAL, THE TERM 'HOLDER' SHALL
BE DEEMED TO INCLUDE SUCH BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED 'DESCRIPTION OF INITIAL
NOTES' ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH NOTES AND THIS LETTER
TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE INITIAL NOTES AS SET
FORTH IN SUCH BOX ABOVE.
5
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
Dated:......................................................................
X................................................. ........................
X................................................. ........................
SIGNATURE(S) OF OWNER(S)/OR AUTHORIZED SIGNATORY DATE
Area Code and Telephone Number..............................................
If a holder is tendering any Initial Notes, this Letter must be signed
by the registered holder(s) as the name(s) appear(s) on the certificate(s)
for the Initial Notes or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith. If signature
is by a trustee, executor, administrator, guardian, officer or other person
acting in a fiduciary or representative capacity, please set forth full
title. See Instruction 3.
Names .....................................................................
.....................................................................
(PLEASE TYPE OR PRINT)
Capacity: ..................................................................
..................................................................
Address ....................................................................
....................................................................
(INCLUDE ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:....................................................
(AUTHORIZED SIGNATURE)
...........................................................................
(TITLE)
...........................................................................
(NAME OF FIRM)
Dated:......................................................................
6
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Exchange Notes are to be
issued in the name of and sent to someone other than the person or persons
whose signature(s) appear on this Letter above.
ISSUE: EXCHANGE NOTES TO:
NAME(S):..................................................................
(PLEASE TYPE OR PRINT)
.........................................................................
(PLEASE TYPE OR PRINT)
ADDRESS:..................................................................
..........................................................................
(ZIP CODE)
SOCIAL SECURITY NUMBER:...................................................
(COMPLETE SUBSTITUTE FORM W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Exchange Notes are to be
sent to someone other than the person or persons whose signature(s)
appear(s) on this Letter above or to such person or persons at an address
other than shown in the box entitled 'Description of Initial Notes' on
this Letter above.
MAIL: EXCHANGE NOTES TO:
NAME(S):..................................................................
(PLEASE TYPE OR PRINT)
..........................................................................
(PLEASE TYPE OR PRINT)
ADDRESS:..................................................................
..........................................................................
(ZIP CODE)
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS
LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE (IN EACH CASE, TOGETHER WITH
THE CERTIFICATE(S) FOR INITIAL NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF
SUCH INITIAL NOTES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND INITIAL NOTES; GUARANTEED DELIVERY PROCEDURE.
This Letter is to be used to forward, and must accompany, all certificates
representing Initial Notes tendered pursuant to the Exchange Offer unless such
certificates are accompanied by an Agent's Message (as defined in the
Prospectus) in which case you need not submit this Letter to the Exchange Agent.
Certificates representing the Initial Notes in proper form for transfer (or a
confirmation of book-entry transfer of such Initial Notes into the Exchange
Agent's account at the book-entry transfer facility) must be received by the
Exchange Agent at its address set forth herein on or before the Expiration Date.
A tender will not be deemed to have been timely received when the tendering
holder's properly completed and duly signed Letter or an Agent's Message
accompanied by the Initial Notes is mailed prior to the Expiration Date but is
received by the Exchange Agent after the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER, THE INITIAL NOTES AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS, BUT THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE
EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY DELIVERY.
If a holder desires to tender Initial Notes and such holder's Initial Notes
are not immediately available or time will not permit such holder's Letter of
Transmittal, Initial Notes (or a confirmation of book-entry transfer of Initial
Notes into the Exchange Agent's account at the book-entry transfer facility with
an Agent's Message) or other required documents to reach the Exchange Agent on
or before the Expiration Date, such holder may still tender in the Exchange
Offer if:
(a) the tender is made through an Eligible Institution (as defined
below);
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by us (by facsimile transmission, mail
or hand delivery), setting forth your name and address as holder of the
Initial Notes and the amount of Initial Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three business
days after the Expiration Date the certificates for all physically tendered
Initial Notes, in proper form for transfer, or a book-entry confirmation
with an Agent's Message, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) the certificates for all physically tendered Initial Notes, in
proper form for transfer, or a book-entry confirmation as the case may be,
and all other documents required by this Letter of Transmittal, are
received by the Exchange Agent within three business days after the
Expiration Date.
See 'The Exchange Offer -- Terms of the Exchange Offer -- Procedures for
Tendering' in the Prospectus.
2. WITHDRAWALS.
Any holder who has tendered Initial Notes may withdraw the tender by
delivering written notice of withdrawal (which may be sent by telegram,
facsimile (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier)) to the Exchange Agent prior to the close of
business on the Expiration Date and prior to acceptance for exchange thereof by
us. For a withdrawal to be effective, a written notice of withdrawal must (i)
specify the name of the person having tendered the Initial Notes to be withdrawn
(the 'Depositor'), (ii) identify the Initial Notes to be withdrawn (including
the certificate number or numbers and principal amount of such Initial Notes),
(iii) signed by the holder in the same manner as the original signature on the
Letter of Transmittal by which such Initial Notes were tendered or as otherwise
set forth in Instruction 3 below (including any required signature guarantees),
or be accompanied by documents of transfer sufficient to have the trustee for
the indenture governing the Initial Notes register the transfer of such Initial
Notes pursuant to the terms of such indenture into the name of the person
withdrawing the tender and (iv) specify the name in which any such Initial Notes
are to be registered, if different from that of the Depositor. If Initial Notes
have been tendered pursuant to the procedure for book-entry transfer, any notice
of withdrawal must specify the name and number of the participant's account at
the book-entry transfer facility to be credited, if different from that of the
Depositor, with the withdrawn Initial Notes or otherwise comply with the
book-entry transfer facility's procedures. See 'The Exchange Offer -- Terms of
the Exchange Offer -- Withdrawal of Tenders' in the Prospectus.
8
<PAGE>
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Initial Notes
tendered hereby, the signature must correspond with the name as written on the
face of the certificates without alteration, enlargement or any change
whatsoever.
If this Letter is signed by a participant in DTC, the signature must
correspond with the name as it appears on the security position listing as the
holder of the Initial Notes.
If this Letter or any Initial Notes or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. Unless waived by us, evidence
satisfactory to us of their authority to so act must also be submitted with the
Letter of Transmittal.
If any tendered Initial Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
The signatures on this Letter or a notice of withdrawal, as the case may
be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an 'eligible guarantor' institution within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended -- (each, an 'Eligible
Institution'), unless the Initial Notes are tendered: (i) by a registered holder
(or by a participant in DTC whose name appears on a security position listing as
the owner) who has not completed the box entitled 'Special Issuance
Instructions' or 'Special Delivery Instructions' on this Letter and the Exchange
Notes are being issued directly to such registered holder (or deposited into the
participant's account at DTC), or (ii) for the account of an Eligible
Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Initial Notes should indicate in the applicable box
the name and address to which Exchange Notes issued pursuant to the Exchange
Offer are to be issued or sent, if different from the name or address of the
person signing this Letter. In the case of issuance in a different name, the
employer identification or social security number of the person named must also
be indicated. If no such instructions are given, any Exchange Notes will be
issued in the name of, and delivered to, the name or address of the person
signing this Letter and any Initial Notes not accepted for exchange will be
returned to the name or address of the person signing this Letter.
5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9.
Under the federal income tax laws, payments that may be made by the Company
on account of Exchange Notes issued pursuant to the Exchange Offer may be
subject to backup withholding at the rate of 31%. In order to avoid such backup
withholding, each tendering holder should complete and sign the Substitute Form
W-9 included in this Letter and either (a) provide the correct taxpayer
identification number ('TIN') and certify, under penalties of perjury, that the
TIN provided is correct and that (i) the holder has not been notified by the
Internal Revenue Service (the 'IRS') that the holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the IRS has notified the holder that the holder is no longer subject to backup
withholding; or (b) provide an adequate basis for exemption. If the tendering
holder has not been issued a TIN and has applied for one, or intends to apply
for one in the near future, such holder should write 'Applied For' in the space
provided for the TIN in Part I of the Substitute Form W-9, sign and date the
Substitute Form W-9, and sign the Certification of Payee Awaiting Taxpayer
Identification Number. If 'Applied For' is written in Part I, the Company (or
the Paying Agent under the Indenture governing the Exchange Notes) shall retain
31% of payments made to the tendering holder during the sixty (60) day period
following the date of the Substitute Form W-9. If the holder furnishes the
Exchange Agent or the Company with his or her TIN within sixty (60) days after
the date of the Substitute Form W-9, the Company (or the Paying Agent) shall
remit such amounts retained during the sixty (60) day period to the holder and
no further amounts shall be retained or withheld from payments made to the
holder thereafter. If, however, the holder has not provided the Exchange Agent
or the Company with his or her TIN within such sixty (60) day period, the
Company (or the Paying Agent) shall remit such previously retained amounts to
the IRS as backup withholding. In general, if a holder is an individual, the
taxpayer identification number is the Social Security number of such individual.
If the Exchange Agent or the Company is not provided with the correct taxpayer
identification number, the holder may be subject to a $50 penalty imposed by the
IRS. Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup
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<PAGE>
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, such holder must submit a statement (generally,
IRS Form W-8), signed under penalties of perjury, attesting to that individual's
exempt status. Such statements can be obtained from the Exchange Agent. For
further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if Initial Notes are registered in more than one name), consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Initial Notes to be deemed invalidly tendered, but may require the Company (or
the Paying Agent) to withhold 31% of the amount of any payments made on account
of the Exchange Notes. Backup withholding is not an additional federal income
tax. Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Initial Notes to it or its order pursuant to the Exchange Offer. If, however,
Exchange Notes and/or substitute Initial Notes not exchanged or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Initial Notes tendered
hereby, or if tendered Initial Notes are registered in the name of any person
other than the person signing this Letter, or if a transfer tax is imposed for
any reason other than the transfer of Initial Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Initial Notes specified in this Letter.
7. WAIVER OF CONDITIONS.
Conditions enumerated in the Prospectus may be waived by the Company, in
whole or in part, at any time from time to time in its reasonable discretion.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Initial Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Initial Notes
for exchange.
Neither the Company nor any other person is obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
9. INADEQUATE SPACE.
If the space provided herein is inadequate, the aggregate principal amount
of Initial Notes being tendered and the certificate number or numbers (if
available) should be listed on a separate schedule attached hereto and
separately signed by all parties required to sign this Letter.
10. MUTILATED, LOST, STOLEN OR DESTROYED INITIAL NOTES.
If any certificate has been lost, mutilated, destroyed or stolen, the
holder should promptly notify the United States Trust Company of New York at the
telephone number indicated above. The holder will then be instructed as to the
steps that must be taken to replace the certificate(s). This Letter of
Transmittal and related documents cannot be processed until the Initial Notes
have been replaced.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
United States Trust Company of New York at the address and telephone number
indicated above.
10
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: CD RADIO INC.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part I -- Taxpayer Identification Number _______________________________
FORM W-9 Social Security Number
Department of the Treasury Enter your taxpayer identification
Internal Revenue Service number in the appropriate box. For most
individuals, this is your social
security number. If you do not have a OR
number, see how to obtain a 'TIN' in
the enclosed Guidelines.
NOTE: If the account is in more than ________________________________
one name, see the chart on page 2 of Employer Identification Number
the enclosed Guidelines to determine
what number to give.
----------------------------------------------------------------------------------
Part II -- For Payees Exempt From Backup Withholding (see enclosed Guidelines)
----------------------------------------------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
PAYER'S REQUEST FOR (1) the number shown on this form is my correct Taxpayer Identification Number
TAXPAYER IDENTIFICATION (or I am waiting for a number to be issued to me), and
NUMBER (TIN) AND
CERTIFICATION (2) I am not subject to backup withholding either because I have not been notified
by the Internal Revenue Service (the 'IRS') that I am subject to backup
withholding as a result of a failure to report all interest or dividends or
the IRS has notified me that I am no longer subject to backup withholding.
----------------------------------------------------------------------------------
Signature ________________________________ Date __________________________
- ------------------------------------------------------------------------------------------------------------------------------
CERTIFICATION GUIDELINES -- You must cross out item (2) of the above certification if you have been notified by the IRS that
you are subject to backup withholding because of under reporting of interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS
that you are no longer subject to backup withholding, do not cross out item (2).
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I CERTIFY, UNDER PENALTIES OF PERJURY, THAT A TAXPAYER IDENTIFICATION
NUMBER HAS NOT BEEN ISSUED TO ME, AND THAT I MAILED OR DELIVERED AN APPLICATION
TO RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE
SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE (OR I INTEND TO MAIL OR
DELIVER AN APPLICATION IN THE NEAR FUTURE). I UNDERSTAND THAT IF I DO NOT
PROVIDE A TAXPAYER IDENTIFICATION NUMBER TO THE PAYER, 31 PERCENT OF ALL
PAYMENTS MADE TO ME ON ACCOUNT OF THE EXCHANGE NOTES SHALL BE RETAINED UNTIL I
PROVIDE A TAXPAYER IDENTIFICATION NUMBER TO THE PAYER AND THAT, IF I DO NOT
PROVIDE MY TAXPAYER IDENTIFICATION NUMBER WITHIN SIXTY (60) DAYS, SUCH RETAINED
AMOUNTS SHALL BE REMITTED TO THE INTERNAL REVENUE SERVICE AS BACKUP WITHHOLDING
AND 31 PERCENT OF ALL REPORTABLE PAYMENTS MADE TO ME THEREAFTER WILL BE WITHHELD
AND REMITTED TO THE INTERNAL REVENUE SERVICE UNTIL I PROVIDE A TAXPAYER
IDENTIFICATION NUMBER.
Signature ____________________________________ Date _____________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE NOTES.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
11
