<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1999
Commission file number 0-24710
-------
CD RADIO INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1700207
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1221 AVENUE OF THE AMERICAS, 36TH FLOOR
NEW YORK, NEW YORK 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip code)
212-584-5100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No______
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
COMMON STOCK, $.001 PAR VALUE 26,820,240 SHARES
- --------------------------------------------------------------------------------
(Class) (Outstanding as of November 8, 1999)
</TABLE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX
Part I - Financial Information
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Statements of Operations (unaudited) for the three 1
and nine month periods ended September 30, 1999 and 1998 and for the
period May 17, 1990 (date of inception) to September 30, 1999
Consolidated Balance Sheets (unaudited) as of September 30, 1999 2
and December 31, 1998
Consolidated Statements of Cash Flows (unaudited) for the nine 3
month periods ended September 30, 1999 and 1998 and for the
period May 17, 1990 (date of inception) to September 30, 1999
Notes to Consolidated Financial Statements (unaudited) 4
Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
Part II - Other Information 15
Signatures 16
</TABLE>
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative for
For the Three Months For the Nine Months the period
Ended Sept. 30 Ended Sept. 30, May 17, 1990
-------------------------------- ---------------------------------- (date of inception)
1999 1998 1999 1998 to Sept. 30, 1999
------------ ----------- ------------ ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Revenue $ - $ - $ - $ - $ -
Operating expenses:
Engineering, design and development (7,188,000) (681,000) (21,532,000) (1,455,000) (27,947,000)
General and administrative (5,744,000) (2,384,000) (17,162,000) (6,826,000) (47,707,000)
Special charges - - - (25,682,000) (27,682,000)
------------ ----------- ------------ ------------ -------------
Total operating expenses (12,932,000) (3,065,000) (38,694,000) (33,963,000) (103,336,000)
------------ ----------- ------------ ------------ -------------
Other income (expense):
Interest and investment income 3,809,000 1,866,000 10,209,000 5,769,000 21,861,000
Interest expense, net of
capitalized interest (4,000,000) (2,045,000) (7,683,000) (11,027,000) (24,067,000)
------------ ----------- ------------ ------------ -------------
(191,000) (179,000) 2,526,000 (5,258,000) (2,206,000)
------------ ----------- ------------ ------------ -------------
Income (loss) before income taxes (13,123,000) (3,244,000) (36,168,000) (39,221,000) (105,542,000)
Income taxes:
Federal - - - (38,000) (1,982,000)
State - - - - (313,000)
------------ ----------- ------------ ------------ -------------
Net loss (13,123,000) (3,244,000) (36,168,000) (39,259,000) (107,837,000)
------------ ----------- ------------ ------------ -------------
Preferred stock dividend (7,721,000) (4,344,000) (22,573,000) (13,563,000) (44,291,000)
Preferred stock deemed dividend (2,300,000) - (6,834,000) - (70,485,000)
Accretion of dividends in connection
with the issuance of warrants on
preferred stock (77,000) (62,000) (225,000) (6,434,000) (6,726,000)
------------ ----------- ------------ ------------ -------------
Net loss applicable to common
stockholders $(23,221,000) $(7,650,000) $(65,800,000) $(59,256,000) $(229,339,000)
------------ ----------- ------------ ------------ -------------
------------ ----------- ------------ ------------ -------------
Net loss per share applicable to common
stockholders (basic and diluted) $ (0.96) $ (0.43) $ (2.79) $ (3.51)
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Weighted average common shares
outstanding (basic and diluted) 24,095,000 17,686,000 23,575,000 16,859,000
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
1
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- --------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 220,520,000 $ 204,753,000
Marketable securities, at market 172,855,000 60,870,000
Restricted investments, at amortized cost 80,832,000 -
Prepaid expense and other 605,000 166,000
--------------- ---------------
Total current assets 474,812,000 265,789,000
--------------- ---------------
Property and equipment, at cost:
Satellite construction in process 312,373,000 188,849,000
Launch construction in process 162,211,000 87,492,000
Broadcast studio equipment 11,791,000 87,000
Leasehold improvements 13,857,000 5,081,000
Terrestrial repeater network in process 4,702,000 1,990,000
Other 8,180,000 156,000
--------------- ---------------
513,114,000 283,655,000
Less accumulated depreciation (546,000) (21,000)
--------------- ---------------
512,568,000 283,634,000
--------------- ---------------
Other assets:
FCC license 83,368,000 83,368,000
Debt issue costs, net 24,227,000 9,313,000
Other 2,898,000 1,776,000
--------------- ---------------
Total other assets 110,493,000 94,457,000
--------------- ---------------
Total assets $ 1,097,873,000 $ 643,880,000
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 28,152,000 $ 5,481,000
Satellite & launch construction payable - 8,479,000
Short-term notes payable 111,520,000 70,863,000
--------------- ---------------
Total current liabilities 139,672,000 84,823,000
Long-term notes payable and accrued interest 471,515,000 153,033,000
Deferred satellite payments and accrued interest 47,298,000 31,324,000
Deferred income taxes 2,237,000 2,237,000
--------------- ---------------
Total liabilities 660,722,000 271,417,000
--------------- ---------------
Commitments and contingencies
10 1/2% Series C Convertible Preferred Stock, no par value: 2,025,000
shares authorized, 1,465,916 and 1,467,416 shares issued and
outstanding at September 30, 1999 and December 31, 1998, respectively
(liquidation preferences of $146,591,600 and $146,741,600), at net
carrying value including accrued dividends 170,362,000 156,755,000
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 September 30, 1999 and December 31, 1998 (liquidation
preference of $135,000,000), at net carrying value including
accrued dividends 146,957,000 137,755,000
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,
26,354,591 and 23,208,949 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 26,000 23,000
Additional paid-in capital 227,643,000 149,599,000
Deficit accumulated during the development stage (107,837,000) (71,669,000)
--------------- ---------------
Total stockholders' equity 119,832,000 77,953,000
--------------- ---------------
Total liabilities and stockholders' equity $ 1,097,873,000 $ 643,880,000
--------------- ---------------
--------------- ---------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
2
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative for
the period
For the Nine Months Ended Sept. 30, May 17, 1990
----------------------------------- (date of inception)
1999 1998 to Sept. 30, 1999
-------------- -------------- -------------------
<S> <C> <C> <C>
Cash flows from development stage activities:
Net loss $ (36,168,000) $ (39,259,000) $ (107,837,000)
Adjustments to reconcile net loss to net cash provided by
(used in) development stage activities:
Depreciation and amortization 527,000 34,000 2,257,000
Unrealized (gain) loss on marketable securities 126,000 (96,000) (107,000)
(Gain) loss on disposal of assets 10,000 - 115,000
Special charges - 23,557,000 25,557,000
Accretion of notes payable charged as interest expense 4,212,000 17,302,000 32,078,000
Sales (purchases) of marketable securities and restricted
investments, net (191,386,000) 158,203,000 (252,023,000)
Compensation expense in connection with
issuance of common stock and stock options 695,000 41,000 4,031,000
Increase (decrease) in cash and cash equivalents
resulting from changes in assets and liabilities:
Prepaid expense and other (439,000) 302,000 (605,000)
Due to related party - - 351,000
Other assets (4,062,000) (2,069,000) (8,088,000)
Accounts payable and accrued expenses 14,864,000 2,111,000 20,416,000
Deferred taxes - - 2,237,000
-------------- -------------- ----------------
Net cash provided by (used in) development stage activities (211,621,000) 160,126,000 (281,618,000)
-------------- -------------- ----------------
Cash flows from investing activities:
Purchase of FCC license - - (83,368,000)
Payments for satellite construction (91,463,000) (63,470,000) (240,409,000)
Payments for launch services (68,357,000) (83,995,000) (178,212,000)
Other capital expenditures (31,228,000) (1,706,000) (38,928,000)
Acquisition of Sky-Highway Radio Corp. - - (2,000,000)
-------------- -------------- ----------------
Net cash used in investing activities (191,048,000) (149,171,000) (542,917,000)
-------------- -------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 159,657,000 60,421,000 230,520,000
Proceeds from issuance of common stock, net 67,994,000 - 251,437,000
Proceeds from issuance of preferred stock, net - - 250,068,000
Proceeds from exercise of stock options and warrants 785,000 99,000 5,725,000
Proceeds from issuance of promissory notes
and units, net 190,000,000 - 306,535,000
Proceeds from issuance of promissory notes to
related parties - - 2,965,000
Repayment of promissory notes - - (2,635,000)
Loan from officer - - 440,000
-------------- -------------- ----------------
Net cash provided by financing activities 418,436,000 60,520,000 1,045,055,000
-------------- -------------- ----------------
Net increase in cash and cash equivalents 15,767,000 71,475,000 220,520,000
Cash and cash equivalents at the beginning of period 204,753,000 900,000 -
-------------- -------------- ----------------
Cash and cash equivalents at the end of period $ 220,520,000 $ 72,375,000 $ 220,520,000
-------------- -------------- ----------------
-------------- -------------- ----------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
GENERAL
The accompanying consolidated financial statements and the notes
thereto do not include all of the information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
only of normal, recurring adjustments) considered necessary to fairly state our
consolidated financial position and consolidated results of operations have been
included. These financial statements should be read in connection with our
consolidated financial statements and the notes thereto for the fiscal year
ended December 31, 1998 included in our Annual Report on Form 10-K as filed with
the Securities and Exchange Commission.
NET LOSS PER SHARE
Net loss per common share is based on the weighted average number of
common shares outstanding during such periods. Options and warrants granted by
us have not been included in the calculation of net loss per share because such
items were antidilutive.
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 Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Per common shares (basic and diluted):
Net loss $ (0.54) $ (0.18) $ (1.53) $ (2.33)
Preferred stock dividend requirements (0.42) (0.25) (1.25) (0.80)
Accretion of dividends in connection with the
issuance of warrants on preferred stock - - (0.01) (0.38)
--------- --------- ---------- ----------
Net loss applicable to common stockholders $ (0.96) $ (0.43) $ (2.79) $ (3.51)
--------- --------- ---------- ----------
</TABLE>
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" ("SFAS No. 115"), and unrealized holding gains and losses are
reflected in earnings. Unrealized holding gains were $107,000 and $232,000 at
September 30, 1999 and December 31, 1998, respectively.
RESTRICTED INVESTMENTS
Restricted investments consist of fixed income securities and are
stated at amortized cost plus accrued interest income. Restricted investments
are defined as held-to-maturity securities under the provision of SFAS No. 115
and unrealized holding gains and losses are not reflected in earnings.
Unrealized holding losses were $276,000 at September 30, 1999. The securities
included in restricted investments are restricted to provide for the first six
scheduled interest payments on our 14 1/2% Senior Secured Notes due 2009.
4
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and include interest on
funds borrowed to finance construction. Capitalized interest was $56,028,000 and
$16,243,000 at September 30, 1999 and December 31, 1998, respectively.
SHORT-TERM NOTES PAYABLE
We entered into a credit agreement with Bank of America and other
lenders in July 1998 under which Bank of America and other lenders agreed to
provide us a term loan facility of up to $115 million. This term loan facility
matures on the earlier of February 29, 2000 and ten days prior to the launch of
our second satellite. The proceeds of this facility are being used to fund
progress payments for the purchase of launch services and to pay interest, fees
and other related expenses. The amounts advanced under this facility bear
interest at a variable rate that we select.
DEFERRED SATELLITE PAYMENTS
Under an amended and restated contract (the "Loral Satellite Contract")
with Space Systems/Loral, Inc. ("Loral"), Loral has agreed to defer certain
amounts due under the Loral Satellite Contract. The amounts deferred bear
interest at 10% per year and are due in quarterly installments beginning in June
2002. We have the right to prepay any deferred payments together with accrued
interest, without penalty.
ENGINEERING, DESIGN AND DEVELOPMENT COSTS
We have entered into an agreement with Lucent Technologies, Inc.
("Lucent") pursuant to which Lucent has agreed to use commercially reasonable
efforts to deliver integrated circuits ("chip sets"), which will be used in
consumer electronic devices capable of receiving our broadcasts. In addition, we
have entered into agreements with Alpine, Panasonic, Recoton and Delphi-Delco to
design and develop equipment that will be used to receive our broadcasts,
pursuant to which we have agreed to pay certain development costs. We record
expenses under these contracts as the work is performed. Total expenses related
to these contracts were $5,831,000 and $18,279,000 in the three month period and
nine month period ended September 30, 1999, respectively.
SPECIAL CHARGES
During the quarter ended June 30, 1998, we decided to enhance our
satellite delivery system to include a third in-orbit satellite and to terminate
certain launch and orbit related contracts. We recorded special charges totaling
approximately $25,682,000 related primarily to the termination of such
contracts.
RECLASSIFICATIONS
Certain amounts in the prior period's financial statements have been
reclassified to conform to the current period presentation.
SUBSEQUENT EVENTS
On October 6, 1999, the underwriters of our 8 3/4 % Convertible
Subordinated Notes due 2009 and the underwriters of our offering of 3,000,000
shares of common stock, each of which offerings was consummated on September 29,
1999, exercised their respective options to purchase additional 8 3/4%
Convertible Subordinated Notes due 2009 in an aggregate principal amount of
$18,750,000 and an additional 450,000 shares of our common stock for
$11,375,000. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources - Sources of
Funding" for further information relating to the 8 3/4% Convertible Subordinated
Notes due 2009 and common stock offerings.
5
<PAGE>
On October 13, 1999, we sold to 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"), 650,000 shares of our 9.2% Series B Junior Cumulative
Convertible Preferred Stock (the "Series B Preferred Stock") for an aggregate
purchase price of $65 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources - Sources of Funding" for further information relating to this sale
of the Series B Preferred Stock.
6
<PAGE>
CD RADIO INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), we are hereby providing
cautionary statements identifying important factors that could cause our actual
results to differ materially from those projected in forward-looking statements
(as such term is defined in the Reform Act) made in this report. Any statements
that express, or involve discussions as to, expectations, beliefs, plans,
objectives, assumptions or future events or performance (often, but not always,
through the use of words or phrases such as "will likely result," "are expected
to," "will continue," "is anticipated," "estimated," "intends," "plans,"
"projection" and "outlook") are not historical facts and may be forward-looking
and, accordingly, such statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially from those
expressed in the forward-looking statements. Accordingly, any such statements
are qualified in their entirety by reference to, and are accompanied by, the
factors discussed in our Annual Report on Form 10-K for the year ended December
31, 1998. Among the key factors that have a direct bearing on our future results
of operations are the potential risk of delay in implementing our business plan;
possible increased costs of construction and launch of necessary satellites; our
dependence on Loral, Lucent and consumer electronics manufacturers; the
unavailability of receivers and antennas; risk of launch failure; unproven
market for our proposed service; unproven applications of existing technology;
and our need for additional financing.
OVERVIEW
CD Radio was organized in May 1990 and is in its development stage. Our
principal activities to date have included developing our technology, developing
our terrestrial repeater network, arranging for the design and development of
chip sets and receivers, obtaining regulatory approval for the CD Radio service,
commencing the construction of four satellites, constructing our production and
broadcast facility, acquiring content for our programming, strategic planning,
market research, recruiting our management team and securing financing for
capital expenditures and working capital. We require additional capital to
complete development and commence 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.
Each of the elements of the CD Radio system - satellites, terrestrial
repeater network, National Broadcast Studio and CD Radio receivers - is on
schedule to permit us to begin operations at the end of the fourth quarter of
2000. Loral plans to launch our satellites on Proton rockets. On each of July 5,
1999 and October 27, 1999, a Proton rocket carrying a Russian payload
malfunctioned during flight. As a result of the October 27th failure, Proton
rocket launches have been suspended and the Russian government has appointed
an investigatory commission. These developments may delay one or more of our
anticipated satellite launches, currently scheduled for January, March and
May 2000. Even if a launch delay were to occur, however, we do not currently
expect any delay in the introduction of our service.
7
<PAGE>
Upon commencing operations, we expect our primary source of revenues to
be monthly subscription fees. We currently anticipate that our subscription fee
will be $9.95 per month to receive CD Radio broadcasts, with a one time, modest
activation fee per subscriber. In addition, we expect to derive revenues from
directly selling or bartering advertising on our non-music channels. We do not
expect to recognize revenues from operations until the first quarter of 2001,
at the earliest. We do not intend to manufacture the receivers necessary to
receive CD Radio and thus we will not receive any revenues from their sale.
Although we hold patents covering some of the technology which will be used in
these receivers, we expect to license our technology to manufacturers at no
charge.
We expect that the operating expenses associated with our service will
consist primarily of marketing, sales, programming, maintenance of our 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 November 8, 1999, we had 84 employees
and 19 part-time consultants. We expect to have approximately 150 employees by
the time we commence 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.
8
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1998
We recorded net losses of $13,123,000 and $3,244,000 for the three
months ended September 30, 1999 and 1998, respectively. Our total operating
expenses were $12,932,000 and $3,065,000 for the three months ended September
30, 1999 and 1998, respectively.
Engineering, design and development costs were $7,188,000 and $681,000
for the three months ended September 30, 1999 and 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.
General and administrative expenses increased for the three months
ended September 30, 1999 to $5,744,000 from $2,384,000 for the three months
ended September 30, 1998. General and administrative expenses increased due to
the occupancy of our new offices and National Broadcast Studio and the growth of
our management team and workforce. The major components of general and
administrative expenses in the 1999 quarter were salaries and employment related
costs (29%), rent and occupancy costs (22%) and legal and regulatory fees (10%),
while in the 1998 quarter the major components were salaries and employment
related costs (36%), rent and occupancy costs (13%) and legal and regulatory
fees (22%). The remaining portion of general and administrative expenses (39% in
the 1999 quarter and 29% in the 1998 quarter) consisted of other costs such as
insurance, market research, consulting, travel, depreciation and supplies, with
no such amount exceeding 10% of the total in the 1999 quarter and the 1998
quarter.
The increase in interest and investment income to $3,809,000 for the
three months ended September 30, 1999, from $1,866,000 in the three months ended
September 30, 1998, was the result of higher average balances of cash,
marketable securities and restricted investments during the 1999 quarter. The
higher average balances of cash, marketable securities and restricted
investments during the quarter were due to the proceeds from the issuance of
securities during the second and third quarters of 1999 and the fourth quarter
of 1998 exceeding the amount of expenditures for satellite and launch vehicle
construction, other capital expenditures and operating expenses.
Interest expense, net of capitalized interest, was $4,000,000 for the
three months ended September 30, 1999 and was $2,045,000 in the three months
ended September 30, 1998. This increase in net interest expense was due to
interest expense increasing by an amount ($13,070,000) greater than the
corresponding increase in capitalized interest ($11,115,000).
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
We recorded net losses of $36,168,000 and $39,259,000 for the nine
months ended September 30, 1999 and 1998, respectively. Our total operating
expenses were $38,694,000 and $33,963,000 for the nine months ended September
30, 1999 and 1998, respectively. Excluding the special charges totaling
$25,682,000 recorded in the 1998 second quarter, we recorded a net loss of
$13,577,000 and operating expenses of $8,281,000 for the nine months ended
September 30, 1998.
Engineering, design and development costs were $21,532,000 and
$1,455,000 for the nine months ended September 30, 1999 and 1998, respectively.
Engineering costs increased in the 1999 period 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.
9
<PAGE>
General and administrative expenses increased for the nine months ended
September 30, 1999 to $17,162,000 from $6,826,000 for the nine months ended
September 30, 1998. General and administrative expenses increased due to the
occupancy of our new offices and National Broadcast Studio and the growth of our
management team and workforce. The major components of general and
administrative expenses in the 1999 period were salaries and employment related
costs (30%), rent and occupancy costs (24%) and legal and regulatory fees (13%),
while in the 1998 period the major components were salaries and employment
related costs (30%), rent and occupancy costs (15%) and legal and regulatory
fees (17%). The remaining portion of general and administrative expenses (33% in
the 1999 period and 38% in the 1998 period) consisted of other costs such as
insurance, market research, consulting, travel, depreciation and supplies, with
no such amount exceeding 10% of the total in the 1999 period and only consulting
(14%) exceeding 10% of the total in the 1998 period.
The increase of interest income to $10,209,000 for the nine months
ended September 30, 1999, from $5,769,000 in the nine months ended September 30,
1998, was the result of higher average balances of cash, marketable securities
and restricted investments during the 1999 period. The higher average balances
of cash, marketable securities and restricted investments during the period were
due to the proceeds from the issuance of securities during the second and third
quarters of 1999 and the fourth quarter of 1998 exceeding the amount of
expenditures for satellite and launch vehicle construction, other capital
expenditures and operating expenses.
Interest expense, net of capitalized interest, decreased to $7,683,000
for the nine months ended September 30, 1999, from $11,027,000 in the 1998
period. This decrease in net interest expense was due to capitalized interest
increasing by an amount ($31,478,000) greater than the corresponding increase
in interest expense ($28,134,000).
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, we had a total of cash, cash equivalents,
marketable securities and restricted investments of $474,207,000 and working
capital of $335,140,000 compared with cash, cash equivalents and marketable
securities of approximately $265,623,000 and working capital of $180,966,000 at
December 31, 1998. The increases in the respective balances are due to the
proceeds from the issuance of units consisting of our 14 1/2% Senior Secured
Notes due 2009 and related warrants during the second quarter of 1999, the
proceeds from the issuance of our 8 3/4% Convertible Subordinated Notes due
2009 during the third quarter of 1999 and the proceeds from our issuance of
common stock during the third quarter of 1999 (see - Sources of Funding)
exceeding capital expenditures and operating expenses for the first nine months
of 1999. As part of the issuance of the 15% Senior Secured Notes due 2007 in
the 1999 second quarter, we were required to place approximately $79 million
of government securities in a restricted account to be used only to pay the
interest on these notes during their first three years.
10
<PAGE>
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 second quarter of 2000 from our existing working
capital at September 30, 1999 and from the proceeds of the sale of our Series B
Preferred Stock to the Apollo Investors and sale of our 8 3/4% Convertible
Subordinated Notes due 2009 and common stock in connection with the exercise of
the underwriters over-allotment options in October 1999. We estimate that we
will require a total of approximately $1,170 million to develop and commence
operations by the end of the fourth quarter of 2000. We have raised and
identified sources of approximately $1,216 million (which includes $115 million
of debt financing that must be repaid by the earlier of February 29, 2000 and
ten days prior to the launch of our second satellite), leaving expected excess
cash of approximately $46 million to fund our operations after the fourth
quarter of 2000. However, if Bank of America is unable to arrange a new credit
facility for us, we will need to raise $115 million to refinance the existing
credit facility in the first quarter of 2000 and an additional $60 million to
fund our operations through the end of the fourth quarter of 2000. In addition,
we anticipate cash requirements of approximately $150 million to fund our
operating costs during the first full year of 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 service provider. We are committed to make
aggregate payments of approximately $736 million under the Loral Satellite
Contract, which includes $15 million of long-lead time parts for a fifth
satellite and $3 million for integration analysis of the viability of using the
Sea Launch platform as an alternative launch vehicle for our satellites. As of
September 30, 1999, $377 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 that commenced 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.
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 operations of CD Radio. We expect our interest
expense will increase significantly when compared to our 1998 interest expense;
however, our 15% Senior Secured Discount Notes due 2007 will not require cash
payments of interest until June 2003. In addition, a portion of the net proceeds
of the issuance of our 14 1/2% Senior Secured Notes due 2009 was used to
purchase a portfolio of U.S. government securities in an amount sufficient to
pay the first six payments of interest on these notes. We currently expect to
fund interest payments on our 8 3/4% Convertible Subordinated Notes due 2009
beginning in March 2000 through proceeds from the issuance of equity. We cannot
assure you that any such issuances will be accomplished on terms advantageous to
us, or at all.
We cannot assure 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. The indentures governing our 15% Senior Secured Discount Notes due
2007, our 14 1/2% Senior Secured Notes due 2009 and our bank credit 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 and to fund continued operations, which would cause delays in the
commencement of operations and increase costs.
11
<PAGE>
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 terrestrial repeater network, costs
associated with the design and development of chip sets and receivers, the rate
of growth of our business after commencing service, costs of financing and the
possibility of unanticipated costs. We will require additional funds if there
are delays, cost overruns, 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 securities and borrowings under our bank credit facility. As of
September 30, 1999, we had identified or received a total of $582 million in net
equity capital, which includes the net proceeds from the sale of our Series B
Preferred Stock to the Apollo Investors and the sale of 450,000 shares of common
stock to the underwriters in connection with the exercise of their
over-allotment option, both in October 1999. In 1997 we received a total of $192
million as a result of the issuance of 5,400,000 shares of 5% Delayed
Convertible Preferred Stock, resulting in net proceeds of $121 million, and the
issuance of 4,955,488 shares of common stock, resulting in net proceeds of $71
million. In November 1997, we exchanged 1,846,799 shares of our newly issued 10
1/2% Series C Cumulative Convertible Preferred Stock (the "Series C Preferred
Stock") for all of the outstanding shares of 5% Delayed Convertible Preferred
Stock. On November 2, 1998, we sold 5,000,000 shares of common stock to Prime 66
Partners, L.P., resulting in net proceeds of $98 million and on December 23,
1998, we sold 1,350,000 shares of the 9.2% Series A Junior Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock") to the Apollo
Investors resulting in net proceeds of $129 million. In September 1999, we
issued 3,000,000 shares of our common stock in an underwritten public offering
resulting in net proceeds of $68 million. In October 1999, we issued 450,000
shares of our common stock to the underwriters of our September 1999 common
stock offering in connection with the exercise of their over-allotment option,
resulting in net proceeds of $10 million, and issued 650,000 shares of our
Series B Junior Preferred Stock to the Apollo Investors for net proceeds of $63
million.
Shares of our Series A Preferred Stock and our Series B Preferred Stock
(collectively, the "Junior Preferred Stock") are 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 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.
In September 1999, we issued $125,000,000 aggregate principal amount of
our 8 3/4% Convertible Subordinated Notes due 2009 in an underwritten public
offering resulting in net proceeds of $119 million. In October 1999, we issued
an additional $18,750,000 aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009 to satisfy the underwriters' over-allotment option,
resulting in net proceeds of $18 million. Interest on our 8 3/4% Convertible
Subordinated Notes due 2009 is payable semi-annually in cash beginning March
2000. 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 14 1/2% Senior Secured Notes due 2009 and three warrants, each to
purchase 3.65 shares of our common stock. Interest on the 14 1/2% Senior Secured
Notes due 2009 is payable semi-annually in cash beginning November 15, 1999. We
invested approximately $79.3 million of the net proceeds of the 14 1/2% Senior
Secured Notes due 2009 in a portfolio of U.S. government securities, which we
pledged as security for the payment in full of interest on the 14 1/2% Senior
Secured Notes due 2009 through May 15, 2002. As required by the terms of the
warrants, we adjusted the number of shares for which each warrant may be
exercised to 3.792 shares and the exercise price per share to $27.53 per share
in connection with our issuance of 3,000,000 shares of common stock and
$125,000,000 principal amount of 8 3/4% Convertible Subordinated Notes due 2009
on September 29, 1999.
12
<PAGE>
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 our 15% Senior Secured Discount Notes due 2007 and a warrant to
purchase additional 15% Senior Secured Discount Notes due 2007 with an aggregate
principal amount at maturity of $3,000. All these warrants were exercised in
1997. The aggregate value at maturity of the 15% Senior Secured Discount Notes
due 2007 is $297 million. The 15% Senior Secured Discount Notes due 2007 mature
on November 15, 2007 and the first cash interest payment is due in June 2003.
The indentures governing the 15% Senior Secured Discount Notes due 2007 and the
14 1/2% Senior Secured Notes due 2009 contain some limitations on our ability to
incur additional indebtedness. The 15% Senior Secured Discount Notes due 2007
and the 14 1/2% Senior Secured Notes due 2009 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 a credit agreement (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 "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 September 30, 1999, we had borrowed
approximately $112 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 our bankruptcy 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, we pay Loral a fee
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 for us in the aggregate principal amount of $225
million. It is anticipated that a portion of the proceeds of these loans would
be used to repay the amounts outstanding under the Tranche A Facility and for
other general corporate purposes. Bank of America has not committed to provide
this term loan facility. The availability of these loans when required to repay
the amounts outstanding at maturity under the Tranche A Facility will be
influenced by a variety of factors, some of which, including the market for
syndicated bank loans generally, are outside of our control. The closing of this
term loan facility is expected to be conditioned on the satisfaction of
significant conditions and there is no assurance that these loans will be
arranged or that the proposed terms of these loans will be acceptable to us. If
we are unable to close this 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.
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 paid 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. 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.
13
<PAGE>
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
the end of November 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. These parties have indicated that they have
implemented Year 2000 remediation projects. However, 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.
Our total Year 2000 Issue remediation expenditures are expected to be
approximately $100,000. As of September 30, 1999 we have completed approximately
70% of our Year 2000 remediation project. Substantially all of the remainder is
expected to be completed by the end of November 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.
14
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) On September 29, 1999, we issued (i) $125,000,000 aggregate
principal amount of our 8 3/4% Convertible Subordinated Notes due 2009 and (ii)
3,000,000 shares of our common stock in offerings (the "Offerings") made
pursuant to a Registration Statement on Form S-3 (File No. 333-86003) under the
Securities Act of 1933, as amended. On October 6, 1999, we issued an additional
(i) $18,750,000 aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009 and (ii) 450,000 shares of our common stock, in
each case to the underwriters of the Offerings in connection with their
exercise of the respective over-allotment options granted to them.
In connection with the sales of our 8 3/4% Convertible Subordinated
Notes due 2009 and common stock described above, we paid an aggregate of $14.1
million in underwriting discounts, selling concessions and fees to investment
banking firms. The proceeds from the sale of our 8 3/4% Convertible Subordinated
Notes due 2009 and common stock will be used to finance the construction and
launch of our satellites and for general corporate purposes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Exhibit Index attached hereto.
(b) Reports on Form 8-K:
On September 27, 1999, we filed a Current Report on Form 8-K
to report that, in accordance with Section 305(b) of the Trust
Indenture Act of 1939 and the rules under this act, we filed a
Statement of Eligibility and Qualification on Form T-1 of U.S. Trust
Company of Texas, N.A. to act as trustee with respect to our 8 3/4%
Convertible Subordinated Notes due 2009.
On October 1, 1999, we filed a Current Report on Form 8-K to
report (i) that we had amended the Rights Agreement, dated October 22,
1997, between us and Continental Stock Transfer & Trust Company, as
rights agent, to permit Ford Motor Company to purchase up to 808,081
shares of our common stock from the underwriters of our public offering
of such shares on September 29, 1999, and to permit Everest Capital
Management Ltd. ("Everest") and any investment partnership or similar
investment fund managed or advised by Everest to purchase up to
$50,000,000 aggregate principal amount of our 8 3/4% Convertible
Subordinated Notes due 2009 from the underwriters of our public
offering of our 8 3/4% Convertible Subordinated Notes due 2009 and
(ii) that in connection with our issuance of our 8 3/4% Convertible
Subordinated Notes due 2009 we entered into (a) an Indenture, dated as
of September 29, 1999 (the "Indenture"), between us and the U.S. Trust
Company of Texas, N.A. and (b) a First Supplemental Indenture, dated
September 29, 1999, to the Indenture, between us and U.S. Trust Company
of Texas, N.A.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CD RADIO INC.
By: /s/ Edward Weber, Jr.
__________________________________
Edward Weber, Jr.
Controller
(Principal Accounting Officer)
November 15, 1999
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
3.1 Certificate of Amendment, dated June 16, 1997, to the CD Radio
Inc. (the "Company") Certificate of Incorporation and the
Company's Amended and Restated Certificate of Incorporation,
dated January 31, 1994 (incorporated by reference to Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1999).
3.2 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-1
(File No. 33-74782) (the "S-1 Registration Statement")).
3.3 Certificate of Designations of 5% Delayed Convertible Preferred
Stock (incorporated by reference to Exhibit 10.24 to the
Company's Form 10-K/A for the year ended December 31, 1996 (the
"1996 Form 10-K")).
3.4 Form of Certificate of Designations of Series B Preferred Stock
(incorporated by reference to Exhibit A to Exhibit 1 to the
Company's Registration Statement on Form 8-A, filed with the
Commission on October 30, 1997 (the "Form 8-A")).
3.5.1 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)).
3.5.2 Certificate of Correction to Series C Certificate of
Designations (incorporated by reference to Exhibit 3.5.2 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997 (the "1997 Form 10-K")).
3.5.3 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).
3.6 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of the
Company's 9.2% Series A Junior Cumulative Convertible
Preferred Stock (filed herewith).
3.7 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of the
Company's 9.2% Series B Junior Cumulative Convertible Preferred
Stock (filed herewith).
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
4.1 Form of Certificate for Shares of Common Stock (incorporated by
reference to Exhibit 4.3 to the S-1 Registration Statement).
4.2 Form of Certificate for Shares of 10 1/2% Series C Convertible
Preferred Stock (incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-4 (File No.
333-34761)).
4.3.1 Rights Agreement, dated as of October 22, 1997, between the
Company and Continental Stock Transfer & Trust Company, as
rights agent (incorporated by reference to Exhibit 1 to the Form
8-A).
4.3.2 Form of Right Certificate (incorporated by reference to Exhibit
B to Exhibit 1 to the Form 8-A).
4.3.3 Amendment to 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 dated October 13, 1998).
4.3.4 Amendment to 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 dated November 17, 1998).
4.3.5 Amended and Restated Amendment to Rights Agreement, dated as of
October 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).
4.3.6 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 June 11, 1999
(incorporated by reference to Exhibit 4.1.8 to the Company's
Registration Statement on Form S-4 (File No. 333-82303) filed on
July 2, 1999 (the "1999 Units Registration Statement")).
4.3.7 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 September 29,1999
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed with the Commission on October
13, 1999).
4.4 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")).
4.5 Form of Note (incorporated by reference to Exhibit 4.2 to the
1997 Units Registration Statement).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
4.6.1 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).
4.6.2 Form of Warrant (incorporated by reference to Exhibit 4.4 to the
1997 Units Registration Statement).
4.7 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 1997 Form
10-K).
4.8 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).
4.9.1 Form of Certificate for shares of 9.2% Series A Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.10.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (the "1998 Form
10-K")).
4.9.2 Form of Certificate for shares of 9.2% Series B Junior
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.10.2 to the 1998 Form 10-K).
4.10 Notes Registration Rights Agreement, dated as of May 13, 1999,
among the Company and 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 (incorporated by reference to Exhibit 4.4.1
to the 1999 Units Registration Statement).
4.11 Indenture between the Company and United States Trust Company of
New York, as trustee, dated as of May 15, 1999, relating to the
Company's 14 1/2% Senior Secured Notes due 2009 (incorporated by
reference to Exhibit 4.4.2 to the 1999 Units Registration
Statement).
4.12 Form of Certificate for 8 3/4% Convertible Subordinated Notes
due 2009 (incorporated by reference to Article VII to Exhibit
4.01 to the Company's Current Report on Form 8-K filed with the
Commission on October 11, 1999)
4.13 Indenture between the Company and United States Trust Company of
Texas, N.A., dated as of September 29, 1999, with respect to the
Company's 8 3/4% Convertible Subordinated Notes due 2009
(incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K filed with the Commission on October
13, 1999).
4.14 First Supplemental Indenture, dated as of September 29, 1999,
between the Company and United States Trust Company of Texas,
N.A., with respect to the Company's 8 3/4% Convertible
Subordinated Notes due 2009 (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K filed
with the Commission on October 11, 1999).
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ------------
<S> <C>
4.15 Form of 14 1/2% Senior Secured Notes due 2009 (incorporated by
reference to Exhibit 4.4.2 to the 1999 Units Registration
Statement).
4.16 Warrant Agreement, dated as of May 15, 1999, between the Company
and United States Trust Company of New York, as warrant agent
(incorporated by reference to Exhibit 4.4.4 to the 1999 Units
Registration Statement).
4.17 Amended and Restated Pledge Agreement, dated as of May 15, 1999,
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 (incorporated by reference to Exhibit 4.4.5 to the 1999
Units Registration Statement).
4.18 Collateral Pledge and Security Agreement, dated as of May 15,
1999, between the Company, as pledgor, and United States Trust
Company of New York, as trustee (incorporated by reference to
Exhibit 4.4.6 to the 1999 Units Registration Statement).
4.19 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 (incorporated by reference
to Exhibit 4.4.7 to the 1999 Units Registration Statement).
4.20 Common Stock Purchase Warrant granted by the Company to Ford
Motor Company, dated June 11, 1999 (incorporated by reference to
Exhibit 4.4.2 to the 1999 Units Registration Statement).
9.1 Voting Trust Agreement, dated as of August 26, 1997, by and
among Darlene Friedland, as Grantor, David Margolese, as
Trustee, and the Company (incorporated by reference to Exhibit
(c) to the Company's Issuer Tender Offer Statement on Form
13E-4, filed with the Commission on October 16, 1997).
10.1 Lease Agreement, dated as of March 31, 1998, between
Rock-McGraw, Inc. and the Company (incorporated by reference to
Exhibit 10.1.2 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998).
10.2.1 Engagement Letter Agreement, dated November 18, 1992, between
the Company and Batchelder & Partners, Inc. (incorporated by
reference to Exhibit 10.4 to the S-1 Registration Statement).
10.2.2 Engagement Termination Letter Agreement, dated December 4, 1997,
between the Company and Batchelder & Partners, Inc.
(incorporated by reference to Exhibit 10.2.2 to the 1997 Form
10-K).
*10.3.1 Proprietary Information and Non-Competition Agreement, dated
February 9, 1993, for Robert D. Briskman (incorporated by
reference to Exhibit 10.8.1 to the S-1 Registration Statement).
*10.3.2 Amendment No. 1 to Proprietary Information and Non-Competition
Agreement between the Company and Robert D. Briskman
(incorporated by reference to Exhibit 10.8.2 to the S-1
Registration Statement).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.4.1 Amended and Restated Contract, dated as of June 30, 1998,
between the Company and Space Systems/Loral, Inc. (incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q/A for the period ended June 30, 1998).
10.5.1 Assignment of Technology Agreement, dated April 15, 1993,
between Robert D. Briskman and the Company (incorporated by
reference to Exhibit 10.10 to the S-1 Registration Statement).
*10.5.2 Stock Option Agreement, dated as of October 15, 1997, between
the Company and Robert D. Briskman (incorporated by reference to
Exhibit 10.6.2 to the 1997 Form 10-K).
*10.5.3 Amended and Restated Option Agreement between the Company and
Robert D. Briskman (incorporated by reference to Exhibit 10.13
to the S-1 Registration Statement).
*10.6 Employment Agreement, dated as of January 1, 1999, between the
Company and David Margolese (incorporated by reference to
Exhibit 10.6 to the 1998 Form 10-K).
*10.7.1 Employment and Non-Competition Agreement between the Company and
Robert D. Briskman (incorporated by reference to Exhibit 10.19.1
to the S-1 Registration Statement).
*10.7.2 First Amendment to Employment Agreement between the Company and
Robert D. Briskman (incorporated by reference to Exhibit 10.19.2
to the S-1 Registration Statement).
*10.7.3 Second Amendment to Employment Agreement between the Company and
Robert D. Briskman (incorporated by reference to Exhibit 10.12.3
to the 1996 Form 10-K).
*10.8 Employment and Non-Competition Agreement, dated as of April 16,
1997, between the Company and Joseph S. Capobianco (incorporated
by reference to Exhibit 10.17 to the Company's Quarterly Report
on Form 10-Q/A for the period ended March 31, 1997).
*10.9.1 Employment and Non-Competition Agreement, dated as of April 28,
1997, between the Company and Keno V. Thomas (incorporated by
reference to Exhibit 10.18 to the Company's Quarterly Report on
Form 10-Q/A for the period ended March 31, 1997).
*10.9.2 Separation Agreement, dated as of July 6, 1998, between the
Company and Keno V. Thomas (incorporated by reference to Exhibit
10.11.2 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1998).
21
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
*10.10 Employment and Non-Competition Agreement, dated as of May 18,
1998, between the Company and Patrick L. Donnelly (incorporated
by reference to Exhibit 10.12 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1998).
10.11 Registration Agreement, dated January 2, 1994, between the
Company and M.A. Rothblatt and B.A. Rothblatt (incorporated by
reference to Exhibit 10.20 to the S-1 Registration Statement).
*10.12 1994 Stock Option Plan (incorporated by reference to Exhibit
10.21 to the S-1 Registration Statement).
*10.13 Amended and Restated 1994 Directors' Nonqualified Stock Option
Plan (incorporated by reference to Exhibit 10.22 to the Annual
Report on Form 10-K for the year ended December 31, 1995).
10.14.1 Option Agreement, dated as of October 21, 1992, between the
Company and Batchelder & Partners, Inc. (incorporated by
reference to Exhibit 10.24 to the S-1 Registration Statement).
10.14.2 Form of Option Agreement, dated as of December 29, 1997, between
the Company and each Optionee (incorporated by reference to
Exhibit 10.16.2 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998).
10.15 Settlement Agreement, dated as of April 1, 1994, among the
Company, M.A. Rothblatt, B.A. Rothblatt and Marcor, Inc.
(incorporated by reference to Exhibit 10.27 to the S-1
Registration Statement).
10.16.1 Preferred Stock Investment Agreement dated October 23, 1996
between the Company and certain investors (incorporated by
reference to Exhibit 10.24 to the 1996 Form 10-K).
10.16.2 First Amendment to Preferred Stock Investment Agreement dated
March 7, 1997 between the Company and certain investors
(incorporated by reference to Exhibit 10.24.1 to the 1996 Form
10-K).
10.16.3 Second Amendment to Preferred Stock Investment Agreement dated
March 14, 1997 between the Company and certain investors
(incorporated by reference to Exhibit 10.24.2 to the 1996 Form
10-K).
10.17 Stock Purchase Agreement, dated as of August 5, 1997, between
the Company, David Margolese and Loral Space & Communications
Ltd. (incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K filed on August 19, 1997).
10.18 Letter, dated May 29, 1998, terminating Launch Services
Agreement dated July 22, 1997 between the Company and
Arianespace S.A.; Arianespace Customer Loan Agreements dated
July 22, 1997 for Launches #1 and #2 between the Company and
Arianespace Finance S.A.; and the Multiparty Agreements dated
July 22, 1997 for Launches #1 and #2 among the Company,
Arianespace S.A. and
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
Arianespace Finance S.A. (incorporated by reference to Exhibit
10.21 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1998).
10.19 Credit Agreement, dated as of June 30, 1998 (the "Credit
Agreement"), among the Company, the financial institutions from
time to time parties thereto and Bank of America National Trust
and Savings Association, as Administrative Agent (incorporated
by reference to Exhibit 10.22 to the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1998).
10.20 First Amendment, dated as of May 4, 1999, to the Credit
Agreement (incorporated by reference to Exhibit 10.21 to the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1999).
10.21 Pledge Agreement, dated as of June 30, 1998, made by the Company
in favor of Bank of America National Trust and Savings
Association, as Administrative Agent (incorporated by reference
to Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998).
10.22 Summary Term Sheet/Commitment, dated June 15, 1997, among the
Company and Everest Capital International, Ltd., Everest Capital
Fund, L.P. and The Ravich Revocable Trust of 1989 (incorporated
by reference to Exhibit 99.1 to the Company's Current Report on
Form 8-K filed on July 8, 1997).
10.23.1 Engagement Letter Agreement, dated June 14, 1997, between the
Company and Libra Investments, Inc. (incorporated by reference
to Exhibit 10.26.1 to the 1997 Form 10-K).
10.23.2 Engagement Letter Agreement, dated August 6, 1997, between the
Company and Libra Investments, Inc. (incorporated by reference
to Exhibit 10.26.2 to the 1997 Form 10-K).
10.24 Radio License Agreement, dated January 21, 1998 between the
Company and Bloomberg Communications Inc. (incorporated by
reference to Exhibit 10.28 to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1998).
10.25 Amended and Restated Agreement, dated as of February 1, 1999,
between Lucent Technologies Inc. and the Company (incorporated
by reference to Exhibit 99.1 to the Company's Current Report on
Form 8-K filed with the Commission on February 4, 1999).
*10.26 CD Radio Inc. 401(k) Savings Plan (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on Form S-8
(File No. 333-65473)).
10.27 Stock Purchase Agreement, dated as of October 8, 1998, between
the Company and Prime 66 Partners, L.P. (incorporated by
reference to Exhibit 99.1 to the Company's Current Report on
Form 8-K dated October 8, 1998).
10.28.1 Stock Purchase Agreement, dated as of November 13, 1998 (the
"Apollo Stock Purchase Agreement"), by and among the Company,
Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV,
L.P. (incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K dated November 17, 1998).
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.28.2 Amendment No. 1, dated as of December 23, 1998, to the Apollo
Stock Purchase Agreement (filed herewith).
10.29 Voting Agreement, dated as of November 13, 1998, by and among
Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV,
L.P. and David Margolese (incorporated by reference to Exhibit
99.5 to the Company's Current Report on Form 8-K dated November
17, 1998).
10.30 Tag-Along Agreement, dated as of November 13, 1998, by and among
Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV,
L.P., the Company and David Margolese (incorporated by reference
to Exhibit 99.6 to the Company's Current Report on Form 8-K
dated November 17, 1998).
10.31* CD Radio 1999 Long-Term Stock Incentive Plan (incorporated by
reference to Appendix I of the Company's definitive Schedule 14A
filed with the Commission on May 26, 1999).
10.32 Agreement, dated as of June 11, 1999, between the Company and
Ford Motor Company (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1999).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
- --------------
* This document has been identified as a management contract or compensatory
plan or arrangement.
'D' Portions of these exhibits have been omitted pursuant to Applications for
Confidential treatment filed by the Company with the Securities and
Exchange Commission.
24
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as.....................................'D'
<PAGE>
CD RADIO INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF
9.2% SERIES A JUNIOR CUMULATIVE CONVERTIBLE PREFERRED STOCK
------------------
PURSUANT TO SECTION 151(G) OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------
CD Radio Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation (the "Board of Directors"), in a duly convened meeting thereof on
November 11, 1998, adopted the following resolution, which resolution remains in
full force and effect as of the date hereof:
WHEREAS, the Board of Directors is authorized, within the
limitations and restrictions stated in the Certificate of Incorporation of the
Corporation, to fix by resolution or resolutions the designation of each series
of Preferred Stock of the Corporation (the "Preferred Stock") and the powers,
preferences and relative, participating, optional or other special rights and
the qualifications, limitations or restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution or distribution of assets,
conversion or exchange, and such other subjects or matters as may be fixed by
resolutions of the Board of Directors under the General Corporation Law of the
State of Delaware; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to its authority as aforesaid, to authorize and fix the
terms of a series of Preferred Stock and the number of shares constituting such
series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby
authorized such series of Preferred Stock on the terms and with the provisions
herein set forth:
1. Number of Shares; Designation. A total of 4,300,000 shares
of Preferred Stock of the Corporation are hereby designated as 9.2% Series A
Junior Cumulative Convertible Preferred Stock (the "Series A Preferred Stock").
<PAGE>
2
2. Rank. The Series A Preferred Stock shall, with respect to
payment of dividends, redemption payments and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation, (x) rank senior and
prior to the Common Stock, par value $.001 per share, of the Corporation (the
"Common Stock") and any other class or series of capital stock of the
Corporation that by its terms ranks junior to the Series A Preferred Stock as to
payment of dividends, redemption payments and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation, (y) rank on a
parity with the Corporation's 9.2% Series B Junior Cumulative Convertible
Preferred Stock (the "Series B Preferred Stock") and all Parity Dividend Stock
(as defined in Section 3(a)) and all Parity Liquidation Stock (as defined in
Section 5(b)), and (z) rank junior to the Corporation's 10 1/2% Series C
Convertible Preferred Stock ("Series C Preferred Stock") and all Senior Dividend
Stock (as defined in Section 3(c)), all Senior Liquidation Stock (as defined in
Section 5(b)) and to any class or series of capital stock of the Corporation
(other than the Common Stock), whether currently issued or issued in the future,
that does not by its terms expressly provide that it ranks on a parity with or
junior to the Series A Preferred Stock as to dividends and rights upon
liquidation, dissolution or winding-up of the Corporation (which shall include,
for purposes of the foregoing, any entity with which the Corporation may be
merged or consolidated or to which all or substantially all the assets of the
Corporation may be transferred or which transfers all or substantially all of
its assets to the Corporation).
3. Dividends. (a)(1) The holders of the issued and outstanding
shares of the Series A Preferred Stock shall be entitled to receive, as and when
declared by the Board of Directors, out of funds legally available therefor in
the case of dividends paid in cash, cumulative dividends at the annual rate per
share of 9.2% of the sum of (x) the Liquidation Preference (defined in Section 5
hereof) and (y) all unpaid dividends, if any, whether or not declared, from the
date of issuance of the shares of Series A Preferred Stock (the "Closing Date")
to the applicable dividend payment date. Dividends on shares of Series A
Preferred Stock shall be payable annually initially on November 15, 1999 and
each November 15 thereafter (each, a "Dividend Payment Date"), except that if
any Dividend Payment Date is not a business day then the Dividend Payment Date
shall be on the first immediately succeeding business day (as used herein, the
term "business day" shall mean any day except a Saturday, Sunday or day on which
banking institutions are legally authorized to close in The City of New York).
(2) If any Dividend payable on any Dividend Payment Date is
not declared or paid on such Dividend Payment Date, as provided in Section
3(a)(1), in full in cash or in additional shares of Series A Preferred Stock,
then the amount of such unpaid dividend ("Default Dividends") shall be
accumulated. Any Default Dividends shall, from the Dividend Payment Date on
which such dividends accrued, accrue dividends until paid, compounded annually,
at a rate equal to 15% per annum. Default Dividends shall be payable in shares
of Series A Preferred Stock, but not in cash.
<PAGE>
3
(3) Dividends on the Series A Preferred Stock may be paid, in
the sole discretion of the Board of Directors, either in (i) cash, (ii) shares
of Series A Preferred Stock or (iii) any combination of cash or shares of Series
A Preferred Stock, and the issuance of the requisite number of such shares of
Series A Preferred Stock (such number determined as provided in the next
sentence) pursuant to (ii) or (iii) shall constitute full payment of any such
dividend. Series A Preferred Stock issued to pay dividends shall be valued at
their Liquidation Preference. All dividend payments paid with respect to shares
of Series A Preferred Stock shall be paid pro rata to the holders entitled
thereto. All shares of Series A Preferred Stock issued as a dividend with
respect to shares of Series A Preferred Stock shall thereupon be duly
authorized, validly issued, fully paid and non-assessable. In no event shall an
election by the Board of Directors to pay dividends, in full or in part, in cash
or in shares of Series A Preferred Stock in lieu of payment, in full or in part,
in cash preclude the Board of Directors from electing any such alternative in
respect of all or any portion of any subsequent dividend. The Corporation shall
not issue fractional shares of Series A Preferred Stock upon payment of any
dividends in shares of Series A Preferred Stock and any amount of fractional
shares of Series A Preferred Stock otherwise issuable upon the payment of any
dividend in shares of Series A Preferred Stock shall be paid in cash.
(4) Dividends to be paid on a Dividend Payment Date shall be
paid to the holders of record of shares of the Series A Preferred Stock as they
appear on the stock register of the Corporation at the close of business on such
record dates (each, a "Dividend Payment Record Date"), which shall be not more
than 40 days nor fewer than 10 days preceding each Dividend Payment Date
thereof, as shall be fixed by the Board of Directors of the Corporation. Default
Dividends shall be declared and paid at any time as of which funds legally
available therefor are available to the Corporation, without reference to any
regular Dividend Payment Date, to the holders of record on such date, not
exceeding 40 days nor fewer than 10 days preceding the date on which dividends
in arrears will be paid, as may be fixed by the Board of Directors of the
Corporation. Holders of shares of the Series A Preferred Stock shall be entitled
to receive dividends in preference to and in priority over dividends upon the
Common Stock and any other series or class of the Corporation's capital stock
that ranks junior as to dividends to the Series A Preferred Stock ("Junior
Dividend Stock") and shall be on a parity as to dividends with the Series B
Preferred Stock and any series or class of the Corporation's capital stock that
does not rank senior or junior as to dividends with the Series A Preferred Stock
(together with the Series B Preferred Stock, "Parity Dividend Stock"). The
holders of shares of the Series A Preferred Stock shall not be entitled to any
dividends in excess of full cumulative dividends (including Default Dividends),
as herein provided.
(b) No dividends, other than dividends payable solely in
Common Stock, Junior Dividend Stock, or warrants or other rights to acquire such
Common Stock or Junior Dividend Stock, shall be paid or declared and set apart
for payment on, and no purchase, redemption or other acquisition shall be made
by the Corporation or entity directly or
<PAGE>
4
indirectly controlled by the Corporation of, any Common Stock or Junior Dividend
Stock unless and until (i) all accrued and unpaid dividends on the Series A
Preferred Stock shall have been paid and (ii) proper provision shall have been
made such that holders of shares of Series A Preferred Stock are offered the
opportunity to elect (each, a "Payout Election"), in lieu of the Conversion
Price adjustment referred to in Section 6(f)(ii), Section 6(f)(iii) or Section
6(f)(iv), as the case may be, to participate in such dividend, purchase,
redemption or other acquisition pro rata with the holders of Common Stock or
Junior Dividend Stock, as the case may be, as if each share of Series A
Preferred Stock had been converted as of the record date for such dividend or
immediately prior to such purchase, redemption or other acquisition, as the case
may be, at the Conversion Price then in effect (without any requirement that any
such shares of Series A Preferred Stock actually be so converted). Each Payout
Election shall be made upon the affirmative vote or consent of holders of a
majority of the total number of shares of Series A Preferred Stock then
outstanding and shall be effective as to and binding upon all such shares. So
long as a sufficient amount of cash, assets, evidences of indebtedness or
securities are set aside for payment to the holders of Series A Preferred Stock
as of the payment date for such dividend or the date for such purchase,
redemption or acquisition, payment need not be made to the holders of Series A
Preferred Stock on such date but may be made at any time up to the tenth
Business Day following such date.
(c) If at any time the Corporation issues any class or series
of capital stock ranking senior and prior to the Series A Preferred Stock with
respect to the payment of dividends ("Senior Dividend Stock") and fails to pay
or declare and set apart for payment accrued and unpaid dividends on such Senior
Dividend Stock, in whole or in part, then (except to the extent allowed by the
terms of the Senior Dividend Stock) no dividend paid in cash shall be paid or
declared and set apart for payment on the Series A Preferred Stock unless and
until all accrued and unpaid dividends with respect to the Senior Dividend Stock
shall have been paid or declared and set apart for payment, without interest.
Except as provided in Section 3(d) below, no dividends paid in cash shall be
paid or declared and set apart for payment on any Parity Dividend Stock for any
period unless the Corporation has paid or declared and set apart for payment, or
contemporaneously pays or declares and sets apart for payment, on the Series A
Preferred Stock all accrued and unpaid dividends for all dividend payment
periods terminating on or prior to the date of payment of such dividends. Except
as provided in Section 3(d) below, no dividends paid in cash shall be paid or
declared and set apart for payment on the Series A Preferred Stock for any
period unless the Corporation has paid or declared and set apart for payment, or
contemporaneously pays or declares and sets apart for such payment, on any
Parity Dividend Stock all accrued and unpaid dividends for all dividend payment
periods terminating on or prior to the date of payment of such dividends.
<PAGE>
5
(d) If at any time the Corporation has failed to pay accrued
dividends on any shares of Series A Preferred Stock on any Dividend Payment Date
or any Parity Dividend Stock on a stated payment date, as the case may be, the
Corporation shall not:
(i) purchase any shares of the Series A Preferred
Stock or Parity Dividend Stock (except for a consideration
payable in Common Stock or Junior Dividend Stock) or redeem
fewer than all of the shares of the Series A Preferred Stock
and Parity Dividend Stock then outstanding except for (x) the
repurchase or redemption of shares of the Series A Preferred
Stock made pro rata among the holders of the shares of the
Series A Preferred Stock then outstanding and (y) the
repurchase or redemption made pro rata with respect to all
shares of the Series A Preferred Stock and Parity Dividend
Stock then outstanding so that the amounts repurchased or
redeemed shall in all cases bear to each other the same ratio
that, at the time of the repurchase or redemption, the
required redemption payments on the shares of the Series A
Preferred Stock and the other Parity Dividend Stock then
outstanding, respectively, bear to each other, or
(ii) permit any corporation or other entity directly
or indirectly controlled by the Corporation to purchase any
Common Stock, Junior Dividend Stock, shares of the Series A
Preferred Stock or Parity Dividend Stock, except to the same
extent that the Corporation could purchase such shares.
Unless and until all dividends unpaid in respect of prior
dividend payment periods on shares of the Series A Preferred Stock and any
Parity Dividend Stock at the time outstanding have been paid in full or a sum
sufficient for such payment is declared and set apart, as provided in the
paragraph (c), all dividends accrued by the Corporation upon shares of the
Series A Preferred Stock or Parity Dividend Stock shall be declared pro rata
with respect to all shares of the Series A Preferred Stock and Parity Dividend
Stock then outstanding, so that the amounts of any dividends declared on shares
of the Series A Preferred Stock and on the Parity Dividend Stock shall in all
cases bear to each other the same ratio that, at the time of the declaration,
all unpaid dividends in respect of prior dividend payment periods on shares of
the Series A Preferred Stock and the other Parity Dividend Stock, respectively,
bear to each other.
4. Redemption. (a)(1) Optional Redemption. Except as provided in
subsection (a)(2) of this Section 4 or in Section 9, shares of the Series A
Preferred Stock shall not be redeemable prior to November 15, 2003. From and
after November 15, 2003, subject to the restrictions in Section 3 above, the
Corporation may redeem shares of Series A Preferred Stock, in whole or in part,
at the option of the Corporation, to the extent it has funds legally
<PAGE>
6
available therefor at a redemption price of 100% of the Liquidation Preference
thereof plus accrued and unpaid dividends, if any, whether or not declared, to
the date of redemption.
(2) Special Redemption From and after November 15, 2001 and
prior to November 15, 2003, the Corporation, at its option, may redeem shares of
Series A Preferred Stock, in whole or in part, in the sole discretion of the
Board of Directors, to the extent it has funds legally available therefor, at
the redemption price of 100% of the Liquidation Preference thereof, plus an
amount equal to the dividends unpaid thereon, if any, whether or not declared,
to the redemption date, if the Current Market Price of the Common Stock on the
date of the notice of redemption (described below) equals or exceeds $60.00 per
share. As used herein, the "Current Market Price" for a given date shall mean
the average Closing Price of the Common Stock as reported in The Wall Street
Journal or, at the election of the Corporation, other reputable financial news
source, for the 20 consecutive trading days immediately preceding such date. The
$60.00 per share benchmark shall be subject to adjustment upon the occurrence of
certain events in the same manner as the Conversion Price (defined herein) shall
be subject to adjustment as set forth in Section 6(f) hereof. For purposes of
this paragraph, the Current Market Price shall be deemed to be less than $60 per
share at any time during which the Common Stock is not listed, quoted or
admitted to trading on either the New York Stock Exchange, Inc. (the "NYSE"),
the American Stock Exchange ("AMEX") or The Nasdaq Stock Market, Inc.'s National
Market ("Nasdaq"). As used herein, the "Closing Price" of any security on any
day means the last reported sale price regular way on such day or, in the case
no such sale takes place on such day, the average of the reported closing bid
and asked prices regular way of the Common Stock, in each case on the NYSE or,
if not listed or admitted to trading on such exchange, as quoted on AMEX or
Nasdaq.
(3) Mandatory Redemption. On November 15, 2011, the
Corporation shall redeem all outstanding shares of Series A Preferred Stock, to
the extent it has funds legally available therefor, at the redemption price of
100% of the Liquidation Preference thereof, plus an amount equal to the
dividends unpaid thereon, if any, whether or not declared, to the redemption
date.
(4) Payment of Redemption Price. (a) The amount of the
redemption price on any shares of Series A Preferred Stock redeemed, on any
redemption set forth herein, that is allocable to the Liquidation Preference
thereon shall be paid in cash (to the extent funds are legally available
therefor) and any unpaid dividends to be paid on the shares of Series A
Preferred Stock redeemed on such redemption date may be paid in cash (to the
extent funds are legally available therefor) or shares of Series A Preferred
Stock, or any combination thereof, in the sole discretion of the Board of
Directors as provided in Section 3(a)(3) hereof.
<PAGE>
7
(b) Not less than 15 days nor more than 45 days (such date as
fixed by the Board of Directors of the Corporation is referred to herein as the
"Redemption Record Date") prior to the date fixed for any redemption of shares
of the Series A Preferred Stock pursuant to this Section 4, a notice specifying
the time and place of the redemption and the number of shares to be redeemed
shall be given by first class mail, postage prepaid, to the holders of record on
the Redemption Record Date of the shares of the Series A Preferred Stock to be
redeemed at their respective addresses as the same shall appear on the books of
the Corporation, calling upon each holder of record to surrender to the
Corporation on the redemption date at the place designated in the notice such
holder's certificate or certificates representing the number of shares specified
in the notice of redemption. Neither failure to mail such notice, nor any defect
therein or in the mailing thereof, to any particular holder shall affect the
sufficiency of the notice or the validity of the proceedings for redemption with
respect to the other holders. Any notice mailed in the manner herein provided
shall be conclusively presumed to have been duly given whether or not the holder
receives the notice. On or after the redemption date, each holder of shares of
Series A Preferred Stock to be redeemed shall present and surrender such
holder's certificate or certificates for such shares to the Corporation at the
place designated in the redemption notice and thereupon the redemption price of
the shares, and any unpaid dividends thereon to the redemption date, shall be
paid to or on the order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
canceled. In case fewer than all the shares represented by any such certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares.
(c) If a notice of redemption has been given pursuant to this
Section 4 and if, on or before the redemption date, the funds (or shares of
Series A Preferred Stock if any dividends are to be paid in shares of Series A
Preferred Stock), necessary for such redemption (including all dividends on the
shares of Series A Preferred Stock to be redeemed that will accrue to the
redemption date) shall have been set aside by the Corporation, separate and
apart from its other funds (or reserved and authorized for issuance if any
dividends are to be paid in shares of Series A Preferred Stock), in trust for
the pro rata benefit of the holders of the shares of Series A Preferred Stock so
called for redemption, then, notwithstanding that any certificates for such
shares of Series A Preferred Stock have not been surrendered for cancellation,
on the redemption date dividends shall cease to accrue on the shares of the
Series A Preferred Stock to be redeemed, and at the close of business on the
date on which such funds have been segregated and set aside by the Corporation
as provided in this Section 4(c), the holders of such shares shall cease to be
stockholders with respect to those shares, shall have no interest in or claims
against the Corporation by virtue thereof and shall have no voting or other
rights with respect thereto, except the conversion rights provided in subsection
(d) of this Section 4 and Section 6 below and the right to receive the moneys
payable (or shares of Series A Preferred Stock issued if any dividends are to be
paid in shares of Series A Preferred Stock) upon such redemption, without
interest thereon, upon surrender (and endorsement, if required by the
Corporation) of their
<PAGE>
8
certificates, and the shares of Series A Preferred Stock evidenced thereby shall
no longer be outstanding. Subject to applicable escheat laws, any moneys so set
aside (or shares of Series A Preferred Stock authorized and reserved if any
dividends are to be paid in shares of Series A Preferred Stock) by the
Corporation and unclaimed at the end of two years from the redemption date shall
revert to the general funds of the Corporation (or be released from the
reservation thereof in the case of shares of Series A Preferred Stock), after
which reversion the holders of such shares so called for redemption shall look
only to the general funds of the Corporation for the payment of the redemption
price, without interest. Any interest accrued on funds so deposited shall belong
to the Corporation and be paid thereto from time to time.
(d) If a notice of redemption has been given pursuant to this
Section 4 and any holder of shares of Series A Preferred Stock shall, prior to
the close of business on the business day immediately preceding the redemption
date, give written notice to the Corporation pursuant to Section 6 below of the
conversion of any or all of the shares to be redeemed held by the holder
(accompanied by a certificate or certificates for such shares, duly endorsed or
assigned to the Corporation, and any necessary transfer tax payment, as required
by Section 6 below), then such redemption shall not become effective as to such
shares to be converted and such conversion shall become effective as provided in
Section 6 below, whereupon any funds deposited by the Corporation for the
redemption of such shares shall (subject to any right of the holder of such
shares to receive the dividend payable thereon as provided in Section 6 below)
immediately upon such conversion be returned to the Corporation or, if then held
in trust by the Corporation, shall automatically and without further corporate
action or notice be discharged from the trust.
(e) In every case of redemption of fewer than all of the
outstanding shares of the Series A Preferred Stock pursuant to this Section 4,
the shares to be redeemed shall be selected pro rata, provided that only whole
shares shall be selected for redemption.
5. Liquidation. (a) In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, the holders of the
Series A Preferred Stock shall be entitled to receive $100.00 per share (the
"Liquidation Preference"), plus an amount equal to the accrued and unpaid
dividends thereon, if any, whether or not declared, to the payment date.
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, the holders of shares of Series A
Preferred Stock (i) shall not be entitled to receive the Liquidation Preference
of the shares held by them until payment in full or provision has been made for
the payment of all claims of creditors of the Corporation and the liquidation
preference of any class or series of capital stock ranking senior to the Series
A Preferred Stock with respect to redemption rights and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation ("Senior Liquidation
Stock" and together with the Senior Dividend Stock, the "Senior Stock"), plus
accrued and unpaid
<PAGE>
9
dividends thereon, if any, whether or not declared, to the payment date, shall
have been paid in full and (ii) shall be entitled to receive the Liquidation
Preference of such shares held by them, plus accrued and unpaid dividends
thereon, if any, whether or not declared, to the payment date, in preference to
and in priority over any distributions upon the Common Stock and any other
series or class of the Corporation's capital stock that ranks junior to the
Series A Preferred Stock as to redemption rights and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation ("Junior Liquidation
Stock" and together with the Junior Dividend Stock, the "Junior Stock"). Upon
payment in full of the Liquidation Preference to which the holders of shares of
the Series A Preferred Stock are entitled, the holders of shares of the Series A
Preferred Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation. Subject to clause (i) above, if the
assets of the Corporation are not sufficient to pay in full the Liquidation
Preference payable to the holders of shares of the Series A Preferred Stock and
the liquidation preference payable to the holders of any series or class of the
Corporation's capital stock, outstanding on the date hereof or hereafter issued,
that ranks on a parity with the Series A Preferred Stock as to redemption rights
and rights upon liquidation, dissolution or winding up of the affairs of the
Corporation ("Parity Liquidation Stock" and together with the Parity Dividend
Stock, the "Parity Stock"), the holders of all such shares shall share ratably
in proportion to the full respective preferential amounts payable on such shares
in any distribution.
(c) For the purposes of this Section 5, neither the sale of
all or substantially all of the assets of the Corporation nor the consolidation
or merger of the Corporation with or into any other entity shall be deemed to be
a voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, unless such sale, consolidation or merger shall be in connection
with a plan of liquidation, dissolution or winding up of the Corporation.
6. Optional Conversion. (a) Holders of shares of Series A Preferred
Stock may, at any time, convert shares of Series A Preferred Stock, unless
previously redeemed, into a number of shares of Common Stock calculated by
dividing the Liquidation Preference (without unpaid dividends) by $30.00,
subject to adjustment as described below in Section 6(f) (the "Conversion
Price"). If more than one share of Series A Preferred Stock shall be surrendered
for conversion at one time by the same record holder, the number of full shares
of Common Stock issuable upon conversion thereof shall be computed on the basis
of the aggregate number of shares of Series A Preferred Stock so surrendered. In
the case of shares of Series A Preferred Stock called for redemption, conversion
rights shall expire at the close of business on the business day immediately
preceding the redemption date. The holders of shares of Series A Preferred Stock
that convert such shares into shares of Common Stock shall be entitled to
receive any unpaid dividends thereon, if any, whether or not declared, and such
dividends shall be payable in cash or shares of Common Stock, or any combination
thereof, in the sole discretion of the Board of Directors.
<PAGE>
10
(b) Any holder of shares of Series A Preferred Stock electing
to convert the shares or any portion thereof in accordance with Section 6(a)
above shall give written notice to the Corporation (which notice may be given by
facsimile transmission) that such holder elects to convert the same and shall
state therein the number of shares of Series A Preferred Stock to be converted
and the name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. Promptly thereafter, the
holder shall surrender the certificate or certificates of shares of Series A
Preferred Stock to be converted, duly endorsed, at the office of the Corporation
or any transfer agent for such shares, or at such other place designated by the
Corporation, provided that the Corporation shall at all times maintain an office
or agency in The City of New York for such purposes. The Corporation shall,
immediately upon receipt of such notice, issue and deliver to or upon the order
of such holder, against delivery of the certificates representing the shares of
Series A Preferred Stock that have been converted, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled
(in the number(s) and denomination(s) designated by such holder), and the
Corporation shall deliver to such holder a certificate or certificates for the
number of shares of Series A Preferred Stock that such holder has not elected to
convert. The conversion right with respect to any shares of Series A Preferred
Stock shall be deemed to have been exercised at the date upon which the
certificates therefor (and the payment required by Section 6(d), if applicable),
shall have been so delivered, and the person or persons entitled to receive the
Common Stock issuable upon conversion shall be treated for all purposes as the
record holder or holders of such Common Stock upon that date.
(c) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series A Preferred Stock. Instead of any fractional
share of Common Stock otherwise issuable upon conversion of any shares of Series
A Preferred Stock, the Corporation shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the Closing Price of
the Common Stock at the close of business on the day of conversion. In the
absence of a Closing Price, the Board of Directors shall in good faith determine
the current market price on such basis as it reasonably considers appropriate
and such current market price shall be used to calculate the cash adjustment;
provided that in no case shall the Closing Price be less than the Conversion
Price then in effect.
(d) If a holder converts shares of Series A Preferred Stock,
the Corporation shall pay any documentary, stamp or similar issue or transfer
tax due on the issue of Common Stock upon the conversion or due upon the
issuance of a new certificate or certificates for any shares of Series A
Preferred Stock not converted. The holder, however, shall pay any such tax that
is due because any such shares of the Common Stock or of the Series A Preferred
Stock are issued in a name other than the name of the holder.
(e) The Corporation shall reserve out of its authorized but
unissued Common Stock held in treasury enough shares of Common Stock to permit
the conversion of
<PAGE>
11
all of the then-outstanding shares of Series A Preferred Stock. For the purposes
of this Section 6(e), the full number of shares of Common Stock then issuable
upon the conversion of all then-outstanding shares of Series A Preferred Stock
shall be computed as if at the time of computation all outstanding shares of
Series A Preferred Stock were held by a single holder. The Corporation shall
from time to time, in accordance with the laws of the State of Delaware and its
certificate of incorporation, increase the authorized amount of its Common Stock
if at any time the authorized amount of its Common Stock remaining unissued
shall not be sufficient to permit the conversion of all shares of Series A
Preferred Stock at the time outstanding. All shares of Common Stock issued upon
conversion of the shares of Series A Preferred Stock shall be validly issued,
fully paid and nonassessable.
(f) The Conversion Price shall be subject to adjustment as
follows:
(i) In case the Corporation shall (A) pay a dividend
on any class of its capital stock in shares of its Common
Stock, (B) subdivide its outstanding shares of Common Stock
into a greater number of shares or (C) combine its outstanding
shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior thereto shall be
adjusted (as provided below) so that the holders of any shares
of Series A Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares
of Common Stock which such holder would have owned or have
been entitled to receive immediately following such action had
such shares of Series A Preferred Stock been converted
immediately prior to such time. The Conversion Price as
adjusted shall be determined by multiplying the Conversion
Price at which the shares of Series A Preferred Stock were
theretofore convertible by a fraction of which the denominator
shall be the number of shares of Common Stock outstanding
immediately following such action and of which the numerator
shall be the number of shares of Common Stock outstanding
immediately prior thereto. Such adjustment shall be made
whenever any event listed above shall occur and shall become
effective retroactively immediately after the record date in
the case of a dividend and immediately after the effective
date in the case of a subdivision or combination.
(ii) In case the Corporation shall issue rights or
warrants to any Person (including holders of its Common Stock)
entitling such Person or Persons to subscribe for or purchase
shares of Common Stock at a price per share less than the
Current Market Price per share of Common Stock at the record
date therefor, or in case the Corporation shall issue to any
Person (including holders of its Common Stock) other
securities convertible into or exchangeable for Common Stock
for a consideration per share of Common Stock deliverable upon
conversion or exchange thereof less than the Current
<PAGE>
12
Market Price at the record date therefore, then the Conversion
Price in effect immediately prior thereto shall be adjusted as
provided below so that the Conversion Price therefor shall be
equal to the price determined by multiplying (A) the
Conversion Price at which shares of Series A Preferred Stock
were theretofore convertible by (B) a fraction of which (x)
the denominator shall be the sum of (1) the number of shares
of Common Stock outstanding on the date of issuance of the
convertible or exchangeable securities, rights or warrants and
(2) the number of additional shares of Common Stock offered
for subscription or purchase, or issuable upon such conversion
or exchange, and (y) the numerator shall be the sum of (1) the
number of shares of Common Stock outstanding on the date of
issuance of such convertible or exchangeable securities,
rights or warrants and (2) the number of additional shares of
Common Stock which the aggregate offering price of the number
of shares of Common Stock so offered would purchase at the
Current Market Price per share of Common Stock. Such
adjustment shall be made whenever such convertible or
exchangeable securities, rights or warrants are issued, and
shall become effective immediately after the record date for
the determination of stockholders entitled to receive such
securities. However, upon the expiration of any right or
warrant to purchase Common Stock, the issuance of which
resulted in an adjustment in the Conversion Price pursuant to
this Section 6(f)(ii), if any such right or warrant shall
expire and shall not have been exercised, the Conversion Price
shall be recomputed immediately upon such expiration and
effective immediately upon such expiration shall be increased
to the price it would have been (but reflecting any other
adjustments to the Conversion Price made pursuant to the
provisions of this Section 6(f) after the issuance of such
rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that
number of shares of Common Stock actually purchased upon the
exercise of such rights or warrants. No further adjustment
shall be made upon exercise of any right, warrant, convertible
security or exchangeable security if any adjustment shall have
been made upon issuance of such security. The foregoing
notwithstanding, no adjustment shall be made pursuant to this
subparagraph (ii) with respect to any particular dividend or
other event with respect to which a Payout Election is made.
(iii) In case the Corporation shall pay a dividend to
all holders of its Common Stock (including any dividend paid
in connection with a consolidation or merger in which the
Corporation is the continuing corporation) of any shares of
capital stock of the Corporation or its subsidiaries (other
than Common Stock) or evidences of its indebtedness or assets
or cash (excluding dividends or distributions in connection
with the liquidation, dissolution or
<PAGE>
13
winding up of the Corporation) or rights or warrants to
subscribe for or purchase any of its securities or those of
its subsidiaries or securities convertible or exchangeable for
Common Stock (excluding those securities referred to in
Section 6(f)(ii) above), then in each such case the Conversion
Price in effect immediately prior thereto shall be adjusted as
provided below so that the Conversion Price thereafter shall
be equal to the price determined by multiplying (A) the
Conversion Price in effect on the record date mentioned below
by (B) a fraction, the numerator of which shall be the Current
Market Price per share of Common Stock on the record date
mentioned below less the then fair market value (as determined
by the Board of Directors, whose good faith determination
shall be conclusive) as of such record date of the cash,
assets, evidences of indebtedness or securities so paid with
respect to one share of Common Stock, and the denominator of
which shall be the Current Market Price per share of Common
Stock on such record date; provided, however, that in the
event the then fair market value (as so determined) so paid
with respect to one share of Common Stock is equal to or
greater than the Current Market Price per share of Common
Stock on the record date mentioned above, in lieu of the
foregoing adjustment, adequate provision shall be made so that
each holder of shares of the Series A Preferred Stock shall
have the right to receive the amount and kind of assets,
evidences of indebtedness, or securities such holder would
have received had such holder converted each such share of
Series A Preferred Stock immediately prior to the record date
for such dividend. Such adjustment shall be made whenever any
such payment is made, and shall become effective retroactively
immediately after the record date for the determination of
stockholders entitled to receive the payment. The foregoing
notwithstanding, no adjustment shall be made pursuant to this
subparagraph (iii) with respect to any particular dividend or
other event with respect to which a Payout Election is made.
(iv) In case the Corporation shall purchase, redeem
or otherwise acquire any shares of Common Stock at a price per
share greater than the Current Market Price per share of
Common Stock on the date of such event, or in case the
Corporation shall purchase, redeem or otherwise acquire other
securities convertible into or exchangeable for Common Stock
(other than the Series C Preferred Stock) for a consideration
per share of Common Stock into which such security is
convertible or exchangeable greater than the per share Current
Market Price on the date of such event, then the Conversion
Price in effect immediately prior thereto shall be adjusted as
provided below so that the Conversion Price therefor shall be
equal to the price determined by multiplying (A) the
Conversion Price at which shares of Series A Preferred Stock
were theretofore convertible by (B) a fraction of which (x)
the denominator shall be the Current Market Price per share on
the date of such event, and (y) the
<PAGE>
14
numerator shall be the Current Market Price per share on the
date of such event less the difference between (1) the
consideration paid by the Corporation per share of Common
Stock (or, in the case of securities convertible into or
exchangeable for Common Stock, the consideration per share of
Common Stock into which such security is convertible or
exchangeable) purchased, redeemed or acquired in such event
and (2) the Current Market Price per share on the date of such
event. Such adjustment shall be made whenever such Common
Stock is issued or sold, and shall become effective
immediately after the issuance or sale of such securities. The
foregoing notwithstanding, no adjustment shall be made
pursuant to this subparagraph (iv) with respect to any
particular purchase, redemption or acquisition with respect to
which a Payout Election is made.
(v) In case the Corporation shall issue or sell any
shares of Common Stock at a price per share more than 15%
below (or, in the case of any issuance or sale to an affiliate
(as defined in the rules of the Securities and Exchange
Commission promulgated under the Securities Exchange Act of
1934, as amended) of the Corporation, any amount below) the
Current Market Price per share of Common Stock on the date the
Corporation commits or agrees to such sale or issuance, then
the Conversion Price in effect immediately prior thereto shall
be adjusted as provided below so that the Conversion Price
therefor shall be equal to the price determined by multiplying
(A) the Conversion Price at which shares of Series A Preferred
Stock were theretofore convertible by (B) a fraction of which
(x) the denominator shall be the sum of (1) the number of
shares of Common Stock outstanding on the date of issuance or
sale of such shares of Common Stock and (2) the number of
additional shares of Common Stock offered for sale or subject
to issuance, and (y) the numerator shall be the sum of (1) the
number of shares of Common Stock outstanding on the date of
issuance or sale of such shares of Common Stock and (2) the
number of additional shares of Common Stock which the
aggregate offering price of the number of shares of Common
Stock so offered or issued would purchase at the Current
Market Price per share of Common Stock. Such adjustment shall
be made whenever such Common Stock is issued or sold, and
shall become effective immediately after the issuance or sale
of such securities; provided, however, that the provisions of
this subparagraph shall not apply to (1) shares of Common
Stock issued upon conversion of shares of Series A Preferred
Stock or Series B Preferred Stock, or (2) shares of Common
Stock issued upon conversion, exercise or exchange of any
security with respect to which an adjustment to the Conversion
Price was made in accordance with clause (ii) above at the
time of issuance of such security, or (3) shares of Common
Stock issued in a bona fide public offering to or through a
nationally recognized investment banking firm in which
affiliates (as
<PAGE>
15
defined in the rules of the Securities and Exchange Commission
promulgated under the Securities Exchange Act of 1934, as
amended) of the Corporation purchase less than 25% of the
shares in such offering.
(vi) No adjustment in the Conversion Price shall be
required unless the adjustment would require an increase or
decrease of at least 1% in the Conversion Price then in
effect; provided, however, that any adjustments that by reason
of this Section 6(f)(vi) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 6(f) shall be
made to the nearest cent.
(vii) In the event that, at any time as a result of
an adjustment made pursuant to Section 6(f)(i) through
6(f)(vi) above, the holder of any share of Series A Preferred
Stock thereafter surrendered for conversion shall become
entitled to receive any shares of the Corporation other than
shares of the Common Stock, thereafter the number of such
other shares so receivable upon conversion of any share of
Series A Preferred Stock shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock
contained in Section 6(f)(i) through 6(f)(vi) above, and the
other provisions of this Section 6 with respect to the Common
Stock shall apply on like terms to any such other shares.
(viii) Whenever the Conversion Price is adjusted, as
herein provided, the Corporation shall promptly file with the
transfer agent for the Series A Preferred Stock, or, if there
is no transfer agent, the Corporation shall promptly send to
each holder of record by first class mail, postage pre-paid, a
certificate of an officer of the Corporation setting forth the
Conversion Price after the adjustment and setting forth a
brief statement of the facts requiring such adjustment and a
computation thereof. The certificate shall be conclusive
evidence of the correctness of the adjustment. The Corporation
shall promptly cause a notice of the adjusted Conversion Price
to be mailed to each registered holder of shares of Series A
Preferred Stock.
(ix) In case of any reclassification of the Common
Stock, any consolidation of the Corporation with, or merger of
the Corporation into, any other entity, any merger of another
entity into the Corporation (other than a merger that does not
result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the
Corporation), any sale or transfer of all or substantially all
of the assets of the Corporation or any compulsory share
exchange pursuant to which share exchange the Common Stock is
converted into other securities, cash or other property, then
<PAGE>
16
lawful provision shall be made as part of the terms of such
transaction whereby the holder of each share of Series A
Preferred Stock then outstanding shall have the right
thereafter, during the period such share of Series A Preferred
Stock shall be convertible, to convert such share only into
the kind and amount of securities, cash and other property
receivable upon the reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of
shares of Common Stock of the Corporation into which a share
of Series A Preferred Stock would have been convertible
immediately prior to the reclassification, consolidation,
merger, sale, transfer or share exchange. The Corporation, the
person formed by the consolidation or resulting from the
merger or which acquires such assets or which acquires the
Corporation's shares, as the case may be, shall make
provisions in its certificate or articles of incorporation or
other constituent document to establish such rights and such
rights shall be clearly provided for in the definitive
transaction documents relating to such transaction. The
certificate or articles of incorporation or other constituent
document shall provide for adjustments, which, for events
subsequent to the effective date of the certificate or
articles of incorporation or other constituent document, shall
be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 6. The provisions of
this Section 6(f)(ix) shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers
or share exchanges.
(g) The Corporation from time to time may reduce the
Conversion Price by any amount for any period of time if the period is at least
20 days and if the reduction is irrevocable during the period. Whenever the
Conversion Price is so reduced, the Corporation shall mail to holders of record
of the Series A Preferred Stock a notice of the reduction at least 15 days
before the date the reduced Conversion Price takes effect, stating the reduced
Conversion Price and the period it will be in effect. A voluntary reduction of
the Conversion Price does not change or adjust the Conversion Price otherwise in
effect for purposes of paragraph 6(f) above.
7. Status of Shares. All shares of the Series A Preferred Stock that
are at any time redeemed pursuant to Section 4 above or converted or exchanged
pursuant to Section 6 above and all shares of the Series A Preferred Stock that
are otherwise reacquired by the Corporation and subsequently canceled by the
Board of Directors of the Corporation shall have the status of authorized but
unissued shares of Preferred Stock, without designation as to series, subject to
reissuance by the Board of Directors of the Corporation as shares of any one or
more other series.
8. Voting Rights. Except as set forth below or otherwise required by
law, holders of shares of the Series A Preferred Stock shall have no voting
rights.
<PAGE>
17
(a) So long as any shares of the Series A Preferred Stock are
outstanding, each share of Series A Preferred Stock shall entitle the holder
thereof to notice of and to vote, in person or by proxy, at any special or
annual meeting of stockholders, on all matters entitled to be voted on by
holders of Common Stock and any other series or class of Voting Stock voting
together as a single class with all other shares entitled to vote thereon. With
respect to any such vote, each share of Series A Preferred Stock shall entitle
the holder thereof to cast that number of votes per share as is equal to the
number of votes that such holder would be entitled to cast had such holder
converted its shares of Series A Preferred Stock into shares of Common Stock as
of the record date for determining the stockholders of the Corporation eligible
to vote on any such matters.
(b) So long as any shares of the Series A Preferred Stock are
outstanding, in addition to any vote or consent of stockholders required by law
or by the Corporation's Certificate of Incorporation, the affirmative vote or
consent of the holders of at least a majority of the shares of Series A
Preferred Stock at any time issued and outstanding, acting as a single class,
given in person or by proxy at any meeting called for such purpose, shall be
necessary for effecting or validating
(i) any reclassification of the Series A Preferred
Stock or any amendment, alteration or repeal (including as a result of
a merger or consolidation involving the Corporation or otherwise by
operation of law) of any of the provisions of the Certificate of
Incorporation or By-laws of the Corporation which adversely affects the
voting powers, rights or preferences of the holders of the shares of
Series A Preferred Stock; provided that the consent of the holders of
at least a majority of the shares of Series A Preferred Stock and
Series B Preferred Stock at the time issued and outstanding, acting as
a single class, given in person or by proxy by vote at any meeting
called for such purpose, shall be necessary for effecting or validating
any reclassification or any amendment, alteration or repeal of any of
the provisions of the Corporation's Certificate of Incorporation or
By-laws of the Corporation which affects adversely the voting powers,
rights or preferences of the holders of the shares of Series A
Preferred Stock and Series B Preferred Stock; and provided, further,
that any amendment of the provisions of the Corporation's Certificate
of Incorporation so as to authorize or create, or to increase the
authorized amount of, the Junior Stock shall not be deemed to affect
adversely the voting powers, rights or preferences of the holders of
shares of Series A Preferred Stock or Series B Preferred Stock;
(ii) the authorization or creation of, or the
increase in the authorized amount of, or the issuance of any shares of
any class or series of Senior Stock or any security convertible into
shares of any class or series of Senior Stock;
(iii) the authorization or creation of, or the
increase in the authorized amount of, or the issuance of any shares of
any class or series of Parity Stock or any
<PAGE>
18
security convertible into shares of any class or series of Parity Stock
such that the aggregate liquidation preference of all outstanding
shares of Parity Stock (other than (x) shares of Series A Preferred
Stock or Series B Preferred Stock issued pursuant to the Stock Purchase
Agreement, dated as of November 13, 1998, by and among Apollo
Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P. and the
Corporation (the "Stock Purchase Agreement") and (y) any shares of
Series A Preferred Stock or Series B Preferred Stock issued as a
dividend in respect of shares referred to in clause (x) or in respect
of shares referred to in this clause (y)) would exceed the sum of (1)
$135,000,000 and (2) the aggregate liquidation preference of the shares
of Series B Preferred Stock issued at the Option Closing (as such term
is defined in the Stock Purchase Agreement), if any;
(iv) the merger or consolidation of the Corporation
with or into any other entity, unless the resulting corporation will
thereafter have no class or series of shares and no other securities
either authorized or outstanding ranking prior to, or on a parity with,
shares of Series A Preferred Stock in the payment of dividends or the
distribution of its assets on liquidation, dissolution or winding up;
provided, however, that no such vote or consent of the holders of
Series A Preferred Stock shall be required if prior to the time when
such merger or consolidation is to take effect, and regardless of
whether such merger or consolidation would constitute a Change of
Control (as defined in Section 9), a Change of Control Offer (as
defined in Section 9) is made for all shares of Series A Preferred
Stock at the time outstanding in accordance with Section 9; and
(v) the application of any funds, property or assets
of the Corporation or any of its subsidiaries to the purchase,
redemption, sinking fund or other retirement of any shares of any class
of Junior Stock, or the declaration, payment or making of any dividend
or distribution (in cash, property or obligations) on any shares of any
class of Junior Stock, other than a dividend or dividends payable
solely in Common Stock or Junior Stock, unless the holders of Series A
Preferred Stock shall have been offered the opportunity to make a
Payout Election with respect to such event.
In connection with any right to vote pursuant to Section 8(b), each holder of
shares of Series A Preferred Stock shall have one vote for each share held. The
above notwithstanding, and subject to Section 8(a), no consent of holders of
Series A Preferred Stock or Series B Preferred Stock shall be required for the
creation of any indebtedness of any kind of the Corporation.
(c) The term "Voting Stock" means any class or classes of
capital stock, or securities convertible into or exchangeable for any class of
capital stock, of the Corporation pursuant to which the holders thereof have the
general power under ordinary circumstances
<PAGE>
19
to vote with respect to the election of at least a majority of the Board of
Directors of the Corporation, 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.
9. Change of Control. (a) In the event of a Change of Control (the date
of such event being the "Change of Control Date"), the Corporation shall notify
the holders of the Series A Preferred Stock in writing of such event promptly
upon the Corporation becoming aware that a Change of Control is expected to
occur or has occurred and shall, pursuant to Section 9(b), make an offer to
purchase (the "Change of Control Offer") all of the then outstanding shares of
Series A Preferred Stock at a purchase price of 101% of the Liquidation
Preference thereof, payable in cash, plus any unpaid dividends thereon, if any,
whether or not declared, to the date such shares are purchased, payable in cash.
(b) Subject to the provisions of Section 9(e), within 30 days
following the Change of Control Date, the Corporation shall send, by first class
mail, postage prepaid, a notice to each holder of Series A Preferred Stock at
such holder's address as it appears on the stock books of the Corporation, which
notice shall govern the terms of the Change of Control Offer. The notice to the
holders shall contain all instructions and materials necessary to enable such
holders to tender their shares of Series A Preferred Stock pursuant to the
Change of Control Offer. Such notice shall state:
(i) that a Change of Control has occurred, that the
Change of Control Offer is being made pursuant to this Section 9 and
that all shares of Series A Preferred Stock validly tendered and not
withdrawn will be accepted for payment;
(ii) the purchase price (plus the amount of unpaid
dividends, if any) and the purchase date (the "Change of Control
Payment Date") which shall be a date no earlier than 30 days nor later
than 60 days from the date such notice is mailed, other than as may be
required by law (the "Initial Date") or, if any of the Corporation's
15% Senior Secured Discount Notes due 2007 ("Senior Secured Notes") or
Senior Obligations remain outstanding, the later of the Initial Date
and a date that is not more than 30 days following the date the
Corporation sends notice pursuant to Section 9(e) that it has satisfied
all of the Senior Obligations;
(iii) that any shares of Series A Preferred Stock not
tendered will remain outstanding on the same terms and will continue to
accrue dividends;
(iv) that, unless the Corporation defaults in making
payment therefor, any share of Series A Preferred Stock tendered and
accepted for payment pursuant to the Change of Control Offer shall
cease to accrue dividends after the Change of Control Payment Date;
<PAGE>
20
(v) that holders electing to have any shares of
Series A Preferred Stock purchased pursuant to a Change of Control
Offer will be required to surrender the certificate or certificates
representing such shares, properly endorsed for transfer together with
such customary documents as the Corporation and the transfer agent may
reasonably require, in the manner and at the place specified in the
notice prior to the close of business on the business day prior to the
Change of Control Payment Date;
(vi) that holders shall be entitled to withdraw their
election if the Corporation receives, not later than five business days
prior to the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder,
the number of shares of Series A Preferred Stock the holder delivered
for purchase and a statement that such holder is withdrawing his
election to have such shares of Series A Preferred Stock purchased;
(vii) that holders whose shares of Series A Preferred
Stock are purchased only in part will be issued a new certificate
representing the unpurchased shares of Series A Preferred Stock; and
(viii) the circumstances and relevant facts regarding
such Change of Control.
(c) The Corporation shall comply with any securities laws and
regulations, to the extent such laws and regulations are applicable to the
repurchase of the Series A Preferred Stock in connection with a Change of
Control Offer.
(d) On the Change of Control Payment Date, the Corporation
shall (x) accept for payment the shares of Series A Preferred Stock validly
tendered pursuant to the Change of Control Offer, (y) pay to the holders of
shares so accepted the purchase price therefor (plus the amount of unpaid
dividends, if any) and (z) cancel and retire each surrendered certificate
(subject to issuing a new certificate representing the unpurchased shares of
Series A Preferred Stock). Unless the Corporation defaults in the payment for
the shares of Series A Preferred Stock tendered pursuant to the Change of
Control Offer, dividends shall cease to accrue with respect to the shares of
Series A Preferred Stock tendered and all rights of holders of such tendered
shares shall terminate, except for the right to receive payment therefor, on the
Change of Control Payment Date.
(e) If the purchase of Series A Preferred Stock under this
Section 9 would violate or constitute a default under (i) the Senior Secured
Notes or the indenture relating thereto (the "Indenture"), or (ii) the indenture
or indentures or other agreement or agreements under which there may be issued
or outstanding from time to time other indebtedness of the Company ("Other
Agreements") in an aggregate principal amount not
<PAGE>
21
exceeding $450 million (less the amount, if any, of indebtedness issued to
replace, refinance or refund the Senior Secured Notes) because the Corporation
has not satisfied all of its obligations under such Other Agreements arising
from the Change of Control (collectively, "Senior Obligations"), then,
notwithstanding anything to the contrary contained above, prior to complying
with the foregoing provisions, the Corporation shall use its best efforts to
satisfy the Senior Obligations as promptly as possible or to obtain the
requisite consents under the Indenture and the Other Agreements necessary to
permit the repurchase of the Series A Preferred Stock required by this Section
9. Until the requirements of the immediately preceding sentence are satisfied,
the Corporation shall not be obligated to make any Change of Control Offer.
Within 15 days following the date the Corporation has satisfied all of the
Senior Obligations or obtained such requisite consents or waivers, the
Corporation shall send, by first class mail, postage prepaid, a notice to each
holder of Series A Preferred Stock at such holder's address as it appears on the
stock books of the Corporation that the Corporation has satisfied all of the
Senior Obligations or obtained such requisite consents or waivers, and such
notice shall state the date the Senior Obligations were satisfied or waived and
the Change of Control Payment Date.
(f) For the purposes of this Section 9, "Change of Control"
means the occurrence of any of the following events: (i) any "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934 (the "Exchange Act")) 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 Corporation; (ii) the Corporation
consolidates with or merges with or into another person or conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
person, or any person consolidates with or merges with or into the Corporation,
in any such event, pursuant to a transaction in which the outstanding voting
stock of the Corporation is converted into or exchanged for cash, securities or
other property, other than, at all times when the Senior Secured Notes are
outstanding, those transactions that are not deemed a "Change of Control" under
the terms of the Indenture; (iii) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Corporation (together with any new directors whose election to
such Board of Directors, or whose nomination for election by the stockholders of
the Corporation, was approved by a vote of 66 2/3% of the directors then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Corporation
then in office; or (iv) the Corporation is liquidated or dissolved or a special
resolution is passed by the stockholders of the Corporation approving the plan
of liquidation or dissolution, other than, at all times when the Senior Secured
Notes are outstanding, those transactions that are not deemed a "Change of
Control" under the terms of the Indenture; provided, however, that no
transaction or event shall be deemed to be a "Change of Control" for purposes of
this Section 9 if (1) all of the
<PAGE>
22
outstanding shares of Common Stock are to be converted pursuant thereto solely
into the right to receive, for each share of Common Stock so converted, cash
and/or shares of Qualifying Acquiror Common Stock (as defined below) (valued at
its Current Market Price) together having a value in excess of $30.30, (2) the
Corporation shall have declared and paid all dividends on the Series A Preferred
Stock and Series B Preferred Stock, whether or not theretofore declared or
undeclared, to the date of the Change of Control and the holders thereof shall
have been given reasonable opportunity to convert, prior to such Change of
Control, any shares of Series A Preferred Stock or Series B Preferred Stock so
issued as a dividend, and (3) immediately following such event the number of
shares of Qualifying Acquiror Common Stock into which shares of Series A
Preferred Stock and Series B Preferred Stock shall have been converted (together
with, if shares of Series A Preferred Stock and/or Series B Preferred Stock are
to remain outstanding, any shares of Qualifying Acquiror Common Stock into which
all outstanding Shares of Series A Preferred Stock and Series B Preferred Stock
would be convertible) would represent both (A) less than 5% of the total number
of shares of Qualifying Acquiror Common Stock outstanding immediately after such
event and (B) less than one third of the number of shares of Qualifying Acquiror
Common Stock that would be Publicly Traded immediately after such event. For
purposes of this Section 9, the term "Qualifying Acquiror Common Stock" means
the common stock of any corporation if listed on or admitted to trading on the
NYSE, AMEX or Nasdaq, and the term "Publicly Traded" means shares of such
Qualifying Acquiror Common Stock that are both (1) held by persons who are
neither officers, directors or Affiliates of such corporation nor the
"beneficial owner" (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of 5% or more of the total number of shares
then issued and outstanding, and (2) not "restricted securities" (as such term
is defined in Rule 144 of the Securities Act of 1933, as amended).
(g) The Corporation shall not engage in any transaction of the
type referred to in clause (ii) of paragraph (f) above (other than one which is
not a "Change of Control" by virtue of application of the proviso to paragraph
(f) above) unless (i) if the Corporation shall be the surviving or continuing
entity of such transaction, the Corporation shall, after consummation thereof,
have sufficient funds to perform its obligations under this Section 9, and (ii)
if the Corporation shall not be the surviving or continuing entity of such
transaction, proper and adequate provision shall be made, in the definitive
documentation providing for such transaction or otherwise, to ensure that the
surviving or continuing corporation of such transaction shall expressly assume
the Corporation's obligations under this Section 9 and shall have sufficient
funds to perform its obligations under this Section 9.
10. Sinking Fund Redemption. The shares of the Series A Preferred Stock
are not subject to sinking fund requirements.
11. Exchange. (a) Shares of Series A Preferred Stock shall be
exchangeable for Convertible Debt, in whole or in part, out of surplus of the
Corporation legally available for such exchange, at any time and from time to
time at the option of the Corporation. All accrued and unpaid dividends on the
shares of Series A Preferred Stock, including Default
<PAGE>
23
Dividends and dividends accrued from the last preceding Dividend Payment Date
through the date fixed for such exchange, shall be declared and paid prior to or
on the same date as the date of any exchange pursuant to this Section 11. The
Corporation shall cause the Convertible Debt to be issued on and dated the date
which coincides with the date of exchange of the Series A Preferred Stock.
(b) Any notice of any exchange of the Series A Preferred Stock
given by the Corporation shall be mailed to each holder of shares of Series A
Preferred Stock to be exchanged at such Holder's address as it appears on the
books of the Corporation. Such notice shall set forth the procedures for
exchanging certificates representing Series A Preferred Stock for Convertible
Debt with a principal amount equal to 100% of the aggregate Liquidation
Preference of the shares of Series A Preferred Stock being exchanged. The
Corporation shall as promptly as practicable thereafter mail to each such holder
a notice setting forth the procedures for exchanging certificates representing
Series A Preferred Stock for Convertible Debt. Upon such exchange, the rights of
the holders of Series A Preferred Stock to be exchanged as stockholders of the
Corporation shall cease, and the person or persons entitled to receive the
Convertible Debt issuable upon such exchange shall be treated for all purposes
as the registered holder or holders of such Convertible Debt.
(c) The shares of Series A Preferred Stock which have been
exchanged shall no longer be deemed to be outstanding and shall be retired and
all rights with respect to such shares, including, without limitation, the
rights, if any, to receive dividends (and interest thereon) and to receive
notices and to vote or consent (except for the right of the holders to receive
accrued and unpaid dividends, if any, and Convertible Debt and Common Stock, as
provided herein, in exchange therefor) shall forthwith cease.
(d) Upon any exchange of shares of Series A Preferred Stock
into Convertible Debt, as provided herein, in accordance with this Section 11,
the Corporation will pay any documentary, stamp or similar issue or transfer
taxes which may be due with respect to the transfer and exchange of such
exchanged shares, if any; provided, however, that if the Convertible Debt into
which the shares of Series A Preferred Stock is exchangeable pursuant to this
Section 11 is to be issued in the name of any person other than the holder of
the shares of Series A Preferred Stock to be so exchanged, the amount of any
transfer taxes (whether imposed on the Corporation, the holder or such other
person) payable on account of the transfer to such person will be payable by the
holder.
(e) Unless otherwise agreed by the Corporation and each holder
of shares of Series A Preferred Stock, any shares exchanged at the Corporation's
election shall be called for exchange on a pro rata basis from all holders of
Series A Preferred Stock. Any exchange for which shares are called for exchange
on a pro rata basis (whether or not some of such shares so called are
subsequently converted pursuant to Section 11) shall comply with this Section
11. Any fractional share of Series A Preferred Stock which would otherwise be
issuable as a result of any exchange of less than all shares held shall be
included in the shares exchanged.
<PAGE>
24
(f) The Convertible Debt shall have a maturity date 13 years
following the Closing Date; a principal amount a described in Section 11(a)
thereof (and a proportionate principal amount for any fractional share
exchanged); and shall provide for payment of interest at the rate of 9.2% per
annum, payable annually in cash; shall be convertible and redeemable on terms
substantially the same as those of the Series A Preferred Stock; in each case,
on the terms and conditions set forth in the Convertible Debt Indenture and
shall otherwise be on the terms set forth in the Convertible Debt Indenture.
(g) Definitions. (i) "Convertible Debt" means the 9.2%
Convertible Debentures of the Corporation issued pursuant to the Convertible
Debt Indenture, as amended, modified, supplemented, restructured, replaced,
extended or refinanced from time to time in accordance with the terms hereof and
thereof.
(ii) "Convertible Debt Indenture" means the indenture
pursuant to which the Convertible Debt is to be issued, in the form
attached as Exhibit D to that certain Stock Purchase Agreement, dated
as of November 13, 1998, among the Corporation and the Purchasers prior
to the Closing (as defined therein), or, if no such form is agreed upon
as of the Closing, in form and substance acceptable to holders of a
majority of Series A Preferred Stock immediately prior to the
effectiveness of such indenture.
<PAGE>
25
IN WITNESS WHEREOF, CD Radio Inc. has caused this Certificate
to be duly executed on its behalf by its undersigned duly authorized officer
this 22nd day of December, 1998.
CD RADIO INC.
By: /s/ Patrick L. Donnelly
---------------------------------
Name: Patrick L. Donnelly
Title: Secretary
<PAGE>
CD RADIO INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF
9.2% SERIES B JUNIOR CUMULATIVE CONVERTIBLE PREFERRED STOCK
------------------
PURSUANT TO SECTION 151(g) OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------
CD Radio Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation (the "Board of Directors"), in a duly convened meeting thereof on
November 11, 1998, adopted the following resolution, which resolution remains in
full force and effect as of the date hereof:
WHEREAS, the Board of Directors is authorized, within the
limitations and restrictions stated in the Certificate of Incorporation of the
Corporation, to fix by resolution or resolutions the designation of each series
of Preferred Stock of the Corporation (the "Preferred Stock") and the powers,
preferences and relative, participating, optional or other special rights and
the qualifications, limitations or restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution or distribution of assets,
conversion or exchange, and such other subjects or matters as may be fixed by
resolutions of the Board of Directors under the General Corporation Law of the
State of Delaware; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to its authority as aforesaid, to authorize and fix the
terms of a series of Preferred Stock and the number of shares constituting such
series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby
authorized such series of Preferred Stock on the terms and with the provisions
herein set forth:
1. Number of Shares; Designation. A total of 2,100,000 shares
of Preferred Stock of the Corporation are hereby designated as 9.2% Series B
Junior Cumulative Convertible Preferred Stock (the "Series B Preferred Stock").
<PAGE>
2
2. Rank. The Series B Preferred Stock shall, with respect to
payment of dividends, redemption payments and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation, (x) rank senior and
prior to the Common Stock, par value $.001 per share, of the Corporation (the
"Common Stock") and any other class or series of capital stock of the
Corporation that by its terms ranks junior to the Series B Preferred Stock as to
payment of dividends, redemption payments and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation, (y) rank on a
parity with the Corporation's 9.2% Series A Junior Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") and all Parity Dividend Stock
(as defined in Section 3(a)) and all Parity Liquidation Stock (as defined in
Section 5(b)), and (z) rank junior to the Corporation's 10 1/2% Series C
Convertible Preferred Stock ("Series C Preferred Stock") and all Senior Dividend
Stock (as defined in Section 3(c)), all Senior Liquidation Stock (as defined in
Section 5(b)) and to any class or series of capital stock of the Corporation
(other than the Common Stock), whether currently issued or issued in the future,
that does not by its terms expressly provide that it ranks on a parity with or
junior to the Series B Preferred Stock as to dividends and rights upon
liquidation, dissolution or winding-up of the Corporation (which shall include,
for purposes of the foregoing, any entity with which the Corporation may be
merged or consolidated or to which all or substantially all the assets of the
Corporation may be transferred or which transfers all or substantially all of
its assets to the Corporation).
3. Dividends. (a)(1) The holders of the issued and outstanding
shares of the Series B Preferred Stock shall be entitled to receive, as and when
declared by the Board of Directors, out of funds legally available therefor in
the case of dividends paid in cash, cumulative dividends at the annual rate per
share of 9.2% of the sum of (x) the Liquidation Preference (defined in Section 5
hereof) and (y) all unpaid dividends, if any, whether or not declared, from the
date of issuance of the shares of Series B Preferred Stock (the "Closing Date")
to the applicable dividend payment date. Dividends on shares of Series B
Preferred Stock shall be payable annually initially on November 15, 1999 and
each November 15 thereafter (each, a "Dividend Payment Date"), except that if
any Dividend Payment Date is not a business day then the Dividend Payment Date
shall be on the first immediately succeeding business day (as used herein, the
term "business day" shall mean any day except a Saturday, Sunday or day on which
banking institutions are legally authorized to close in The City of New York).
(2) If any Dividend payable on any Dividend Payment Date is
not declared or paid on such Dividend Payment Date, as provided in Section
3(a)(1), in full in cash or in additional shares of Series B Preferred Stock,
then the amount of such unpaid dividend ("Default Dividends") shall be
accumulated. Any Default Dividends shall, from the Dividend Payment Date on
which such dividends accrued, accrue dividends until paid, compounded annually,
at a rate equal to 15% per annum. Default Dividends shall be payable in shares
of Series B Preferred Stock, but not in cash.
<PAGE>
3
(3) Dividends on the Series B Preferred Stock may be paid, in
the sole discretion of the Board of Directors, either in (i) cash, (ii) shares
of Series B Preferred Stock or (iii) any combination of cash or shares of Series
B Preferred Stock, and the issuance of the requisite number of such shares of
Series B Preferred Stock (such number determined as provided in the next
sentence) pursuant to (ii) or (iii) shall constitute full payment of any such
dividend. Series B Preferred Stock issued to pay dividends shall be valued at
their Liquidation Preference. All dividend payments paid with respect to shares
of Series B Preferred Stock shall be paid pro rata to the holders entitled
thereto. All shares of Series B Preferred Stock issued as a dividend with
respect to shares of Series B Preferred Stock shall thereupon be duly
authorized, validly issued, fully paid and non-assessable. In no event shall an
election by the Board of Directors to pay dividends, in full or in part, in cash
or in shares of Series B Preferred Stock in lieu of payment, in full or in part,
in cash preclude the Board of Directors from electing any such alternative in
respect of all or any portion of any subsequent dividend. The Corporation shall
not issue fractional shares of Series B Preferred Stock upon payment of any
dividends in shares of Series B Preferred Stock and any amount of fractional
shares of Series B Preferred Stock otherwise issuable upon the payment of any
dividend in shares of Series B Preferred Stock shall be paid in cash.
(4) Dividends to be paid on a Dividend Payment Date shall be
paid to the holders of record of shares of the Series B Preferred Stock as they
appear on the stock register of the Corporation at the close of business on such
record dates (each, a "Dividend Payment Record Date"), which shall be not more
than 40 days nor fewer than 10 days preceding each Dividend Payment Date
thereof, as shall be fixed by the Board of Directors of the Corporation. Default
Dividends shall be declared and paid at any time as of which funds legally
available therefor are available to the Corporation, without reference to any
regular Dividend Payment Date, to the holders of record on such date, not
exceeding 40 days nor fewer than 10 days preceding the date on which dividends
in arrears will be paid, as may be fixed by the Board of Directors of the
Corporation. Holders of shares of the Series B Preferred Stock shall be entitled
to receive dividends in preference to and in priority over dividends upon the
Common Stock and any other series or class of the Corporation's capital stock
that ranks junior as to dividends to the Series B Preferred Stock ("Junior
Dividend Stock") and shall be on a parity as to dividends with the Series A
Preferred Stock and any series or class of the Corporation's capital stock that
does not rank senior or junior as to dividends with the Series B Preferred Stock
(together with the Series A Preferred Stock, "Parity Dividend Stock"). The
holders of shares of the Series B Preferred Stock shall not be entitled to any
dividends in excess of full cumulative dividends (including Default Dividends),
as herein provided.
(b) No dividends, other than dividends payable solely in
Common Stock, Junior Dividend Stock, or warrants or other rights to acquire such
Common Stock or Junior Dividend Stock, shall be paid or declared and set apart
for payment on, and no purchase, redemption or other acquisition shall be made
by the Corporation or entity directly or
<PAGE>
4
indirectly controlled by the Corporation of, any Common Stock or Junior Dividend
Stock unless and until (i) all accrued and unpaid dividends on the Series B
Preferred Stock shall have been paid and (ii) proper provision shall have been
made such that holders of shares of Series B Preferred Stock are offered the
opportunity to elect (each, a "Payout Election"), in lieu of the Conversion
Price adjustment referred to in Section 6(f)(ii), Section 6(f)(iii) or Section
6(f)(iv), as the case may be, to participate in such dividend, purchase,
redemption or other acquisition pro rata with the holders of Common Stock or
Junior Dividend Stock, as the case may be, as if each share of Series B
Preferred Stock had been converted as of the record date for such dividend or
immediately prior to such purchase, redemption or other acquisition, as the case
may be, at the Conversion Price then in effect (without any requirement that any
such shares of Series B Preferred Stock actually be so converted). Each Payout
Election shall be made upon the affirmative vote or consent of holders of a
majority of the total number of shares of Series B Preferred Stock then
outstanding and shall be effective as to and binding upon all such shares. So
long as a sufficient amount of cash, assets, evidences of indebtedness or
securities are set aside for payment to the holders of Series B Preferred Stock
as of the payment date for such dividend or the date for such purchase,
redemption or acquisition, payment need not be made to the holders of Series B
Preferred Stock on such date but may be made at any time up to the tenth
Business Day following such date.
(c) If at any time the Corporation issues any class or series
of capital stock ranking senior and prior to the Series B Preferred Stock with
respect to the payment of dividends ("Senior Dividend Stock") and fails to pay
or declare and set apart for payment accrued and unpaid dividends on such Senior
Dividend Stock, in whole or in part, then (except to the extent allowed by the
terms of the Senior Dividend Stock) no dividend paid in cash shall be paid or
declared and set apart for payment on the Series B Preferred Stock unless and
until all accrued and unpaid dividends with respect to the Senior Dividend Stock
shall have been paid or declared and set apart for payment, without interest.
Except as provided in Section 3(d) below, no dividends paid in cash shall be
paid or declared and set apart for payment on any Parity Dividend Stock for any
period unless the Corporation has paid or declared and set apart for payment, or
contemporaneously pays or declares and sets apart for payment, on the Series B
Preferred Stock all accrued and unpaid dividends for all dividend payment
periods terminating on or prior to the date of payment of such dividends. Except
as provided in Section 3(d) below, no dividends paid in cash shall be paid or
declared and set apart for payment on the Series B Preferred Stock for any
period unless the Corporation has paid or declared and set apart for payment, or
contemporaneously pays or declares and sets apart for such payment, on any
Parity Dividend Stock all accrued and unpaid dividends for all dividend payment
periods terminating on or prior to the date of payment of such dividends.
<PAGE>
5
(d) If at any time the Corporation has failed to pay accrued
dividends on any shares of Series B Preferred Stock on any Dividend Payment Date
or any Parity Dividend Stock on a stated payment date, as the case may be, the
Corporation shall not:
(i) purchase any shares of the Series B Preferred
Stock or Parity Dividend Stock (except for a consideration
payable in Common Stock or Junior Dividend Stock) or redeem
fewer than all of the shares of the Series B Preferred Stock
and Parity Dividend Stock then outstanding except for (x) the
repurchase or redemption of shares of the Series B Preferred
Stock made pro rata among the holders of the shares of the
Series B Preferred Stock then outstanding and (y) the
repurchase or redemption made pro rata with respect to all
shares of the Series B Preferred Stock and Parity Dividend
Stock then outstanding so that the amounts repurchased or
redeemed shall in all cases bear to each other the same ratio
that, at the time of the repurchase or redemption, the
required redemption payments on the shares of the Series B
Preferred Stock and the other Parity Dividend Stock then
outstanding, respectively, bear to each other, or
(ii) permit any corporation or other entity directly
or indirectly controlled by the Corporation to purchase any
Common Stock, Junior Dividend Stock, shares of the Series B
Preferred Stock or Parity Dividend Stock, except to the same
extent that the Corporation could purchase such shares.
Unless and until all dividends unpaid in respect of prior
dividend payment periods on shares of the Series B Preferred Stock and any
Parity Dividend Stock at the time outstanding have been paid in full or a sum
sufficient for such payment is declared and set apart, as provided in the
paragraph (c), all dividends accrued by the Corporation upon shares of the
Series B Preferred Stock or Parity Dividend Stock shall be declared pro rata
with respect to all shares of the Series B Preferred Stock and Parity Dividend
Stock then outstanding, so that the amounts of any dividends declared on shares
of the Series B Preferred Stock and on the Parity Dividend Stock shall in all
cases bear to each other the same ratio that, at the time of the declaration,
all unpaid dividends in respect of prior dividend payment periods on shares of
the Series B Preferred Stock and the other Parity Dividend Stock, respectively,
bear to each other.
4. Redemption. (a)(1) Optional Redemption. Except as provided
in subsection (a)(2) of this Section 4 or in Section 9, shares of the Series B
Preferred Stock shall not be redeemable prior to November 15, 2003. From and
after November 15, 2003, subject to the restrictions in Section 3 above, the
Corporation may redeem shares of Series B Preferred Stock, in whole or in part,
at the option of the Corporation, to the extent it has funds legally
<PAGE>
6
available therefor at a redemption price of 100% of the Liquidation Preference
thereof plus accrued and unpaid dividends, if any, whether or not declared, to
the date of redemption.
(2) Special Redemption From and after November 15, 2001 and
prior to November 15, 2003, the Corporation, at its option, may redeem shares of
Series B Preferred Stock, in whole or in part, in the sole discretion of the
Board of Directors, to the extent it has funds legally available therefor, at
the redemption price of 100% of the Liquidation Preference thereof, plus an
amount equal to the dividends unpaid thereon, if any, whether or not declared,
to the redemption date, if the Current Market Price of the Common Stock on the
date of the notice of redemption (described below) equals or exceeds $60.00 per
share. As used herein, the "Current Market Price" for a given date shall mean
the average Closing Price of the Common Stock as reported in The Wall Street
Journal or, at the election of the Corporation, other reputable financial news
source, for the 20 consecutive trading days immediately preceding such date. The
$60.00 per share benchmark shall be subject to adjustment upon the occurrence of
certain events in the same manner as the Conversion Price (defined herein) shall
be subject to adjustment as set forth in Section 6(f) hereof. For purposes of
this paragraph, the Current Market Price shall be deemed to be less than $60 per
share at any time during which the Common Stock is not listed, quoted or
admitted to trading on either the New York Stock Exchange, Inc. (the "NYSE"),
the American Stock Exchange ("AMEX") or The Nasdaq Stock Market, Inc.'s National
Market ("Nasdaq"). As used herein, the "Closing Price" of any security on any
day means the last reported sale price regular way on such day or, in the case
no such sale takes place on such day, the average of the reported closing bid
and asked prices regular way of the Common Stock, in each case on the NYSE or,
if not listed or admitted to trading on such exchange, as quoted on AMEX or
Nasdaq.
(3) Mandatory Redemption. On November 15, 2011, the
Corporation shall redeem all outstanding shares of Series A Preferred Stock, to
the extent it has funds legally available therefor, at the redemption price of
100% of the Liquidation Preference thereof, plus an amount equal to the
dividends unpaid thereon, if any, whether or not declared, to the redemption
date.
(4) Payment of Redemption Price. (a) The amount of the
redemption price on any shares of Series B Preferred Stock redeemed, on any
redemption set forth herein, that is allocable to the Liquidation Preference
thereon shall be paid in cash (to the extent funds are legally available
therefor) and any unpaid dividends to be paid on the shares of Series B
Preferred Stock redeemed on such redemption date may be paid in cash (to the
extent funds are legally available therefor) or shares of Series B Preferred
Stock, or any combination thereof, in the sole discretion of the Board of
Directors as provided in Section 3(a)(3) hereof.
<PAGE>
7
(b) Not less than 15 days nor more than 45 days (such date as
fixed by the Board of Directors of the Corporation is referred to herein as the
"Redemption Record Date") prior to the date fixed for any redemption of shares
of the Series B Preferred Stock pursuant to this Section 4, a notice specifying
the time and place of the redemption and the number of shares to be redeemed
shall be given by first class mail, postage prepaid, to the holders of record on
the Redemption Record Date of the shares of the Series B Preferred Stock to be
redeemed at their respective addresses as the same shall appear on the books of
the Corporation, calling upon each holder of record to surrender to the
Corporation on the redemption date at the place designated in the notice such
holder's certificate or certificates representing the number of shares specified
in the notice of redemption. Neither failure to mail such notice, nor any defect
therein or in the mailing thereof, to any particular holder shall affect the
sufficiency of the notice or the validity of the proceedings for redemption with
respect to the other holders. Any notice mailed in the manner herein provided
shall be conclusively presumed to have been duly given whether or not the holder
receives the notice. On or after the redemption date, each holder of shares of
Series B Preferred Stock to be redeemed shall present and surrender such
holder's certificate or certificates for such shares to the Corporation at the
place designated in the redemption notice and thereupon the redemption price of
the shares, and any unpaid dividends thereon to the redemption date, shall be
paid to or on the order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
canceled. In case fewer than all the shares represented by any such certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares.
(c) If a notice of redemption has been given pursuant to this
Section 4 and if, on or before the redemption date, the funds (or shares of
Series B Preferred Stock if any dividends are to be paid in shares of Series B
Preferred Stock), necessary for such redemption (including all dividends on the
shares of Series B Preferred Stock to be redeemed that will accrue to the
redemption date) shall have been set aside by the Corporation, separate and
apart from its other funds (or reserved and authorized for issuance if any
dividends are to be paid in shares of Series B Preferred Stock), in trust for
the pro rata benefit of the holders of the shares of Series B Preferred Stock so
called for redemption, then, notwithstanding that any certificates for such
shares of Series B Preferred Stock have not been surrendered for cancellation,
on the redemption date dividends shall cease to accrue on the shares of the
Series B Preferred Stock to be redeemed, and at the close of business on the
date on which such funds have been segregated and set aside by the Corporation
as provided in this Section 4(c), the holders of such shares shall cease to be
stockholders with respect to those shares, shall have no interest in or claims
against the Corporation by virtue thereof and shall have no voting or other
rights with respect thereto, except the conversion rights provided in subsection
(d) of this Section 4 and Section 6 below and the right to receive the moneys
payable (or shares of Series B Preferred Stock issued if any dividends are to be
paid in shares of Series B Preferred Stock) upon such redemption, without
interest thereon, upon surrender (and endorsement, if required by the
Corporation) of their
<PAGE>
8
certificates, and the shares of Series B Preferred Stock evidenced thereby shall
no longer be outstanding. Subject to applicable escheat laws, any moneys so set
aside (or shares of Series B Preferred Stock authorized and reserved if any
dividends are to be paid in shares of Series B Preferred Stock) by the
Corporation and unclaimed at the end of two years from the redemption date shall
revert to the general funds of the Corporation (or be released from the
reservation thereof in the case of shares of Series B Preferred Stock), after
which reversion the holders of such shares so called for redemption shall look
only to the general funds of the Corporation for the payment of the redemption
price, without interest. Any interest accrued on funds so deposited shall belong
to the Corporation and be paid thereto from time to time.
(d) If a notice of redemption has been given pursuant to this
Section 4 and any holder of shares of Series B Preferred Stock shall, prior to
the close of business on the business day immediately preceding the redemption
date, give written notice to the Corporation pursuant to Section 6 below of the
conversion of any or all of the shares to be redeemed held by the holder
(accompanied by a certificate or certificates for such shares, duly endorsed or
assigned to the Corporation, and any necessary transfer tax payment, as required
by Section 6 below), then such redemption shall not become effective as to such
shares to be converted and such conversion shall become effective as provided in
Section 6 below, whereupon any funds deposited by the Corporation for the
redemption of such shares shall (subject to any right of the holder of such
shares to receive the dividend payable thereon as provided in Section 6 below)
immediately upon such conversion be returned to the Corporation or, if then held
in trust by the Corporation, shall automatically and without further corporate
action or notice be discharged from the trust.
(e) In every case of redemption of fewer than all of the
outstanding shares of the Series B Preferred Stock pursuant to this Section 4,
the shares to be redeemed shall be selected pro rata, provided that only whole
shares shall be selected for redemption.
5. Liquidation. (a) In the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
holders of the Series B Preferred Stock shall be entitled to receive $100.00 per
share (the "Liquidation Preference"), plus an amount equal to the accrued and
unpaid dividends thereon, if any, whether or not declared, to the payment date.
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, the holders of shares of Series B
Preferred Stock (i) shall not be entitled to receive the Liquidation Preference
of the shares held by them until payment in full or provision has been made for
the payment of all claims of creditors of the Corporation and the liquidation
preference of any class or series of capital stock ranking senior to the Series
B Preferred Stock with respect to redemption rights and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation ("Senior Liquidation
Stock" and together with the Senior Dividend Stock, the "Senior Stock"), plus
accrued and unpaid
<PAGE>
9
dividends thereon, if any, whether or not declared, to the payment date, shall
have been paid in full and (ii) shall be entitled to receive the Liquidation
Preference of such shares held by them, plus accrued and unpaid dividends
thereon, if any, whether or not declared, to the payment date, in preference to
and in priority over any distributions upon the Common Stock and any other
series or class of the Corporation's capital stock that ranks junior to the
Series B Preferred Stock as to redemption rights and rights upon liquidation,
dissolution or winding up of the affairs of the Corporation ("Junior Liquidation
Stock" and together with the Junior Dividend Stock, the "Junior Stock"). Upon
payment in full of the Liquidation Preference to which the holders of shares of
the Series B Preferred Stock are entitled, the holders of shares of the Series B
Preferred Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation. Subject to clause (i) above, if the
assets of the Corporation are not sufficient to pay in full the Liquidation
Preference payable to the holders of shares of the Series B Preferred Stock and
the liquidation preference payable to the holders of any series or class of the
Corporation's capital stock, outstanding on the date hereof or hereafter issued,
that ranks on a parity with the Series B Preferred Stock as to redemption rights
and rights upon liquidation, dissolution or winding up of the affairs of the
Corporation ("Parity Liquidation Stock" and together with the Parity Dividend
Stock, the "Parity Stock"), the holders of all such shares shall share ratably
in proportion to the full respective preferential amounts payable on such shares
in any distribution.
(c) For the purposes of this Section 5, neither the sale of
all or substantially all of the assets of the Corporation nor the consolidation
or merger of the Corporation with or into any other entity shall be deemed to be
a voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, unless such sale, consolidation or merger shall be in connection
with a plan of liquidation, dissolution or winding up of the Corporation.
6. Optional Conversion. (a) Holders of shares of Series B
Preferred Stock may, at any time, convert shares of Series B Preferred Stock,
unless previously redeemed, into a number of shares of Common Stock calculated
by dividing the Liquidation Preference (without unpaid dividends) by $30.00,
subject to adjustment as described below in Section 6(f) (the "Conversion
Price"). If more than one share of Series B Preferred Stock shall be surrendered
for conversion at one time by the same record holder, the number of full shares
of Common Stock issuable upon conversion thereof shall be computed on the basis
of the aggregate number of shares of Series B Preferred Stock so surrendered. In
the case of shares of Series B Preferred Stock called for redemption, conversion
rights shall expire at the close of business on the business day immediately
preceding the redemption date. The holders of shares of Series B Preferred Stock
that convert such shares into shares of Common Stock shall be entitled to
receive any unpaid dividends thereon, if any, whether or not declared, and such
dividends shall be payable in cash or shares of Common Stock, or any combination
thereof, in the sole discretion of the Board of Directors.
<PAGE>
10
(b) Any holder of shares of Series B Preferred Stock electing
to convert the shares or any portion thereof in accordance with Section 6(a)
above shall give written notice to the Corporation (which notice may be given by
facsimile transmission) that such holder elects to convert the same and shall
state therein the number of shares of Series B Preferred Stock to be converted
and the name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. Promptly thereafter, the
holder shall surrender the certificate or certificates of shares of Series B
Preferred Stock to be converted, duly endorsed, at the office of the Corporation
or any transfer agent for such shares, or at such other place designated by the
Corporation, provided that the Corporation shall at all times maintain an office
or agency in The City of New York for such purposes. The Corporation shall,
immediately upon receipt of such notice, issue and deliver to or upon the order
of such holder, against delivery of the certificates representing the shares of
Series B Preferred Stock that have been converted, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled
(in the number(s) and denomination(s) designated by such holder), and the
Corporation shall deliver to such holder a certificate or certificates for the
number of shares of Series B Preferred Stock that such holder has not elected to
convert. The conversion right with respect to any shares of Series B Preferred
Stock shall be deemed to have been exercised at the date upon which the
certificates therefor (and the payment required by Section 6(d), if applicable),
shall have been so delivered, and the person or persons entitled to receive the
Common Stock issuable upon conversion shall be treated for all purposes as the
record holder or holders of such Common Stock upon that date.
(c) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series B Preferred Stock. Instead of any fractional
share of Common Stock otherwise issuable upon conversion of any shares of Series
B Preferred Stock, the Corporation shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the Closing Price of
the Common Stock at the close of business on the day of conversion. In the
absence of a Closing Price, the Board of Directors shall in good faith determine
the current market price on such basis as it reasonably considers appropriate
and such current market price shall be used to calculate the cash adjustment;
provided that in no case shall the Closing Price be less than the Conversion
Price then in effect.
(d) If a holder converts shares of Series B Preferred Stock,
the Corporation shall pay any documentary, stamp or similar issue or transfer
tax due on the issue of Common Stock upon the conversion or due upon the
issuance of a new certificate or certificates for any shares of Series B
Preferred Stock not converted. The holder, however, shall pay any such tax that
is due because any such shares of the Common Stock or of the Series B Preferred
Stock are issued in a name other than the name of the holder.
(e) The Corporation shall reserve out of its authorized but
unissued Common Stock held in treasury enough shares of Common Stock to permit
the conversion of
<PAGE>
11
all of the then-outstanding shares of Series B Preferred Stock. For the purposes
of this Section 6(e), the full number of shares of Common Stock then issuable
upon the conversion of all then-outstanding shares of Series B Preferred Stock
shall be computed as if at the time of computation all outstanding shares of
Series B Preferred Stock were held by a single holder. The Corporation shall
from time to time, in accordance with the laws of the State of Delaware and its
certificate of incorporation, increase the authorized amount of its Common Stock
if at any time the authorized amount of its Common Stock remaining unissued
shall not be sufficient to permit the conversion of all shares of Series B
Preferred Stock at the time outstanding. All shares of Common Stock issued upon
conversion of the shares of Series B Preferred Stock shall be validly issued,
fully paid and nonassessable.
(f) The Conversion Price shall be subject to adjustment as
follows:
(i) In case the Corporation shall (A) pay a dividend
on any class of its capital stock in shares of its Common
Stock, (B) subdivide its outstanding shares of Common Stock
into a greater number of shares or (C) combine its outstanding
shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior thereto shall be
adjusted (as provided below) so that the holders of any shares
of Series B Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares
of Common Stock which such holder would have owned or have
been entitled to receive immediately following such action had
such shares of Series B Preferred Stock been converted
immediately prior to such time. The Conversion Price as
adjusted shall be determined by multiplying the Conversion
Price at which the shares of Series B Preferred Stock were
theretofore convertible by a fraction of which the denominator
shall be the number of shares of Common Stock outstanding
immediately following such action and of which the numerator
shall be the number of shares of Common Stock outstanding
immediately prior thereto. Such adjustment shall be made
whenever any event listed above shall occur and shall become
effective retroactively immediately after the record date in
the case of a dividend and immediately after the effective
date in the case of a subdivision or combination.
(ii) In case the Corporation shall issue rights or
warrants to any Person (including holders of its Common Stock)
entitling such Person or Persons to subscribe for or purchase
shares of Common Stock at a price per share less than the
Current Market Price per share of Common Stock at the record
date therefor, or in case the Corporation shall issue to any
Person (including holders of its Common Stock) other
securities convertible into or exchangeable for Common Stock
for a consideration per share of Common Stock deliverable upon
conversion or exchange thereof less than the Current
<PAGE>
12
Market Price at the record date therefore, then the Conversion
Price in effect immediately prior thereto shall be adjusted as
provided below so that the Conversion Price therefor shall be
equal to the price determined by multiplying (A) the
Conversion Price at which shares of Series B Preferred Stock
were theretofore convertible by (B) a fraction of which (x)
the denominator shall be the sum of (1) the number of shares
of Common Stock outstanding on the date of issuance of the
convertible or exchangeable securities, rights or warrants and
(2) the number of additional shares of Common Stock offered
for subscription or purchase, or issuable upon such conversion
or exchange, and (y) the numerator shall be the sum of (1) the
number of shares of Common Stock outstanding on the date of
issuance of such convertible or exchangeable securities,
rights or warrants and (2) the number of additional shares of
Common Stock which the aggregate offering price of the number
of shares of Common Stock so offered would purchase at the
Current Market Price per share of Common Stock. Such
adjustment shall be made whenever such convertible or
exchangeable securities, rights or warrants are issued, and
shall become effective immediately after the record date for
the determination of stockholders entitled to receive such
securities. However, upon the expiration of any right or
warrant to purchase Common Stock, the issuance of which
resulted in an adjustment in the Conversion Price pursuant to
this Section 6(f)(ii), if any such right or warrant shall
expire and shall not have been exercised, the Conversion Price
shall be recomputed immediately upon such expiration and
effective immediately upon such expiration shall be increased
to the price it would have been (but reflecting any other
adjustments to the Conversion Price made pursuant to the
provisions of this Section 6(f) after the issuance of such
rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that
number of shares of Common Stock actually purchased upon the
exercise of such rights or warrants. No further adjustment
shall be made upon exercise of any right, warrant, convertible
security or exchangeable security if any adjustment shall have
been made upon issuance of such security. The foregoing
notwithstanding, no adjustment shall be made pursuant to this
subparagraph (ii) with respect to any particular dividend or
other event with respect to which a Payout Election is made.
(iii) In case the Corporation shall pay a dividend to
all holders of its Common Stock (including any dividend paid
in connection with a consolidation or merger in which the
Corporation is the continuing corporation) of any shares of
capital stock of the Corporation or its subsidiaries (other
than Common Stock) or evidences of its indebtedness or assets
or cash (excluding dividends or distributions in connection
with the liquidation, dissolution or
<PAGE>
13
winding up of the Corporation) or rights or warrants to
subscribe for or purchase any of its securities or those of
its subsidiaries or securities convertible or exchangeable for
Common Stock (excluding those securities referred to in
Section 6(f)(ii) above), then in each such case the Conversion
Price in effect immediately prior thereto shall be adjusted as
provided below so that the Conversion Price thereafter shall
be equal to the price determined by multiplying (A) the
Conversion Price in effect on the record date mentioned below
by (B) a fraction, the numerator of which shall be the Current
Market Price per share of Common Stock on the record date
mentioned below less the then fair market value (as determined
by the Board of Directors, whose good faith determination
shall be conclusive) as of such record date of the cash,
assets, evidences of indebtedness or securities so paid with
respect to one share of Common Stock, and the denominator of
which shall be the Current Market Price per share of Common
Stock on such record date; provided, however, that in the
event the then fair market value (as so determined) so paid
with respect to one share of Common Stock is equal to or
greater than the Current Market Price per share of Common
Stock on the record date mentioned above, in lieu of the
foregoing adjustment, adequate provision shall be made so that
each holder of shares of the Series B Preferred Stock shall
have the right to receive the amount and kind of assets,
evidences of indebtedness, or securities such holder would
have received had such holder converted each such share of
Series B Preferred Stock immediately prior to the record date
for such dividend. Such adjustment shall be made whenever any
such payment is made, and shall become effective retroactively
immediately after the record date for the determination of
stockholders entitled to receive the payment. The foregoing
notwithstanding, no adjustment shall be made pursuant to this
subparagraph (iii) with respect to any particular dividend or
other event with respect to which a Payout Election is made.
(iv) In case the Corporation shall purchase, redeem
or otherwise acquire any shares of Common Stock at a price per
share greater than the Current Market Price per share of
Common Stock on the date of such event, or in case the
Corporation shall purchase, redeem or otherwise acquire other
securities convertible into or exchangeable for Common Stock
(other than the Series C Preferred Stock) for a consideration
per share of Common Stock into which such security is
convertible or exchangeable greater than the per share Current
Market Price on the date of such event, then the Conversion
Price in effect immediately prior thereto shall be adjusted as
provided below so that the Conversion Price therefor shall be
equal to the price determined by multiplying (A) the
Conversion Price at which shares of Series A Preferred Stock
were theretofore convertible by (B) a fraction of which (x)
the denominator shall be the Current Market Price per share on
the date of such event, and (y) the
<PAGE>
14
numerator shall be the Current Market Price per share on the
date of such event less the difference between (1) the
consideration paid by the Corporation per share of Common
Stock (or, in the case of securities convertible into or
exchangeable for Common Stock, the consideration per share of
Common Stock into which such security is convertible or
exchangeable) purchased, redeemed or acquired in such event
and (2) the Current Market Price per share on the date of such
event. Such adjustment shall be made whenever such Common
Stock is issued or sold, and shall become effective
immediately after the issuance or sale of such securities. The
foregoing notwithstanding, no adjustment shall be made
pursuant to this subparagraph (iv) with respect to any
particular purchase, redemption or acquisition with respect to
which a Payout Election is made.
(v) In case the Corporation shall issue or sell any
shares of Common Stock at a price per share more than 15%
below (or, in the case of any issuance or sale to an affiliate
(as defined in the rules of the Securities and Exchange
Commission promulgated under the Securities Exchange Act of
1934, as amended) of the Corporation, any amount below) the
Current Market Price per share of Common Stock on the date the
Corporation commits or agrees to such sale or issuance, then
the Conversion Price in effect immediately prior thereto shall
be adjusted as provided below so that the Conversion Price
therefor shall be equal to the price determined by multiplying
(A) the Conversion Price at which shares of Series A Preferred
Stock were theretofore convertible by (B) a fraction of which
(x) the denominator shall be the sum of (1) the number of
shares of Common Stock outstanding on the date of issuance or
sale of such shares of Common Stock and (2) the number of
additional shares of Common Stock offered for sale or subject
to issuance, and (y) the numerator shall be the sum of (1) the
number of shares of Common Stock outstanding on the date of
issuance or sale of such shares of Common Stock and (2) the
number of additional shares of Common Stock which the
aggregate offering price of the number of shares of Common
Stock so offered or issued would purchase at the Current
Market Price per share of Common Stock. Such adjustment shall
be made whenever such Common Stock is issued or sold, and
shall become effective immediately after the issuance or sale
of such securities; provided, however, that the provisions of
this subparagraph shall not apply to (1) shares of Common
Stock issued upon conversion of shares of Series A Preferred
Stock or Series B Preferred Stock, or (2) shares of Common
Stock issued upon conversion, exercise or exchange of any
security with respect to which an adjustment to the Conversion
Price was made in accordance with clause (ii) above at the
time of issuance of such security, or (3) shares of Common
Stock issued in a bona fide public offering to or through a
nationally recognized investment banking firm in which
affiliates (as
<PAGE>
15
defined in the rules of the Securities and Exchange Commission
promulgated under the Securities Exchange Act of 1934, as
amended) of the Corporation purchase less than 25% of the
shares in such offering.
(vi) No adjustment in the Conversion Price shall be
required unless the adjustment would require an increase or
decrease of at least 1% in the Conversion Price then in
effect; provided, however, that any adjustments that by reason
of this Section 6(f)(vi) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 6(f) shall be
made to the nearest cent.
(vii) In the event that, at any time as a result of
an adjustment made pursuant to Section 6(f)(i) through
6(f)(vi) above, the holder of any share of Series B Preferred
Stock thereafter surrendered for conversion shall become
entitled to receive any shares of the Corporation other than
shares of the Common Stock, thereafter the number of such
other shares so receivable upon conversion of any share of
Series B Preferred Stock shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock
contained in Section 6(f)(i) through 6(f)(vi) above, and the
other provisions of this Section 6 with respect to the Common
Stock shall apply on like terms to any such other shares.
(viii) Whenever the Conversion Price is adjusted, as
herein provided, the Corporation shall promptly file with the
transfer agent for the Series B Preferred Stock, or, if there
is no transfer agent, the Corporation shall promptly send to
each holder of record by first class mail, postage pre-paid, a
certificate of an officer of the Corporation setting forth the
Conversion Price after the adjustment and setting forth a
brief statement of the facts requiring such adjustment and a
computation thereof. The certificate shall be conclusive
evidence of the correctness of the adjustment. The Corporation
shall promptly cause a notice of the adjusted Conversion Price
to be mailed to each registered holder of shares of Series B
Preferred Stock.
(ix) In case of any reclassification of the Common
Stock, any consolidation of the Corporation with, or merger of
the Corporation into, any other entity, any merger of another
entity into the Corporation (other than a merger that does not
result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the
Corporation), any sale or transfer of all or substantially all
of the assets of the Corporation or any compulsory share
exchange pursuant to which share exchange the Common Stock is
converted into other securities, cash or other property, then
<PAGE>
16
lawful provision shall be made as part of the terms of such
transaction whereby the holder of each share of Series B
Preferred Stock then outstanding shall have the right
thereafter, during the period such share of Series B Preferred
Stock shall be convertible, to convert such share only into
the kind and amount of securities, cash and other property
receivable upon the reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of
shares of Common Stock of the Corporation into which a share
of Series B Preferred Stock would have been convertible
immediately prior to the reclassification, consolidation,
merger, sale, transfer or share exchange. The Corporation, the
person formed by the consolidation or resulting from the
merger or which acquires such assets or which acquires the
Corporation's shares, as the case may be, shall make
provisions in its certificate or articles of incorporation or
other constituent document to establish such rights and such
rights shall be clearly provided for in the definitive
transaction documents relating to such transaction. The
certificate or articles of incorporation or other constituent
document shall provide for adjustments, which, for events
subsequent to the effective date of the certificate or
articles of incorporation or other constituent document, shall
be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 6. The provisions of
this Section 6(f)(ix) shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers
or share exchanges.
(g) The Corporation from time to time may reduce the
Conversion Price by any amount for any period of time if the period is at least
20 days and if the reduction is irrevocable during the period. Whenever the
Conversion Price is so reduced, the Corporation shall mail to holders of record
of the Series B Preferred Stock a notice of the reduction at least 15 days
before the date the reduced Conversion Price takes effect, stating the reduced
Conversion Price and the period it will be in effect. A voluntary reduction of
the Conversion Price does not change or adjust the Conversion Price otherwise in
effect for purposes of paragraph 6(f) above.
7. Status of Shares. All shares of the Series B Preferred
Stock that are at any time redeemed pursuant to Section 4 above or converted or
exchanged pursuant to Section 6 above and all shares of the Series B Preferred
Stock that are otherwise reacquired by the Corporation and subsequently canceled
by the Board of Directors of the Corporation shall have the status of authorized
but unissued shares of Preferred Stock, without designation as to series,
subject to reissuance by the Board of Directors of the Corporation as shares of
any one or more other series.
8. Voting Rights. Except as set forth below or otherwise
required by law, holders of shares of the Series B Preferred Stock shall have no
voting rights.
<PAGE>
17
(a) So long as any shares of the Series B Preferred Stock are
outstanding, each share of Series B Preferred Stock shall entitle the holder
thereof to notice of and to vote, in person or by proxy, at any special or
annual meeting of stockholders, on all matters entitled to be voted on by
holders of Common Stock and any other series or class of Voting Stock voting
together as a single class with all other shares entitled to vote thereon. With
respect to any such vote, each share of Series B Preferred Stock shall entitle
the holder thereof to cast that number of votes per share as is equal to the
number of votes that such holder would be entitled to cast had such holder
converted its shares of Series B Preferred Stock into shares of Common Stock as
of the record date for determining the stockholders of the Corporation eligible
to vote on any such matters.
(b) So long as any shares of the Series B Preferred Stock are
outstanding, in addition to any vote or consent of stockholders required by law
or by the Corporation's Certificate of Incorporation, the affirmative vote or
consent of the holders of at least a majority of the shares of Series B
Preferred Stock at any time issued and outstanding, acting as a single class,
given in person or by proxy at any meeting called for such purpose, shall be
necessary for effecting or validating
(i) any reclassification of the Series B Preferred
Stock or any amendment, alteration or repeal (including as a
result of a merger or consolidation involving the Corporation
or otherwise by operation of law) of any of the provisions of
the Certificate of Incorporation or By-laws of the Corporation
which adversely affects the voting powers, rights or
preferences of the holders of the shares of Series B Preferred
Stock; provided that the consent of the holders of at least a
majority of the shares of Series B Preferred Stock and Series
A Preferred Stock at the time issued and outstanding, acting
as a single class, given in person or by proxy by vote at any
meeting called for such purpose, shall be necessary for
effecting or validating any reclassification or any amendment,
alteration or repeal of any of the provisions of the
Corporation's Certificate of Incorporation or By-laws of the
Corporation which affects adversely the voting powers, rights
or preferences of the holders of the shares of Series B
Preferred Stock and Series A Preferred Stock; and provided,
further, that any amendment of the provisions of the
Corporation's Certificate of Incorporation so as to authorize
or create, or to increase the authorized amount of, the Junior
Stock shall not be deemed to affect adversely the voting
powers, rights or preferences of the holders of shares of
Series B Preferred Stock or Series A Preferred Stock;
(ii) the authorization or creation of, or the
increase in the authorized amount of, or the issuance of any
shares of any class or series of Senior Stock or any security
convertible into shares of any class or series of Senior
Stock;
(iii) the authorization or creation of, or the
increase in the authorized amount of, or the issuance of any
shares of any class or series of Parity Stock or any
<PAGE>
18
security convertible into shares of any class or series of
Parity Stock such that the aggregate liquidation preference of
all outstanding shares of Parity Stock (other than (x) shares
of Series B Preferred Stock or Series A Preferred Stock issued
pursuant to the Stock Purchase Agreement, dated as of November
13, 1998, by and among Apollo Investment Fund IV, L.P., Apollo
Overseas Partners IV, L.P. and the Corporation (the "Stock
Purchase Agreement") and (y) any shares of Series B Preferred
Stock or Series A Preferred Stock issued as a dividend in
respect of shares referred to in clause (x) or in respect of
shares referred to in this clause (y)) would exceed the sum of
(1) $135,000,000 and (2) the aggregate liquidation preference
of the shares of Series B Preferred Stock issued at the Option
Closing (as such term is defined in the Stock Purchase
Agreement), if any;
(iv) the merger or consolidation of the Corporation
with or into any other entity, unless the resulting
corporation will thereafter have no class or series of shares
and no other securities either authorized or outstanding
ranking prior to, or on a parity with, shares of Series B
Preferred Stock in the payment of dividends or the
distribution of its assets on liquidation, dissolution or
winding up; provided, however, that no such vote or consent of
the holders of Series B Preferred Stock shall be required if
prior to the time when such merger or consolidation is to take
effect, and regardless of whether such merger or consolidation
would constitute a Change of Control (as defined in Section
9), a Change of Control Offer (as defined in Section 9) is
made for all shares of Series B Preferred Stock at the time
outstanding in accordance with Section 9; and
(v) the application of any funds, property or assets
of the Corporation or any of its subsidiaries to the purchase,
redemption, sinking fund or other retirement of any shares of
any class of Junior Stock, or the declaration, payment or
making of any dividend or distribution (in cash, property or
obligations) on any shares of any class of Junior Stock, other
than a dividend or dividends payable solely in Common Stock or
Junior Stock, unless the holders of Series B Preferred Stock
shall have been offered the opportunity to make a Payout
Election with respect to such event.
In connection with any right to vote pursuant to Section 8(b), each holder of
shares of Series B Preferred Stock shall have one vote for each share held. The
above notwithstanding, and subject to Section 8(a), no consent of holders of
Series B Preferred Stock or Series A Preferred Stock shall be required for the
creation of any indebtedness of any kind of the Corporation.
(c) The term "Voting Stock" means any class or classes of
capital stock, or securities convertible into or exchangeable for any class of
capital stock, of the Corporation pursuant to which the holders thereof have the
general power under ordinary circumstances
<PAGE>
19
to vote with respect to the election of at least a majority of the Board of
Directors of the Corporation, 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.
9. Change of Control. (a) In the event of a Change of Control
(the date of such event being the "Change of Control Date"), the Corporation
shall notify the holders of the Series B Preferred Stock in writing of such
event promptly upon the Corporation becoming aware that a Change of Control is
expected to occur or has occurred and shall, pursuant to Section 9(b), make an
offer to purchase (the "Change of Control Offer") all of the then outstanding
shares of Series B Preferred Stock at a purchase price of 101% of the
Liquidation Preference thereof, payable in cash, plus any unpaid dividends
thereon, if any, whether or not declared, to the date such shares are purchased,
payable in cash.
(b) Subject to the provisions of Section 9(e), within 30 days
following the Change of Control Date, the Corporation shall send, by first class
mail, postage prepaid, a notice to each holder of Series B Preferred Stock at
such holder's address as it appears on the stock books of the Corporation, which
notice shall govern the terms of the Change of Control Offer. The notice to the
holders shall contain all instructions and materials necessary to enable such
holders to tender their shares of Series B Preferred Stock pursuant to the
Change of Control Offer. Such notice shall state:
(i) that a Change of Control has occurred, that the
Change of Control Offer is being made pursuant to this Section
9 and that all shares of Series B Preferred Stock validly
tendered and not withdrawn will be accepted for payment;
(ii) the purchase price (plus the amount of unpaid
dividends, if any) and the purchase date (the "Change of
Control Payment Date") which shall be a date no earlier than
30 days nor later than 60 days from the date such notice is
mailed, other than as may be required by law (the "Initial
Date") or, if any of the Corporation's 15% Senior Secured
Discount Notes due 2007 ("Senior Secured Notes") or Senior
Obligations remain outstanding, the later of the Initial Date
and a date that is not more than 30 days following the date
the Corporation sends notice pursuant to Section 9(e) that it
has satisfied all of the Senior Obligations;
(iii) that any shares of Series B Preferred Stock not
tendered will remain outstanding on the same terms and will
continue to accrue dividends;
(iv) that, unless the Corporation defaults in making
payment therefor, any share of Series B Preferred Stock
tendered and accepted for payment pursuant to the Change of
Control Offer shall cease to accrue dividends after the Change
of Control Payment Date;
<PAGE>
20
(v) that holders electing to have any shares of
Series B Preferred Stock purchased pursuant to a Change of
Control Offer will be required to surrender the certificate or
certificates representing such shares, properly endorsed for
transfer together with such customary documents as the
Corporation and the transfer agent may reasonably require, in
the manner and at the place specified in the notice prior to
the close of business on the business day prior to the Change
of Control Payment Date;
(vi) that holders shall be entitled to withdraw their
election if the Corporation receives, not later than five
business days prior to the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting
forth the name of the holder, the number of shares of Series B
Preferred Stock the holder delivered for purchase and a
statement that such holder is withdrawing his election to have
such shares of Series B Preferred Stock purchased;
(vii) that holders whose shares of Series B Preferred
Stock are purchased only in part will be issued a new
certificate representing the unpurchased shares of Series B
Preferred Stock; and
(viii) the circumstances and relevant facts regarding
such Change of Control.
(c) The Corporation shall comply with any securities laws and
regulations, to the extent such laws and regulations are applicable to the
repurchase of the Series B Preferred Stock in connection with a Change of
Control Offer.
(d) On the Change of Control Payment Date, the Corporation
shall (x) accept for payment the shares of Series B Preferred Stock validly
tendered pursuant to the Change of Control Offer, (y) pay to the holders of
shares so accepted the purchase price therefor (plus the amount of unpaid
dividends, if any) and (z) cancel and retire each surrendered certificate
(subject to issuing a new certificate representing the unpurchased shares of
Series B Preferred Stock). Unless the Corporation defaults in the payment for
the shares of Series B Preferred Stock tendered pursuant to the Change of
Control Offer, dividends shall cease to accrue with respect to the shares of
Series B Preferred Stock tendered and all rights of holders of such tendered
shares shall terminate, except for the right to receive payment therefor, on the
Change of Control Payment Date.
(e) If the purchase of Series B Preferred Stock under this
Section 9 would violate or constitute a default under (i) the Senior Secured
Notes or the indenture relating thereto (the "Indenture"), or (ii) the indenture
or indentures or other agreement or agreements under which there may be issued
or outstanding from time to time other indebtedness of the Company ("Other
Agreements") in an aggregate principal amount not
<PAGE>
21
exceeding $450 million (less the amount, if any, of indebtedness issued to
replace, refinance or refund the Senior Secured Notes) because the Corporation
has not satisfied all of its obligations under such Other Agreements arising
from the Change of Control (collectively, "Senior Obligations"), then,
notwithstanding anything to the contrary contained above, prior to complying
with the foregoing provisions, the Corporation shall use its best efforts to
satisfy the Senior Obligations as promptly as possible or to obtain the
requisite consents under the Indenture and the Other Agreements necessary to
permit the repurchase of the Series B Preferred Stock required by this Section
9. Until the requirements of the immediately preceding sentence are satisfied,
the Corporation shall not be obligated to make any Change of Control Offer.
Within 15 days following the date the Corporation has satisfied all of the
Senior Obligations or obtained such requisite consents or waivers, the
Corporation shall send, by first class mail, postage prepaid, a notice to each
holder of Series B Preferred Stock at such holder's address as it appears on the
stock books of the Corporation that the Corporation has satisfied all of the
Senior Obligations or obtained such requisite consents or waivers, and such
notice shall state the date the Senior Obligations were satisfied or waived and
the Change of Control Payment Date.
(f) For the purposes of this Section 9, "Change of Control"
means the occurrence of any of the following events: (i) any "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934 (the "Exchange Act")) 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 Corporation; (ii) the Corporation
consolidates with or merges with or into another person or conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
person, or any person consolidates with or merges with or into the Corporation,
in any such event, pursuant to a transaction in which the outstanding voting
stock of the Corporation is converted into or exchanged for cash, securities or
other property, other than, at all times when the Senior Secured Notes are
outstanding, those transactions that are not deemed a "Change of Control" under
the terms of the Indenture; (iii) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Corporation (together with any new directors whose election to
such Board of Directors, or whose nomination for election by the stockholders of
the Corporation, was approved by a vote of 66 2/3% of the directors then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Corporation
then in office; or (iv) the Corporation is liquidated or dissolved or a special
resolution is passed by the stockholders of the Corporation approving the plan
of liquidation or dissolution, other than, at all times when the Senior Secured
Notes are outstanding, those transactions that are not deemed a "Change of
Control" under the terms of the Indenture; provided, however, that no
transaction or event shall be deemed to be a "Change of Control" for purposes of
this Section 9 if (1) all of the
<PAGE>
22
outstanding shares of Common Stock are to be converted pursuant thereto solely
into the right to receive, for each share of Common Stock so converted, cash
and/or shares of Qualifying Acquiror Common Stock (as defined below) (valued at
its Current Market Price) together having a value in excess of $30.30, (2) the
Corporation shall have declared and paid all dividends on the Series B Preferred
Stock and Series A Preferred Stock, whether or not theretofore declared or
undeclared, to the date of the Change of Control and the holders thereof shall
have been given reasonable opportunity to convert, prior to such Change of
Control, any shares of Series B Preferred Stock or Series A Preferred Stock so
issued as a dividend, and (3) immediately following such event the number of
shares of Qualifying Acquiror Common Stock into which shares of Series B
Preferred Stock and Series A Preferred Stock shall have been converted (together
with, if shares of Series B Preferred Stock and/or Series A Preferred Stock are
to remain outstanding, any shares of Qualifying Acquiror Common Stock into which
all outstanding Shares of Series B Preferred Stock and Series A Preferred Stock
would be convertible) would represent both (A) less than 5% of the total number
of shares of Qualifying Acquiror Common Stock outstanding immediately after such
event and (B) less than one third of the number of shares of Qualifying Acquiror
Common Stock that would be Publicly Traded immediately after such event. For
purposes of this Section 9, the term "Qualifying Acquiror Common Stock" means
the common stock of any corporation if listed on or admitted to trading on the
NYSE, AMEX or Nasdaq, and the term "Publicly Traded" means shares of such
Qualifying Acquiror Common Stock that are both (1) held by persons who are
neither officers, directors or Affiliates of such corporation nor the
"beneficial owner" (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of 5% or more of the total number of shares
then issued and outstanding, and (2) not "restricted securities" (as such term
is defined in Rule 144 of the Securities Act of 1933, as amended).
(g) The Corporation shall not engage in any transaction of the
type referred to in clause (ii) of paragraph (f) above (other than one which is
not a "Change of Control" by virtue of application of the proviso to paragraph
(f) above) unless (i) if the Corporation shall be the surviving or continuing
entity of such transaction, the Corporation shall, after consummation thereof,
have sufficient funds to perform its obligations under this Section 9, and (ii)
if the Corporation shall not be the surviving or continuing entity of such
transaction, proper and adequate provision shall be made, in the definitive
documentation providing for such transaction or otherwise, to ensure that the
surviving or continuing corporation of such transaction shall expressly assume
the Corporation's obligations under this Section 9 and shall have sufficient
funds to perform its obligations under this Section 9.
10. Sinking Fund Redemption. The shares of the Series B Preferred Stock
are not subject to sinking fund requirements.
11. Exchange. (a) Shares of Series B Preferred Stock shall be
exchangeable for Convertible Debt, in whole or in part, out of surplus of the
Corporation legally available for such exchange, at any time and from time to
time at the option of the Corporation. All accrued and unpaid dividends on the
shares of Series B Preferred Stock, including Default
<PAGE>
23
Dividends and dividends accrued from the last preceding Dividend Payment Date
through the date fixed for such exchange, shall be declared and paid prior to or
on the same date as the date of any exchange pursuant to this Section 11. The
Corporation shall cause the Convertible Debt to be issued on and dated the date
which coincides with the date of exchange of the Series B Preferred Stock.
(b) Any notice of any exchange of the Series B Preferred Stock
given by the Corporation shall be mailed to each holder of shares of Series B
Preferred Stock to be exchanged at such Holder's address as it appears on the
books of the Corporation. Such notice shall set forth the procedures for
exchanging certificates representing Series B Preferred Stock for Convertible
Debt with a principal amount equal to 100% of the aggregate Liquidation
Preference of the shares of Series B Preferred Stock being exchanged. The
Corporation shall as promptly as practicable thereafter mail to each such holder
a notice setting forth the procedures for exchanging certificates representing
Series B Preferred Stock for Convertible Debt. Upon such exchange, the rights of
the holders of Series B Preferred Stock to be exchanged as stockholders of the
Corporation shall cease, and the person or persons entitled to receive the
Convertible Debt issuable upon such exchange shall be treated for all purposes
as the registered holder or holders of such Convertible Debt.
(c) The shares of Series B Preferred Stock which have been
exchanged shall no longer be deemed to be outstanding and shall be retired and
all rights with respect to such shares, including, without limitation, the
rights, if any, to receive dividends (and interest thereon) and to receive
notices and to vote or consent (except for the right of the holders to receive
accrued and unpaid dividends, if any, and Convertible Debt and Common Stock, as
provided herein, in exchange therefor) shall forthwith cease.
(d) Upon any exchange of shares of Series B Preferred Stock
into Convertible Debt, as provided herein, in accordance with this Section 11,
the Corporation will pay any documentary, stamp or similar issue or transfer
taxes which may be due with respect to the transfer and exchange of such
exchanged shares, if any; provided, however, that if the Convertible Debt into
which the shares of Series B Preferred Stock is exchangeable pursuant to this
Section 11 is to be issued in the name of any person other than the holder of
the shares of Series B Preferred Stock to be so exchanged, the amount of any
transfer taxes (whether imposed on the Corporation, the holder or such other
person) payable on account of the transfer to such person will be payable by the
holder.
(e) Unless otherwise agreed by the Corporation and each holder
of shares of Series A Preferred Stock, any shares exchanged at the Corporation's
election shall be called for exchange on a pro rata basis from all holders of
Series B Preferred Stock. Any exchange for which shares are called for exchange
on a pro rata basis (whether or not some of such shares so called are
subsequently converted pursuant to Section 11) shall comply with this Section
11. Any fractional share of Series B Preferred Stock which would otherwise be
issuable as a result of any exchange of less than all shares held shall be
included in the shares exchanged.
<PAGE>
24
(f) The Convertible Debt shall have a maturity date 13 years
following the Closing Date; a principal amount a described in Section 11(a)
thereof (and a proportionate principal amount for any fractional share
exchanged); and shall provide for payment of interest at the rate of 9.2% per
annum, payable annually in cash; shall be convertible and redeemable on terms
substantially the same as those of the Series B Preferred Stock; in each case,
on the terms and conditions set forth in the Convertible Debt Indenture and
shall otherwise be on the terms set forth in the Convertible Debt Indenture.
(g) Definitions. (i) "Convertible Debt" means the 9.2%
Convertible Debentures of the Corporation issued pursuant to the Convertible
Debt Indenture, as amended, modified, supplemented, restructured, replaced,
extended or refinanced from time to time in accordance with the terms hereof and
thereof.
(ii) "Convertible Debt Indenture" means the indenture
pursuant to which the Convertible Debt is to be issued, in the
form attached as Exhibit D to that certain Stock Purchase
Agreement, dated as of November 13, 1998, among the
Corporation and the Purchasers prior to the Closing (as
defined therein), or, if no such form is agreed upon as of the
Closing, in form and substance acceptable to holders of a
majority of Series B Preferred Stock immediately prior to the
effectiveness of such indenture.
<PAGE>
25
IN WITNESS WHEREOF, CD Radio Inc. has caused this Certificate
to be duly executed on its behalf by its undersigned duly authorized officer
this 22nd day of December, 1998.
CD RADIO INC.
By: /s/ Patrick L. Donnelly
---------------------------
Name: Patrick L. Donnelly
Title: Secretary
<PAGE>
EXECUTION COPY
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 to the Stock Purchase Agreement (the
"Stock Purchase Agreement"), dated as of November 13, 1998, by and among CD
Radio Inc. (the "Company"), Apollo Investment Fund IV, L.P. ("AIF IV") and
Apollo Overseas Partners IV, L.P. ("AOP IV" and, together with AIF IV, and
including their successors and permitted assigns, the "Purchasers") is made by
and among the Company and the Purchasers as of this 23rd day of December, 1998
(this "Amendment"). Capitalized terms used herein but not defined herein shall
have the meanings ascribed to them in the Stock Purchase Agreement.
In consideration of the mutual promises contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Amendments. The Stock Purchase Agreement is hereby modified
and amended as set forth below:
(a) Section 6(f)(iv) of Exhibit A to the Stock Purchase
Agreement is amended to read in its entirety as follows:
"(iv) In case the Corporation shall purchase, redeem or
otherwise acquire any shares of Common Stock at a price per share greater than
the Current Market Price per share of Common Stock on the date of such event, or
in case the Corporation shall purchase, redeem or otherwise acquire other
securities convertible into or exchangeable for Common Stock (other than the
Series C Preferred Stock) for a consideration per share of Common Stock into
which such security is convertible or exchangeable greater than the per share
Current Market
<PAGE>
2
Price on the date of such event, then the Conversion Price in effect immediately
prior thereto shall be adjusted as provided below so that the Conversion Price
therefor shall be equal to the price determined by multiplying (A) the
Conversion Price at which shares of Series A Preferred Stock were theretofore
convertible by (B) a fraction of which (x) the denominator shall be the Current
Market Price per share on the date of such event, and (y) the numerator shall be
the Current Market Price per share on the date of such event less the difference
between (1) the consideration paid by the Corporation per share of Common Stock
(or, in the case of securities convertible into or exchangeable for Common
Stock, the consideration per share of Common Stock into which such security is
convertible or exchangeable) purchased, redeemed or acquired in such event and
(2) the Current Market Price per share on the date of such event. Such
adjustment shall be made whenever such Common Stock is issued or sold, and shall
become effective immediately after the issuance or sale of such securities. The
foregoing notwithstanding, no adjustment shall be made pursuant to this
subparagraph (iv) with respect to any particular purchase, redemption or
acquisition with respect to which a Payout Election is made."
(b) Section 6(f)(iv) of Exhibit B to the Stock Purchase
Agreement is amended to read in its entirety as follows:
"(iv) In case the Corporation shall purchase, redeem or
otherwise acquire any shares of Common Stock at a price per share greater than
the Current Market Price per share of Common Stock on the date of such event, or
in case the Corporation shall purchase, redeem or otherwise acquire other
securities convertible into or exchangeable for Common Stock (other than the
Series C Preferred Stock) for a consideration per share of Common Stock into
which such
<PAGE>
3
security is convertible or exchangeable greater than the per share Current
Market Price on the date of such event, then the Conversion Price in effect
immediately prior thereto shall be adjusted as provided below so that the
Conversion Price therefor shall be equal to the price determined by multiplying
(A) the Conversion Price at which shares of Series B Preferred Stock were
theretofore convertible by (B) a fraction of which (x) the denominator shall be
the Current Market Price per share on the date of such event, and (y) the
numerator shall be the Current Market Price per share on the date of such event
less the difference between (1) the consideration paid by the Corporation per
share of Common Stock (or, in the case of securities convertible into or
exchangeable for Common Stock, the consideration per share of Common Stock into
which such security is convertible or exchangeable) purchased, redeemed or
acquired in such event and (2) the Current Market Price per share on the date of
such event. Such adjustment shall be made whenever such Common Stock is issued
or sold, and shall become effective immediately after the issuance or sale of
such securities. The foregoing notwithstanding, no adjustment shall be made
pursuant to this subparagraph (iv) with respect to any particular purchase,
redemption or acquisition with respect to which a Payout Election is made."
2. No Other Amendments. Except as provided above, the Stock
Purchase Agreement shall remain in full force and effect, and the execution of
this Amendment is not a waiver by the Company or the Purchasers of any of the
terms or provisions of the Stock Purchase Agreement.
3. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
<PAGE>
4
EXECUTED as of the date set forth above.
CD RADIO INC.
By:/s/ Patrick L. Donnelly
---------------------------
Patrick L. Donnelly
Executive Vice President and
General Counsel
APOLLO INVESTMENT FUND IV, L.P.
By: Apollo Advisors, IV, L.P., its
general partner
By: Apollo Capital Management
IV, Inc., its general partner
By:/s/ Andrew Africk
--------------------
Andrew Africk
Vice President
APOLLO OVERSEAS PARTNERS IV, L.P.
By: Apollo Advisors, IV, L.P., its
general partner
By: Apollo Capital Management
IV, Inc., its general partner
By:/s/ Andrew Africk
---------------------
Andrew Africk
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 908937
<NAME> CD RADIO INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-START> JAN-01-1999
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 220,520,000
<SECURITIES> 253,687,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 474,812,000
<PP&E> 513,114,000
<DEPRECIATION> 546,000
<TOTAL-ASSETS> 1,097,873,000
<CURRENT-LIABILITIES> 139,672,000
<BONDS> 471,515,000
317,319,000
0
<COMMON> 26,000
<OTHER-SE> 119,806,000
<TOTAL-LIABILITY-AND-EQUITY> 1,097,873,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,694,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,683,000
<INCOME-PRETAX> (36,168,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (36,168,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,168,000)
<EPS-BASIC> (1.53)
<EPS-DILUTED> (1.53)
</TABLE>
