Form S-1 Registration Statement

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and is not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted.

This is the initial public offering of shares of our Class A Common Stock. No public market currently exists for our common stock. We are offering all of the shares of Class A Common Stock offered by this prospectus. We expect the public offering price of our Class A Common Stock to be between $ and $ per share.

We have applied to have our Class A Common Stock approved for quotation on the NASDAQ National Market under the symbol “WINR.”

Investing in our Class A Common Stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock under “ Risk factors” beginning on page 9 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters may also purchase up to an additional shares of our Class A Common Stock at the public offering price, less the underwriting discounts and commissions payable by us, to cover over-allotments, if any, within 30 days from the date of this prospectus. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $ and our total proceeds, before expenses, will be $ .

The underwriters are offering our Class A Common Stock as set forth under “Underwriting.” Delivery of the shares will be made on or about , 2005.

[Inside Cover Page of Prospectus: contains a map of Africa, Asia and Western Europe, showing the broadcast coverage area for (i) each of the three beams projected by WorldSpace’s AfriStar satellite and (ii) each of the three beams projected by WorldSpace’s AsiaStar satellite. Beneath the map is the caption: “Broadcast coverage footprint of WorldSpace’s AfriStar and AsiaStar satellites.”]

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you any information other than the information contained in this prospectus. We are not, and the underwriters are not, making an offer to sell, or seeking offers to buy, shares of our Class A Common Stock in any jurisdiction where such offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our Class A Common Stock.

Through and including , 2005 (25 days after the commencement of this offering), federal securities laws may require all dealers that effect transactions in our Class A Common Stock, whether or not participating in this offering, to deliver a prospectus. This requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

Note concerning Class A Common Stock and Class B Common Stock: We have two classes of common stock, Class A Common Stock and Class B Common Stock. Our Class A Common Stock and our Class B Common Stock vote as a single class on all matters, except as otherwise required by law, and each share of Class A Common Stock and each share of Class B Common Stock entitles its holder to one vote. There are certain restrictions on the right of holders of shares of our Class B Common Stock to receive distributions, including dividends, in respect of such shares, in the event that any such distributions are made. These restrictions do not apply to holders of our Class A Common Stock. The existence of such restrictions with respect to our Class B Common Stock is the only difference between the two classes of common stock. See “Description of capital stock.” Only shares of our Class A Common Stock are being sold in this offering.

This summary highlights selected information contained elsewhere in this prospectus. This summary may not contain all the information that you should consider before investing in our common stock. You should carefully read the entire prospectus, including the section entitled “Risk factors” and the consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision.

Unless the context requires otherwise, the words “WorldSpace,” “Company,” “we,” “us” and “our” refer to WorldSpace, Inc. and its subsidiaries.

We were founded in 1990 by our Chairman and Chief Executive Officer, Noah Samara, who pioneered the development of satellite-based digital radio services, commonly known as Digital Audio Radio Service (DARS). His vision was to offer on an international basis a variety and quality of international, national and regional radio programming not available from AM and FM broadcasters through low-cost portable and mobile radio receivers owned by customers.

In pursuit of this vision, we were the first company to establish an operational DARS system and today are the only licensed DARS provider outside of North America, South Korea and Japan. We were one of the principal founding shareholders of XM Satellite Radio Holdings, Inc. (XM) and were instrumental in its development. In 1999, we sold our interest in XM. XM is licensed to use and develop our technology, which it has utilized, along with other technology, to become the dominant DARS provider in the United States with approximately 3.8 million reported subscribers as of March 31, 2005.

Through the end of December 2004, we have spent approximately $1.2 billion in connection with the development and launch of our business. Our infrastructure is a fully operational system consisting of three main elements: two geostationary satellites, AfriStar (launched in 1998) and AsiaStar (launched in 2000); the associated ground systems that provide content to and control the satellites; and the receivers owned by our customers. Our broadcast coverage area encompasses the most densely populated parts of Asia, including India and China, all of Africa and the Middle East and most of Western Europe, an area that includes approximately five billion people and 300 million automobiles. Each of our two operational satellites can service three large geographic areas through three beams capable of carrying up to 80 channels each. As a result, we have the technical capacity to broadcast a tailored mix of up to 80 channels in each of our target markets on a subscription basis for fees currently averaging between $3 and $5 per month. We intend to enhance our infrastructure with the addition of networks of terrestrial repeaters (i.e., “gap fillers”) in our target markets and next generation receivers designed to receive broadcasts from our networks of terrestrial repeaters as well as from our satellites, which will allow us to expand our service offering to include a mobile service for automobiles.

choice of programming largely unavailable in their local markets. Our subscription service provides a number of advantages over existing radio programming in our target markets, including greater diversity of content, multi-lingual programming, broader geographic coverage and limited advertising.

As the only company licensed to offer DARS in our broadcast coverage area (other than in South Korea and Japan), we are able to roll out our subscription service on a sequential basis in the markets we find the most attractive, subject to obtaining any required local regulatory approvals. The main limitation, historically, to our ability to roll out our service and acquire subscribers has been our limited access to capital. We began offering service in Africa in 2000 on a free-to-air basis. In 2002, we began trials of our subscription service by offering a limited number of encrypted channels and began transitioning our free-to-air customers into paying subscribers. As of March 31, 2005, we had more than 53,000 paying subscribers, including more than 22,000 in India. We have focused our recent efforts on refining our business plan and intensifying our subscriber acquisition marketing efforts in India, where we have begun the roll-out of our service; continuing planning for the roll-out of our service in China, where our core broadcast infrastructure is in place; and in planning for the roll-out of our service in Western Europe—the markets in which we believe demand for our service is greatest. Our strategy is to establish a strong set of local alliances and strategic partnerships to assist in distribution, content procurement, regulatory compliance and the build-out of a terrestrial infrastructure prior to embarking on a full roll-out in a particular market.

While we have in place our satellite infrastructure for China, we have not yet begun commercial operations in China. We believe that there will be significant demand for our service in China, which has a population of more than 1.3 billion people, 360 million households, as estimated by China Media Monitor, a large and growing middle class and one of the fastest growing automobile markets in the world. We intend to use a portion of the proceeds from this offering to continue development of our China business plan as well as for the roll-out of our service in China. We are currently in discussions with two media entities under the direct supervision of China’s State Administration of Radio, Film and Television (SARFT) and other media entities to establish joint ventures for content to be broadcast on the WorldSpace system in China, and we are discussing with SARFT approval of content to be provided by these entities as well as content we expect to provide to independent Chinese broadcasters. Pursuant to a series of agreements, China Satellite Communications Corporation (ChinaSat), our agent and one of six state-owned telecommunications operators in China, has acquired spectrum allocation and certain other

approvals necessary to operate our system and provide our service in China. Additionally, we have established, with ChinaSat, an uplink station in Beijing for our AsiaStar satellite.

We are also continuing business development in Western Europe, which we believe offers a significant opportunity for mobile DARS. We have conducted system tests with and negotiated preliminary agreements with major automobile manufacturers such as Citroën, a division of PSA Peugeot-Citroën, for the integration of DARS receivers in certain of their vehicles. Although we can provide DARS in Western Europe today through portable receivers, we believe that significant demand will be generated once we launch our mobile DARS targeted at Western Europe’s approximately 200 million automobiles. We believe the demand for mobile DARS in Western Europe may be greater than that of the United States, given Western Europe’s wide variety of ethnic and linguistic groups as well as a significant portion of the population that has emigrated to other parts of Europe from their countries of origin. Our regulatory franchise positions us to be the likely provider of DARS in Western Europe. However, as in India and China, we will need to develop a terrestrial repeater network prior to offering a mobile DARS in Western Europe. In addition, in various Western European jurisdictions, we will need to obtain additional local regulatory approvals.

Although our first commercial trial activities were focused on our AfriStar broadcast coverage area, our markets in Asia, particularly in India and China, proved to be more attractive for the dedication of our previously limited resources. However, we intend to capitalize on our brand recognition and the number of receivers sold within the AfriStar broadcast coverage area to build focused subscriber businesses in that coverage area where the opportunities prove attractive.

We also intend to target selected other markets as business and marketing opportunities arise. For example, we currently target U.S. and U.K. expatriates living in our broadcast coverage area, who we believe will be receptive to our services as a “voice from home,” and we anticipate targeting our service to other potentially receptive demographic groups, including Indian and Chinese expatriates living within our broadcast coverage area. We also intend to offer our services to business and government entities, including government agencies in India and the United States, who we believe would be interested in using our technology and broadcast footprint to provide inexpensive and wide-range audio and data transmission services. Since 2002, we have had initial success with U.S. government agencies, receiving and performing more than $8 million in contracts.

Immediately prior to the issuance of such notes, (i) we converted approximately $2 billion of outstanding debt and interest owed to Stonehouse Capital Limited (Stonehouse) into a contingent royalty obligation, pursuant to which we are required to pay Stonehouse 10% of our earnings before interest, taxes, depreciation and amortization (EBITDA), if any, for each year from January 1, 2005 through December 31, 2015, and (ii) we canceled approximately $256 million of outstanding debt and accrued interest owed to Yenura Pte. Ltd. in exchange for shares of our Class B Common Stock. As a result of these transactions, we eliminated all of our long-term debt, other than the new convertible notes. See “Pre-offering recapitalization.”

Our principal executive office is located at 2400 N Street, N.W., Washington, D.C. 20037 and our telephone number at that office is (202) 969-6000. We anticipate relocating our principal executive offices to 8515 Georgia Avenue, Silver Spring, Maryland in July 2005. Our website is located at www.worldspace.com. Information contained on our website is not part of, and is not incorporated into, this prospectus.

Unless otherwise indicated, all share amounts in this prospectus assume the underwriters do not exercise their option to purchase up to additional shares of our Class A Common Stock to cover over-allotments, if any.

The number of shares of our common stock outstanding immediately after this offering is based on shares outstanding at , 2005. This number excludes:

The following table presents summary historical consolidated financial data as of, and for the years ended, December 31, 2000, 2001, 2002, 2003 and 2004, which data have been derived from our audited consolidated financial statements. You should read this information in conjunction with the information set forth in “Selected historical consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and related notes for the years ended December 31, 2002, 2003 and 2004, which are included elsewhere in this prospectus.

An investment in our common stock involves a high degree of risk. You should carefully consider the following risks and other information in this prospectus before you decide whether to invest in shares of our Class A Common Stock. Our business, prospects, financial condition, operating results or cash flows may be materially and adversely affected by the following risks, or other risks and uncertainties that we have not yet identified or currently consider to be immaterial. In that event, the trading price of our Class A Common Stock could decline, and you could lose all or part of your investment.

Our business has experienced significant losses and we may not be able to generate sufficient revenue to become profitable.

Through the end of December 2004, we have spent approximately $1.2 billion in connection with the development and launch of our business. To date, the build-out of our infrastructure and our day-to-day operations have been financed substantially by our financing activities, and we have had limited revenue from operations. As of December 31, 2004, we had incurred aggregate losses of approximately $2.1 billion. We plan to dedicate significant resources to our current business strategy, including increased marketing and construction of terrestrial repeater networks in India, development of next generation mobile receivers and launch of service in China. In addition, to the extent we have positive annual earnings before income, taxes, depreciation and amortization (EBITDA), we are required to make a payment of 10% of our EBITDA under our royalty agreement with Stonehouse Capital Limited (Stonehouse). We anticipate that, in the near term, we will continue to rely on the proceeds from our private placement of senior convertible notes in the aggregate principal amount of $155 million in December 2004 and the proceeds from this offering to sustain our operations. In the future, we will need to generate significant revenue in order to achieve a profit from operations, and we can offer you no assurance that we will ever become profitable.

There may not be sufficient demand for our service to allow us to become profitable.

We are the only company licensed to offer DARS in our current target markets of India, China and Western Europe. We cannot estimate with any degree of certainty the potential market demand in our target markets for a subscription-based digital satellite radio service or the degree to which our service will meet such market demand. We will achieve or fail to gain market acceptance depending upon many factors, some of which are not within our control, including:

If for any reason we cannot achieve a rapid and significant level of consumer acceptance for our service, we may not achieve the market penetration rates necessary for us to execute our business plan successfully.

In order to attract subscribers to our service in India, we are subsidizing a portion of the costs of purchasing the lowest-cost receiver capable of receiving our broadcast that is offered in our Indian market. We intend to continue to subsidize a portion of the costs of purchasing receivers in our Indian market and in other markets as we introduce our service. We are also in the process of launching a large advertising and sales campaign and other promotional activities as we roll out our services in different markets in India. Consequently, our subscriber acquisition costs are expected to increase substantially. Our subscriber acquisition costs may increase even further if we determine that more aggressive advertising, promotions or other marketing efforts are necessary to promote faster subscriber growth or to respond to competition, or are otherwise advisable. If these subscriber acquisition costs become sufficiently high they could materially adversely affect our business and financial performance.

We may not be able to compete effectively against conventional radio stations or other potential providers of consumer audio services.

In seeking market acceptance, we will encounter competition for both listeners and future advertising revenue from many sources, including traditional and, when available, digital AM/FM radio, shortwave radio, Internet based audio providers, direct broadcast satellite television audio service, systems that carry audio service and digital music players. We could also face competition from Terrestrial Digital Radio services in the future, although such services are not currently offered in India or China, our two immediate target markets. Unlike our service, traditional AM/FM radio already has a well-established market presence for its services and generally offers free-to-air broadcast reception supported by commercial advertising, rather than by a subscription fee. Also, many radio stations offer information programming of a local nature, such as news and sports reports, which we may not be able to offer as effectively as local radio. To the extent that consumers place a high value on these features of traditional AM/FM radio, we are at a competitive disadvantage to the traditional providers of audio entertainment services. In addition, although potential competition in our target markets with other satellite broadcast radio services is limited by regulatory and other restrictions, such competition could emerge. If an alternative satellite radio broadcast system that is comparable or superior to our system were to be introduced in our target markets, or if any competitor were to begin offering another mobile radio service before us, we could experience competitive pressure or be at a competitive disadvantage.

We operate with very limited staffing of accounting functions and we will be relying on new accounting staff and establishing new and enhanced systems of internal controls; as our business expands globally, the demands on our accounting staff will also grow.

We have experienced severe working capital constraints for several years and, as a result, we have operated with very limited staffing of key functions, including accounting. We have also experienced turnover of our accounting staff, including the replacement of our Chief Financial Officer and the loss of our Controller in September 2004. These circumstances have increased demands on our internal accounting and financial staff. While we are currently actively seeking to hire additional staff at both the senior and junior levels in our finance and accounting areas, we have retained an external consultant to perform certain core accounting functions to address temporarily our accounting undercapacity. External consultants performing core accounting functions are unlikely to understand our business and operations to the same extent that our internal staff would be expected to, and we believe it is important, as we hire additional senior and junior staff, that we transition all such accounting functions in-house as rapidly as possible.

Our independent auditors have identified material weaknesses and significant deficiencies in our internal controls in their 2004 Internal Control Letter to us. We have engaged PricewaterhouseCoopers as a third-party consultant with respect to the development of appropriate internal controls. We are in the process of establishing such new and enhanced systems of internal controls as we believe necessary to allow management to report on, and our independent auditors to attest to, our internal controls, as required by the management certification and auditor attestation requirements mandated by the Sarbanes-Oxley Act of 2002. We will be performing system and process evaluation and testing (and any necessary remediation) of our internal control system on an ongoing basis. While we anticipate being able to implement fully the requirements relating to internal controls and all other applicable requirements of the Sarbanes-Oxley Act of 2002 in a timely fashion, we cannot be certain as to the timing of completion of our evaluation and testing and any necessary remediation or the impact of the same on our operations. Our development, implementation and maintenance of appropriate internal controls will depend materially both on our successful hiring and retention of key senior accounting personnel.

In addition to addressing the accounting and internal controls of our current operations, our employees, providers and systems will have to accommodate increasingly complex financial reporting demands as we expand our operations in India and as we introduce our services in other markets, including China. We will also have to be able to retain and attract appropriately qualified personnel in key staff areas to maintain an effective accounting and internal controls system.

If we are unable to attract and retain qualified personnel, to implement and integrate financial reporting and accounting systems or if we are unable to scale these systems to our growth, we may not have adequate, accurate or timely financial information, and we may be unable to meet our reporting obligations or comply with the requirements of the SEC, the NASDAQ National Market or the Sarbanes-Oxley Act of 2002, as a result whereof we might be subject to sanctions, including the suspension or delisting of our Class A Common Stock from the NASDAQ National Market and the inability of registered broker dealers to make a market in our Class A Common Stock, or investigation by regulatory authorities. Any such action or other negative results caused by our inability to meet our reporting requirements or comply with legal and regulatory requirements or by disclosure of an accounting, reporting or control issue could adversely affect the price of our Class A Common Stock.

Satellites utilize highly complex technology and, accordingly, are subject to in-orbit failures after they have been successfully placed into operation. Our AfriStar satellite was launched in October 1998, and our AsiaStar satellite was launched in March 2000. Our satellites are designed to operate in orbit for approximately 12 years after launch. After this period, our satellites’ performance in delivering our service may deteriorate. Each satellite has an orbital maneuver life of 15 years, which means that each satellite has been designed to maintain its assigned orbital position (within 0.1 degrees) for 15 years. The useful life of our satellites may vary from our estimate. In addition to AfriStar and AsiaStar, we have two additional satellites, one fully assembled satellite (F3) and another satellite (F4) for which the long lead parts have been procured and partially assembled, which are currently maintained in storage in Toulouse, France. The F3 satellite, which can be used to replace either AfriStar or AsiaStar, may also be modified and launched to provide DARS in Western Europe. In such case, it is envisioned that the F4 satellite, upon full assembly, would be maintained as an on-ground spare satellite that could be launched in the event that one of our other three satellites experiences an in-orbit failure. Nevertheless, if one of our satellites were to fail or suffer significant performance degradation prematurely and unexpectedly, it would cause interruption in the continuity of our service or impair the quality of our service and harm our business and financial performance. In addition, if we were to launch another satellite, there is no

assurance that it would not be damaged or destroyed during launch, that it would successfully reach geostationary orbit or that it would function properly once in orbit.

A number of factors could decrease the useful lives of our in-orbit satellites, including:

Our AfriStar satellite has developed a defect in its solar panels. The panels are collecting less power than intended, and we expect that this will affect that satellite’s operation starting in 2008. At that time we will need to make an operating decision regarding the use of our AfriStar satellite, since it would be possible to extend the useful life of the satellite through careful management of the power generated by the solar array. This may require broadcasting a smaller number of channels over one or more of its beams in order to conserve power or reducing the power radiated by one or more of its beams with resulting reduction of the broadcast coverage area. Our target markets of India and China are served by the AsiaStar satellite and are not affected by the performance of our AfriStar satellite.

We currently maintain in-orbit insurance coverage for our AsiaStar satellite, which would reimburse us for a portion of the insured satellite value in the event of a partial loss or for the full insured value in the event of a total loss. Our current one-year policy expires on March 21, 2006. In addition, we intend to acquire in-orbit insurance coverage on our AfriStar satellite by the end of April 2005. We anticipate that our in-orbit insurance policies will continue to be on a year-to-year basis. Although we intend to maintain insurance on our AsiaStar and AfriStar satellites, any determination we make as to whether to purchase or maintain in-orbit insurance coverage will depend on a number of factors, including the availability of insurance in the market and the cost of available insurance. We will also consider the exclusions to coverage, if any, required by insurers and the other terms and conditions upon which the insurance is available. Even if we seek to obtain replacement insurance in the future, we may not be able to obtain this insurance on reasonable terms and conditions. Moreover, this insurance coverage may be costly, if available at all. The cost of insurance may increase or its terms may become disadvantageous with respect to exclusions and deductibles as a result of several factors, including the failure or degradation of performance of one of our in-orbit satellites or the failure of a similar satellite owned by another operator.

Even when we have obtained in-orbit insurance for a satellite, such insurance coverage will not protect against all losses to the satellite. Our current insurance policy for AsiaStar contains specified exclusions, deductibles and material change limitations. These exclusions include losses resulting from acts of war, insurrection or military action, as well as lasers, directed energy beams, or nuclear or anti-satellite devices. These exclusions also relate to losses resulting from government confiscation and nuclear reaction or radioactive contamination. In addition, our insurance does not protect us against lost or delayed revenue, business interruption or lost business opportunities. In addition to other material, adverse effects on us, the partial or total loss of an uninsured satellite would cause us to recognize a loss equal to the book value of any such total loss or, in the case of a partial loss, an amount equal to the proportion of the satellite’s book value corresponding to such partial loss.

Our exposure to exchange rate fluctuations could materially affect our reported results of operation.

We anticipate that the vast majority of our revenue will be derived from our operations outside the United States, particularly India, China and Western Europe. We present our financial statements in U.S. dollars. Accordingly, changes in the exchange rates between the local currencies of our operations and the U.S. dollar could materially affect the translation of financial results into U.S. dollars for purposes of reporting our financial results. Because we report our financial results in U.S. dollars, our financial statements will include gains and losses from foreign currency translation adjustments, and these adjustments could have a material impact on our reported results of operations and could result in significant period-to-period fluctuations in our reported results of operations which are not attributable to, and may be at variance with, our actual business performance. Exchange rate fluctuations may also affect the relative values of working capital advances between our various subsidiaries and of payments to and receipts from third parties, the effects of which impact our results of operations.

Royalty payments to Stonehouse could materially limit our available working capital and negatively impact our results of operations.

We have significant contingent annual payment obligations for the next ten years under our royalty agreement with Stonehouse. We are obligated to pay to Stonehouse 10% of our annual EBITDA, if any, for each annual period through December 31, 2015. In addition, we must maintain a segregated reserve account to be funded in each quarter of any year in which EBITDA is forecast to be positive at the rate of 25% of the estimated annual payment. The royalty agreement also places limitations on our ability to dispose of assets. The royalty payment and reserve account obligation and the restrictions imposed by the royalty agreement could limit our cash flow and funds available for our working capital, and could result in a charge against our earnings which could have a material, adverse effect on our results of operations. See “Pre-offering recapitalization” and “Certain relationships and related party transactions.”

We may incur significant delays and expense in the development and installation of terrestrial repeater transmitters, and we cannot be certain that the systems will function properly.

Our planned introduction of a mobile service in India requires the installation of a network of terrestrial repeating transmitters (terrestrial repeaters), which serve as gap fillers to avoid signal disruption in the markets in which we plan to offer mobile products. The eventual roll-out of our mobile services in China and Western Europe will also require the installation of networks of terrestrial repeaters.

We intend to install terrestrial repeaters to rebroadcast our satellite signals in various cities in India as we expand our terrestrial network and roll out our services. We are currently developing new technology for the future terrestrial repeaters in cooperation with SED Systems (SED), a division of Calian Ltd. We may experience significant delays in deploying the repeater network in India if the terrestrial repeater technology turns out to be more complex than we currently expect. Moreover, since we rely on SED to provide key technical expertise, personnel-related delays may be out of our control. As our current receivers are not compatible with the terrestrial repeaters, we will also need to offer a next generation of receivers that can receive these rebroadcasts as well as broadcasts directly from our satellites. There can be no assurance that our mobile service will function using the terrestrial repeaters until we have installed and tested a substantial portion of the new equipment. In addition, some areas may still experience “dead zones” and we may incur additional costs to install terrestrial repeaters to cover these areas. We also may experience significant delays and expense in the implementation of our current plan to install terrestrial repeaters in the event that third-parties with existing terrestrial repeater networks, including radio broadcasters, upon whom we may be relying to secure optimal sites and install our terrestrial repeater network, do not cooperate with us or do not act in a timely and effective manner.

We may also experience signal interference with our new receivers in India and later in China and Western Europe, due to terrestrial transmissions in portions of the L band spectrum. When we identify a signal that is interfering with our terrestrial rebroadcasts, we will seek to negotiate a solution with the local operator of the transmitter. However, we may not always be able to reach a timely agreement through the relevant government authorities responsible for frequency management that will allow our customers to receive our service without any interference.

We may be unable to obtain the licenses required to operate our terrestrial repeater networks in India or to retain the necessary authorizations to operate a subscription service.

The Indian government does not currently have a regulatory framework or written policy governing satellite radio services, and we are presently the only satellite radio services provider in the country. We have received government authorizations to provide our existing subscription service and to import receivers. However, in order to deploy complementary terrestrial repeaters in India, we will be required to obtain spectrum allocation, transmitter and service licenses. In addition, we will be required to obtain licenses for a next generation of receivers, unless they can be classified as radio receivers. Moreover, in a public consultation paper issued on December 29, 2004, the Telecom Regulatory Authority of India (TRAI) indicated that it may recommend imposing foreign ownership restrictions on terrestrial repeater licenses, similar to those currently applicable to FM radio licenses. The consultation paper discussed whether certain exemptions should apply for subscription-based satellite radio services, and also suggested that WorldSpace might be licensed automatically under any new regulatory framework for satellite radio. Recommendations of TRAI are not binding on the Indian government. The Indian government has specific regulations for other broadcasting sectors wherein it regulates issues like foreign ownership and management eligibility criteria, and technical specifications. The Indian government may issue specific regulations for our business which can impose restrictions or require additional licenses for our existing business as well as on the implementation of the terrestrial repeater component. There can be no assurance that we will be able to obtain all the required licenses in India. In addition, there can be no assurance that the Indian government will not revoke or change the terms of the authorizations we have received for subscription audio services and the importation of receivers. Authorizations for our repeater networks will also be required in China and Western Europe. Any failure to obtain any required licenses or any material changes in our current authorizations or imposition of any additional restrictions could adversely affect our ability to conduct business.

We may experience delays and incur significant costs in the development and production of our receivers.

The timely manufacture and distribution of our receivers at a price that is attractive to consumers is a critical factor in the execution of our business plan. The receivers for our Indian market are manufactured by a limited number of third-party vendors. We expect the same will be true for the receivers for our Chinese market. Because the current market for our receivers is limited, the financial incentive for manufacturers to produce significant quantities of our receivers at an attractive price is similarly limited. If we are unable to maintain established relationships with our manufacturers or develop comparable relationships with new vendors, we could experience delays in the development, supply and availability of our receivers at acceptable quality and price levels. Significant delays in the development, manufacture and availability of receivers at an attractive price to consumers would materially impact our ability to carry out our business plan. Our business plan also depends on the reduction of the cost of our receivers in order to make them available to consumers at an attractive price. Currently, to encourage sales of our receivers, we subsidize our lowest-cost receivers in India. There can be no assurance that we will not need to continue to subsidize the cost of our receivers by offering them to consumers at a price below their cost to us.

Our next generation of receivers will eventually replace our current receivers, which may result in increased costs, higher subscriber turnover, or lower receiver sales.

In connection with the introduction of our mobile DARS and the introduction of our next generation of receivers, we intend to begin broadcasting our signal in a modified waveform. Our current receivers will not be able to decode the modified waveform signal. While we intend to broadcast in both waveforms for a period of time, we will eventually cease broadcasting in the older waveform. We will have to transition our subscribers from the older receivers to our next generation receivers. Because our next generation of receivers will, when introduced, be more expensive than our existing receivers, we will face increased costs to the extent we decide to subsidize the transition of our current subscribers to our next generation receivers. In addition, new customers may not be willing to pay for the higher priced new receivers. We may also experience higher subscriber turnover if existing subscribers decide not to purchase a new receiver.

Our ability to conduct our business in China may be adversely affected if we cannot maintain our relationship with ChinaSat or another licensed Chinese telecommunications operator and with Chinese manufacturers of our receivers and obtain approval for our content from the appropriate Chinese regulatory authorities.

Our next critical target market after India is China. Due to the ownership restrictions under Chinese law, we have depended on China Satellite Communication Corporation (ChinaSat), in which we have no ownership, to obtain the necessary regulatory authorizations from the Ministry of Information Industry. ChinaSat, as our agent, has acquired the required government approvals for spectrum allocation and operation allocation. Our relationship with ChinaSat is based upon a five-year renewable agreement that expires in August 2005. We have an option, exercisable until July 2005, to extend this relationship with ChinaSat for an additional three-year term. We are also a party to two active agreements with Chinese companies to manufacture the receivers necessary for our customers to receive our service. We will also need to partner with local companies to obtain regulatory approval from the Chinese State Administration of Radio, Film and Television (SARFT) for our audio content broadcast by our service and approval from the appropriate Chinese regulatory authorities for data content. Our ability to execute our business plan in China will depend on our relationship with ChinaSat (or with another of the licensed Chinese telecommunications operators that are able to obtain and hold the necessary spectrum and operations licenses), SARFT and the receiver manufacturers. Therefore, any disruption in these relationships could materially delay or impair the implementation of our China business plan and our future profits. In addition, should ChinaSat, one of the receiver manufacturers or any other entity with which we partner in China fail to perform its obligations under our agreements, we may have to rely on legal remedies under Chinese law. The laws and regulations relating to contractual arrangements and foreign investment in China are relatively new and their interpretation and enforcement involve uncertainties, which could limit our ability to enforce these agreements in China.

Failure of our ground network infrastructure would adversely affect our ability to broadcast content up to our satellites.

We rely on our ground network infrastructure, including our satellite control network and our broadcast facilities, for key operations, including transmitting broadcast signals up to our satellites. We have limited broadcast facilities to transmit content to our satellites for broadcast to our customers. We rely primarily on our Singapore uplink station, which is hosted by Singapore Telecom, to transmit content to our India market, as our Melbourne, Australia uplink station only has the transmitting power to transmit approximately four channels. Our uplink stations were uniquely built for us and, therefore, it will take a significant amount of time to obtain replacement parts in the event they are needed. If a natural or other disaster significantly damaged our broadcast system, particularly our Singapore uplink station, if key parts were to fail for any reason, or if Singapore Telecom failed to support the Singapore uplink station

properly or terminated their host services contract, our ability to provide service to subscribers, at least on an interim basis, would be limited substantially, and, accordingly, our business and operating results would be materially and adversely affected.

We have faced in the past, and may face in the future, challenges and constraints in obtaining financing.

There can be no assurance that we will not need to raise additional financing to carry out our current business plan. Several factors could delay or impair our ability to obtain additional financing or result in increased costs, including the following:

In addition, we have faced, and in the future may continue to face, many challenges and constraints in financing our development and operations. For several years we have experienced severe working capital constraints and have incurred substantial delays in implementing our business plan largely as a result of our inability to raise financing. For example, prior to 2005, financing shortfalls forced us to limit our Indian marketing effort and the roll-out of our services. We cannot guarantee that in the future we will not experience periods where we have limited funding and difficulty in raising any necessary capital on favorable terms, if at all. During any such period, we would continue to need significant amounts of cash to fund our capital expenditures, administrative and overhead costs, and contractual obligations. In such circumstances, if we were not able to obtain additional financing, we could be forced to curtail, or even cease, operations.

Our success will depend, in part, upon key technical and managerial personnel, as well as our ability to attract and retain additional highly-qualified personnel as we expand our services in India and launch service in China. In particular, we believe that our success will depend to a significant extent upon Noah Samara, our founder, Chairman and Chief Executive Officer. The loss of Mr. Samara would have a material, adverse effect on our business. We currently anticipate obtaining “key-man” insurance for Mr. Samara by the end of April 2005. Loss of other key personnel or the inability to hire and retain qualified personnel in the future could have a material, adverse effect on our financial performance, results of operations and financial condition.

Failure to maintain our FCC license authority, to comply with obligations under our Deed of Agreement with the ACA or to receive license renewals and extensions for our AfriStar and AsiaStar satellites from the relevant regulatory agencies could have a material, adverse effect on our business and operations.

The operation of our AsiaStar satellite is authorized by a Deed of Agreement (the Deed) issued by the Australian Communications Authority (ACA). The Deed remains in force as long as our wholly-owned (indirect) Australian subsidiary, AsiaSpace Ltd. (AsiaSpace), fulfills its obligations as specified therein, which relate to compliance with the International Telecommunications Union (ITU) Radio Regulations, maintenance of the telemetry, tracking and control facility in Australia and our subsidiary’s continued incorporation in Australia. If AsiaSpace is determined to have violated the terms of the Deed, the Australian Space Licensing and Safety Office has the discretion to terminate the Deed and suppress the ITU notification of the network. Additionally, once the AsiaStar satellite reaches the end of its service life, we will need to apply to the ACA for authorization to launch and operate a replacement satellite at the same orbital location. However, there can be no guarantee that the ACA will grant such an authorization, and in that case, the orbital location currently occupied by our AsiaStar satellite could become available for use by other satellite operators.

The AfriStar satellite is licensed by the U.S. Federal Communications Commission (FCC). Our FCC license provides for a ten-year license term that expires in January 2010, which is subject to renewal at that time. If we fail to comply with the terms of this license, the FCC may deny our request to renew the license. We have filed an application with the FCC for a second satellite, called AfriStar-2, to be co-located with AfriStar. The purpose of the AfriStar-2 application is to launch and operate a second satellite to enhance our service coverage in North Africa, the Mediterranean basin and Western Europe and to extend the useful life of AfriStar which has been affected by a defect in its solar panels described above. See “—Our satellites have a limited life and may fail in orbit.” The FCC’s rules do not guarantee that it will grant licenses for replacement satellites or for additional co-located satellites. In practice, however, the FCC generally grants such requests to a licensee in good standing. If at the end of the useful life of AfriStar the FCC denies our request to extend the term of our current license for AfriStar or does not issue to us a license to launch and operate a second or replacement satellite, the orbital location currently occupied by our AfriStar satellite could become available for use by other satellite operators. Finally, the FCC could impose milestone and bond requirements on either the AfriStar-2 license or any subsequent satellite license, which would require that we post a bond of up to $3 million, the value of which would be reduced as certain stipulated milestones are met. If we were to fail to meet any milestone, we could forfeit the bond and potentially lose our license.

Future changes to the regulations and policies governing the telecommunications and media industries in the markets in which we operate may have a material, adverse effect on our business and operations.

Possible future changes to regulations and policies of the local governments applicable to the telecommunications and media industries in the markets in which we operate could have a material, adverse effect on our business and operations. Regulations and legal requirements governing the telecommunications industry are relatively new and evolving in many jurisdictions throughout the world. For example, many European jurisdictions are reevaluating their existing regulatory frameworks to accommodate DARS-type services, and other jurisdictions, including India and China, have only recently begun to develop the framework that will apply to such services. Because these restrictions are particularly new in the markets in which we operate, their interpretation and enforcement may involve significant uncertainty.

The satellite industry and the audio entertainment industry are both characterized by rapid technological change, frequent new product innovation, changes in customer requirements and expectations and

evolving industry standards. Our success will depend in part on our ability to develop and introduce on a timely basis new technology that keeps pace with technological developments and emerging industry standards, and addresses the increasingly sophisticated and changing needs of our customers. We also depend on technologies being developed by third parties to implement key aspects of our system. The development of new technologically advanced services and equipment is a complex and uncertain process requiring capital commitments and high levels of innovation, as well as the accurate anticipation of technological and market trends. We may be unable to obtain more advanced technologies on a timely basis or on reasonable terms, or our competitors may obtain more advanced technologies and we may not have access to these technologies. Our failure to anticipate or respond adequately to changes in technology and consumer preferences, or any significant delays in the development or introduction of new or enhanced technology, could have a material, adverse impact on our business, financial condition and results of operation.

Our DARS broadcast coverage area and most of our subsidiaries are outside the United States, and many are in developing countries. As a result, we are subject to certain risks on a country-by-country (or region-by-region) basis, including:

Certain of these risks may be greater in developing countries or regions, where economic, political or diplomatic conditions may be significantly more volatile than those commonly experienced in the United States and other industrialized countries.

For specific risks relating to the conduct of our business in our initial markets of India and China, see “—Risks related to the conduct of our business in India” and “—Risks related to the conduct of our business in China.”

Our failure to acquire new content or maintain our current content may make our service less desirable to subscribers.

Third-party content is an important part of our service, and if we are unable to obtain or retain third-party content and brands at reasonable costs, we will not be able to carry out our business plan successfully. We may face increased costs in the future with respect to third-party content. We currently offer 21 channels of third-party content in India, and plan to offer additional channels in the future. We also plan to add additional channels of third-party content in any new markets into which we expand our service, including China, in order to tailor our service to such market. We may not be able to obtain or retain the third-party content we need at all or within the costs contemplated by our business plan.

In addition, we may not be able to retain the third-party brand name content offered on our channels. Broadcasters of brand name content can choose one or more of several alternative methods of reaching our coverage area, such as television, radio and the Internet. If we do not develop and maintain a subscriber base that is an attractive audience for some of our brand name content broadcasters, they may not wish to continue broadcasting through our service. Brand name broadcasters may also demand greater compensation than we may be willing or able to pay. If we lose brand name content and are unable to replace it with similar programming, our ability to deliver diverse programming will suffer and our service may become less desirable to our current and future subscribers.

Extensive government regulation of the telecommunications and broadcasting industries restricts our direct entry into China and may limit our ability to attract customers or generate profits.

Our business in China is highly regulated and subject to restrictions on foreign investment in the telecommunications industry and restrictions on the broadcasting industry in China.

Foreign companies are currently not allowed to directly provide satellite communications services to Chinese end users, and must conduct such business through qualified local telecommunications operators holding appropriate licenses and permits. Spectrum utilization by our AsiaStar satellite for service to individual households in China was initially authorized to ChinaSat, as our agent, by the Ministry of Information Industry (MII) in September 2000 for purposes of commercial testing. That authorization lapsed in September 2001, but was reissued on an indefinite basis in October 2004, subject to the annual review by the MII. Although we currently anticipate that a similar re-issuance of a service license will be granted to ChinaSat, there can be no assurance that it will be granted, or that either the spectrum allocation or the service license will continue to remain in effect if the regulatory landscape in China changes.

Additional examples of issues, risks and uncertainties relating to the Chinese government’s regulation of the telecommunications industry include:

We are dependent on key suppliers and distributors and a failure to maintain and continue these relationships could adversely impact our business.

We have a number of key relationships with suppliers, distributors and other parties, the loss of which would have a material, adverse effect on our business. Our receivers are manufactured by a limited number of third-party vendors. In India, one manufacturer accounted for approximately 98% of all the

WorldSpace receivers sold in 2004. While we expect other manufacturers to initiate and expand production for the Indian market in the next few years, we expect receiver supply to remain dominated by a handful of manufacturers. We anticipate a similar dynamic in our China market.

In addition, key component parts of our DARS system are also developed and supplied by third-party vendors with which we have established working relationships. For example, Analog Devices is currently developing next-generation chipsets for our receivers and working with receiver manufacturers on the integration of their chipsets into our next generation of receivers. We are dependent on Singapore Telecom to operate our primary uplink station for our AsiaStar satellite. We are dependent on ChinaSat for our license to operate service in China.

If we are unable to maintain such established relationships, develop comparable relationships with new parties, or should any of our key relationships fail to work effectively, we could experience, among other problems, delays in the production of receivers, interruption in the broadcast of our services or loss of our ability to operate in a particular market.

We expect to experience significant and rapid growth in the scope and complexity of our business as we expand the commercial operations of our service. We do not currently employ sufficient staff to handle all of our expected sales and marketing efforts in India and China. Although we have hired experienced executives in this area, we must hire additional employees as we expand commercial operations of our service.

In addition, our growth may strain our management and operational and financial infrastructure. In particular, our growth will make it more difficult for us to:

The improvements and increased staff required to manage our growth will require us to make significant expenditures and allocate valuable management resources. If we fail to manage our growth effectively, our operating performance will suffer and we could lose part of our subscriber and broadcaster base.

Like all radio transmissions, our signal is subject to interception. Consumers may be able to obtain or rebroadcast our signal without paying the subscription fee. Although we use encryption technology to mitigate signal piracy, we may not be able to eliminate theft of our signal. Widespread signal theft could reduce the number of consumers willing to pay us subscription fees and materially adversely affect our results of operations.

Our patents and licenses may not provide sufficient intellectual property protection.

We hold licenses from third parties to utilize patents covering various types of technology used in our system, including our digital compression technology. In addition, we have obtained patents and have patent applications pending with respect to our proprietary intellectual property. Although these licenses and patents cover various features of satellite radio technology, they may not cover all aspects of our

system. Others may duplicate aspects of our system that are not covered by our patents without liability to us. In addition, competitors may challenge, invalidate or circumvent our patents. We may be forced to enforce our patents or determine the scope and validity of other parties’ proprietary rights through administrative proceedings, litigation or arbitration. If we were to be involved in administrative proceedings, litigation or arbitration, we might have to spend significant amounts of time and money. In addition, any administrative proceeding, litigation or arbitration could divert our management time and efforts. An adverse ruling arising out of any intellectual property dispute could subject us to significant liability for damages, prevent us from operating our system, preclude us from preventing a third-party from operating a similar system or require us to license disputed rights from or to third parties. In the event that we need to license rights from third parties, we may not be able to obtain the licenses on satisfactory terms, if at all. We also hold a blanket license granted by the Composers and Authors Society of Singapore (COMPASS) to broadcast, perform, transmit, and otherwise use all musical works which COMPASS has or will have the right to license. Although we believe the license granted to us by COMPASS would cover all necessary broadcasting rights for transmissions from our Singapore uplink station to India, China and other countries within the AsiaStar broadcast coverage area, it is possible that other sister rights societies in other jurisdictions within the AsiaStar broadcast coverage area will not recognize such license and will seek to require separate licenses for broadcasts into their jurisdictions. This could increase our cost of broadcasting in such jurisdiction.

Future changes to Indian regulations and policies governing the market in which we operate may have a material, adverse effect on our business and operations.

The TRAI consultation paper dated December 29, 2004 highlights certain areas of potential changes in the regulation of satellite services, including:

Changes in the policies of the government of India or political instability could delay the further liberalization of the Indian economy and adversely affect economic conditions in India, which could adversely impact our business.

The role of the Indian central and state governments in the Indian economy is significant. Although the current government of India supports liberalization of the Indian economy, this economic liberalization

may not continue in the future and specific laws and policies affecting technology companies, foreign investment, currency exchange and other matters affecting our business could change as well. Changes in the policies of the government of India or political instability could delay further liberalization of the Indian economy and could adversely affect business and economic conditions in India in general and our business in particular.

The imposition of economic sanctions could affect our operations in India and adversely impact our business.

The United States, Japan and certain other nations have announced and imposed economic sanctions against India in the past. For example, as required under Section 102 of the Arms Export Control Act, sanctions were imposed in response to the detonation by India of nuclear devices. Although most of the current sanctions imposed by the United States restrict the United States from providing assistance to India and do not directly limit the activities of U.S. businesses, the precise ramifications of the sanctions are not expected to be known for some time. Further, although the current sanctions do not directly affect U.S. businesses, additional sanctions could be imposed which could have a material adverse effect on U.S. businesses with operations, sales or suppliers in India. Although our operations have not been substantially affected by the sanctions to date and we do not believe our activities will be affected by the current sanctions, we cannot assure you that our technologies will not, in the future, be included in the specific technologies subject to sanctions or affected by the prohibition on items exported by third parties.

Terrorist attacks, wars, or regional conflicts could adversely affect the Indian economy, disrupt our operations and cause our business to suffer.

Terrorist attacks, such as the attacks of September 11, 2001, in the United States, and other acts of violence or war, such as a conflict between India and Pakistan, have the potential to directly impact our customers and the Indian economy by making travel more difficult, interrupting lines of communication and effectively curtailing our ability to deliver our services to our customers. These obstacles may increase our expenses and negatively affect our operating results. In addition, military activity, terrorist attacks and political tensions between India and Pakistan could adversely affect the Indian economy and demand for our services, which could adversely affect our business.

Any resulting financial turmoil in other countries could cause our business or the price of our stock to suffer. Financial turmoil in several Asian countries has in the recent past adversely affected market prices in the world’s securities markets, including India and the United States. Continuation or worsening of the financial downturns in these countries could cause further decreases in prices for securities of companies located in developing economies, such as us. Such events would also make it more difficult for us to raise additional capital in order to expand our business.

Companies operating in India are subject to a variety of central and state government taxes and surcharges.

Tax and other levies imposed by the central and state government in India that affect the tax liability of our India operations include: (i) central and state taxes and other levies; (ii) income tax; (iii) value added tax; (iv) turnover tax; (v) service tax; and (vi) other special taxes and surcharges which are introduced on a temporary or permanent basis from time to time.

The central and state tax scheme in India is extensive and subject to change from time to time. The statutory corporate income tax in India, which includes an education tax, is currently 36.6%. The central or state government may in the future increase the corporate income tax it imposes. Any such future increases or amendments may affect the overall tax efficiency of companies operating in India and may result in significant additional taxes becoming payable. Additional tax exposure could have a material adverse effect on our India operations’ business, financial condition and results.

The telecommunications sector is one of the fastest growing sectors in India and is therefore confronted with a high volume of litigation. Lawsuits may impede our business development and operations in India as it may divert our management’s attention making it difficult for us to conduct our business. The legal system in India, is fairly complex and time consuming. The process of litigation may extend for several years in India adversely affecting and restricting our ability to expand to the needs of the consumers and cause loss of time, energy and revenue. An injunction granted against us may further restrict us in carrying out our business and may cause loss of revenue. In addition, public interest litigation is also common in India and highly litigated sectors such as telecommunications are very prone to such litigation. Public interest litigation would further inhibit our ability to carry out our business efficiently.

We may be held liable for any content provided via our satellite transmission network which could be deemed to be obscene, against national security, defamatory, infringing any copyright, patent or trademark or in violation of any similar laws. Any such violation can affect our authorizations and licenses. Additionally, any liability due to content could have a material, adverse effect on our Indian business.

Our business in China may be adversely affected by future changes to Chinese telecommunications and broadcasting regulations and policies, as well as possible future industry restructurings.

Our businesses and operations may be adversely affected by any possible future changes to regulations and policies governing the telecommunications and broadcasting industry in China. In accordance with Chinese law, foreign ownership of basic telecommunications services is severely restricted and foreign ownership of digital radio channels is completely prohibited. Our business model and our relationships with ChinaSat may be subject to scrutiny and adverse change if additional restrictive policies are instituted in the future. In addition, any future regulatory changes, such as those relating to the issuance of licenses, price setting for subscriptions or channel lease fees, changes in technical and service standards, spectrum and number allocations, may have a material, adverse effect on our Chinese business and operations.

Currently, most radio broadcasting in China is restricted to Putonghua, the national language of China. The likely continuation of such restrictions will reduce the availability of overseas content for use in our business operations and could adversely impact our business.

Even if we are in compliance with Chinese governmental regulations relating to licensing and foreign investment prohibitions, the Chinese government could prevent us from distributing particular content and subject us to liability for content that it believes is inappropriate.

China has enacted regulations governing the distribution of news and other information. In the past, the Chinese government has stopped the distribution of information that it believes to violate Chinese law, including content that it believes is obscene, incites violence, endangers national security, is contrary to China’s national interest or is defamatory. SARFT and the Ministry of Culture regulate and monitor the censorship of information provided via radio, film and television. We are subject to potential liability for content distributed through our satellite transmission network that is deemed inappropriate and for any unlawful actions of our customers. We may face liability for defamation, negligence, copyright, patent or trademark infringement and other claims based on the nature and content of the materials that are

provided via our satellite transmission network. Our technical and content providing business through WorldSpace (China) may be adversely affected if we do not get sufficient flexibility in our programming content to attract customers in China. However, it is difficult to determine the type of content that may result in liability for us, and if we broadcast such content, we may be prevented from operating our services. If the Chinese government were to take any action to limit or prohibit the distribution of information via our satellite broadcasting services or technical and content providing business, or to limit or regulate any current or future content or services available to users on our network, our business could be materially and adversely affected.

If any of our business conducted through WorldSpace (China) is found to be in violation of Chinese laws, rules or regulations regarding the legality of foreign investment in China, we could be subject to severe penalties.

Our wholly owned subsidiary, WorldSpace (China), provides technical and content services to local Internet content providers who hold appropriate licenses granted by the MII to engage in value-added telecommunication services in China. In addition, WorldSpace (China) intends, through local Chinese media entities or joint ventures with local Chinese media entities, to provide such services to local radio broadcasters and other media groups who hold appropriate licenses granted by SARFT to engage in radio broadcast and television programming business in China, and is in discussions with automobile manufacturers who are seeking a key sales differentiator. It is possible that Chinese authorities could, at any time, assert that any portion of WorldSpace (China)’s business violates Chinese laws, regulations or policies. If WorldSpace (China) were found to be in violation of Chinese laws or regulations, the relevant authorities would have broad discretion in dealing with such violations, including, without limitation, the following:

China’s economic, political and social conditions, as well as government policies, could affect our business.

While China’s economy has experienced significant growth in the past twenty years, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of China, but may also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by government control over capital investments, changes in tax regulations applicable to us or price controls affecting subscription rates.

Since the late 1970s, the Chinese government has been reforming the Chinese economic system to emphasize enterprise autonomy and utilization of market mechanisms. Although we believe that these reform measures have had a positive effect on economic development in China, we cannot be sure that they will be effective or that they will continue. For example, in recent years, the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises; however, a substantial portion of productive assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-

denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Chinese industrial policies may negatively impact our ability to operate or expand in China if, among other risks, such policies impose additional limitations on the development of the communications industry or allocate resources in a manner which impairs growth in demand for our products and services.

China is currently perceived to be economically and politically stable. In the event of economic, social or political turmoil, such as possible instability resulting from a significant recession or conflict in the Taiwan Straits, it is likely that companies such as ours, with foreign ownership and that are engaged in China’s broadcast industry, would be subject to greater scrutiny and possibly additional restrictive regulation.

Government control of currency conversion may adversely affect our operations and financial results.

Although Chinese governmental policies introduced in 1996 allow the convertibility of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange. These approvals, however, do not guarantee the availability of foreign currency. We may be unable to obtain all required conversion approvals for our operations and Chinese regulatory authorities may impose greater restrictions on the convertibility of Renminbi in the future. Because a significant amount of our future revenue may be in Renminbi, any inability to obtain the requisite approvals or any future restrictions on currency exchanges will limit our ability to utilize revenue denominated in Renminbi to fund our business activities outside China, pay dividends, or to repay foreign currency obligations, including any debt obligations.

Our business insurance in China may not be adequate and this may impact our ability to recover from a natural disaster or other business interruption.

Although insurance companies in China offer adequate insurance products, except for earthquake coverage, and are responsible for paying property damage claims, they tend to be slow in paying business interruption and third-party general liability claims, since the insurance industry is continually developing. As a result, while we currently have business liability insurance coverage for our operations in China, payments under the insurance policy may be slow and we may not be able to recover sufficient amounts.

Our ability to develop a mobile DARS business in Western Europe may be adversely affected by the fragmented and diverse nature of the European market.

Although we can provide DARS in Western Europe today through portable receivers, we believe that the region, with approximately 200 million automobiles, offers a more significant opportunity for the development of mobile DARS. As a result, we are continuing various business development activities, including mobile DARS system tests and the negotiation of preliminary agreements with major automobile manufacturers such as Citroën, a division of PSA Peugeot Citroën, that foresee the integration of DARS receivers in some of their vehicles. While we believe the demand for mobile DARS in Western Europe may be greater than in the United States, given Western Europe’s fragmented markets and wide variety of ethnic and linguistic groups, we may face challenges in developing and maintaining an appealing mix of content and programming in various languages to address the needs and preferences of the target listener segments. Our inability to develop and maintain appropriate programming for the diverse ethnic and linguistic listener segments in Western Europe could adversely impact our future plans to provide mobile DARS in the region.

We may be unable to obtain licenses required to operate terrestrial repeater networks in Western Europe or to obtain and retain the necessary authorizations to operate a mobile DARS subscription service.

While we believe our regulatory franchise positions us favorably to become a provider of mobile DARS in Western Europe, we will need to obtain additional spectrum allocation, transmitter and service licenses from local regulatory authorities to develop a terrestrial repeater network and to operate a mobile DARS subscription service in Western Europe. In addition, we must coordinate the use of our allocated L band spectrum in Western Europe with providers of Terrestrial Digital Audio Broadcasting, or T-DAB, to avoid any instances of harmful inter-system interference. Any failure to obtain required licenses or authorizations to develop a terrestrial repeater network and operate a mobile DARS subscription service in Western Europe could adversely affect our ability to conduct business in the region.

Control by our executive officers and directors will limit your ability to influence the outcome of matters requiring stockholder approval and could discourage our potential acquisition by third-parties.

Immediately following this offering, our Chairman and Chief Executive Officer, Noah Samara, will own, in the aggregate, directly or through entities which he controls or in which he has shared control, 32,662,318 shares of our Class B Common Stock, constituting approximately % of our Class A Common Stock and our Class B Common Stock. In addition, Mr. Samara holds options to acquire an additional 12,540,763 shares of our Class B Common Stock. Accordingly, Mr. Samara’s vote will likely be decisive with respect to all matters requiring approval by our stockholders, including the election of our board of directors and the approval of mergers or other business combination transactions. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discourage a potential acquirer from attempting to obtain control of us, which in turn could have an adverse effect on the market price of our common stock or prevent our stockholders from realizing a premium over the market price for their shares of our common stock.

Allegations of ties between certain of our former investors and terrorism could negatively affect our reputation and stock price.

Certain of our former investors have been the subject of allegations that could adversely affect our reputation in the eyes of investors and negatively impact the price of our common stock. These former investors, which include three members of the Bin Mahfouz family, Mohammed H. Al-Amoudi and Mr. Salah Idris, all of whom are Saudi Arabian citizens, have been the subject of allegations that they and/or charities they were involved in have supported terrorism, and three of these investors have also been named, along with a number of Saudi Arabian government officials and prominent Saudi Arabian citizens, in civil actions brought on behalf of victims of the September 11, 2001 terrorist attacks on the United States. None of the Bin Mahfouzs, Mr. Al-Amoudi or Mr. Idris any longer have any direct debt or equity in our company or have any voting control rights in our company. An entity controlled by two Bin Mahfouz sons is entitled to conditional royalty payments from us for each annual period through December 31, 2015. Mr. Idris holds only non-voting shares in Yenura Pte. Ltd. (Yenura), a Singapore company, which owns 27.9 million shares of our Class B Common Stock and which is controlled by our Chairman and Chief Executive Officer, Mr. Samara, although Mr. Idris, through his ownership of non-voting shares of Yenura, holds a majority of the economic interest in Yenura. See “Pre-offering recapitalization” and “Principal stockholders.” We cannot assure you that past or future allegations against these individuals will not impair our ability to retain advisors, impair our future attempts to raise additional financing or negatively impact the price of our stock.

We may face claims from former employees regarding previously granted stock options.

We could face claims from a number of former employees that they were promised options to purchase shares of our Class A Common Stock, or that they were told that they had been granted stock options exercisable for periods after termination of their employment. Although no such claims have been asserted against us, and the Company believes that any such claims would have expired several years ago, the public offering of our Class A Common Stock could increase the likelihood of such claims. Such claims could seek contract damages or other remedies relating to putative options to purchase shares of our Class A Common Stock at prices significantly less than the offering price.

There has been no public market for our Class A Common Stock, and you may be unable to resell your shares at or above the offering price.

There currently is no public market for our Class A Common Stock, and we cannot assure you that an active trading market will develop or be sustained after this offering. The initial public offering price for the shares will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of the market price for our Class A Common Stock after this offering. The market price of our Class A Common Stock could fluctuate significantly in response to the risks inherent in our business, as well as to events unrelated to us.

In recent years, the U.S. stock market has experienced significant price and volume fluctuations. Our Class A Common Stock may experience volatility unrelated to our own operating performance for reasons that include:

In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. We may be involved in securities class action litigation in the future. Such litigation often results in substantial costs and a diversion of management’s attention and resources and could have a material, adverse effect on our business and results of operations.

The future sale of our Class A Common Stock could negatively affect our stock price after this offering.

After this offering, we will have shares of common stock outstanding, including shares of Class A Common Stock and 32,662,318 shares of Class B Common Stock. Shares of our Class B Common Stock are not listed. Sales of a substantial number of our shares of Class A Common Stock in the public market following this offering or the expectation of such sales could cause the market price of our Class A Common Stock to decline. All the shares sold in this offering will be freely tradable except that any shares purchased by our affiliates will remain subject to certain restrictions. Beginning 180 calendar days following completion of this offering, the holders of our Convertible Notes will be entitled to registration rights with respect to the shares of Class A Common Stock issuable upon conversion of the notes. The noteholders may require us to register for resale all of the conversion shares upon demand until such time as we file a shelf registration statement for the resale, from time to time and at any time, of any unsold conversion shares. We are obligated to file a shelf registration statement one year after this offering. Any sales of our Class A Common Stock by the noteholders could be negatively perceived in the trading markets and negatively affect the price of our Class A Common Stock. We also intend to file a registration statement after consummation of this offering to register all shares of Class A Common Stock that we may issue to our employees under our stock option plan and stock incentive plan. After this registration statement is effective, some of these shares will be eligible for resale in the public market without restriction. For more information, see “Shares eligible for future sale.”

Purchasers in this offering will experience immediate and substantial dilution and will experience further dilution from any future exercise of stock options.

If you purchase shares of our Class A Common Stock in this offering, you will pay more for your shares than the per share book value as of December 31, 2004. As a result, the value of your investment based on the net tangible book value per share of our common stock will be less than what it would have been had you and all of the existing stockholders and existing option holders paid the same amount per share of common stock as you will pay in this offering. The net tangible book value dilution to new investors in this offering will be $ per share at an assumed initial public offering price of $ per share. The exercise of outstanding options and notes convertible into common stock may result in further dilution to you. See “Dilution” for a more complete description of how the value of your investment in our common stock will be diluted upon completion of this offering.

The price at which our Class A Common Stock will initially be offered to the public will be the result of negotiations between us and the underwriters and may not be representative of the price that will prevail in the open market. See “Underwriting” for a discussion of the determination of the initial offering price.

We are subject to anti-takeover provisions which could affect the price of our common stock.

Certain provisions of Delaware law and of our certificate of incorporation and by-laws could have the effect of making it more difficult for a third-party to acquire, or of discouraging a third-party from attempting to acquire, control of us. For example, our certificate of incorporation and by-laws provide for a classified board of directors, limit the persons who may call special meetings of stockholders and allow us to issue preferred stock with rights senior to those of the common stock without any further vote or action by our stockholders. In addition, we will be subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which could have the effect of delaying, deterring or preventing another party from acquiring control of us. These provisions could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or may otherwise discourage a potential acquirer from attempting to obtain control of our company, which in turn could have a material, adverse effect on the market price of our common stock.

Our management has broad discretion over the use of the net proceeds from this offering, and you may not agree with how they use the proceeds.

Our management has significant flexibility in the use of the proceeds we receive in this offering. Because the proceeds are not required to be allocated to any specific purpose, investment or transaction, you cannot determine the value or propriety of our management’s application of the proceeds on our behalf. See “Use of proceeds” for a more detailed description of how management intends to apply the proceeds of this offering.

This prospectus contains forward-looking statements. These statements relate to our growth strategy and our future financial performance, including our operations, economic performance, financial condition and prospects, and other future events. We generally identify forward-looking statements by using such words as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “seek,” “should,” “will,” or variations of such words or other similar expressions and the negatives of such words. These forward-looking statements are only predictions and are based on our current expectations.

In addition, a number of known and unknown risks, uncertainties and other factors could affect the accuracy of these statements, including the risks outlined under “Risk factors” and elsewhere in this prospectus. Some of the more significant known risks that we face are uncertainty regarding market acceptance of our products and services and our ability to generate revenue or profit. Other important factors to consider in evaluating our forward-looking statements include:

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee our future results, levels of activity or performance. Any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. We have based these forward-looking statements on our current expectations and projections about future events and financial, political and social trends and assumptions we made based on information currently available to us. These statements may be affected by inaccurate assumptions we might have made or by known or unknown risks and uncertainties, including the risks and uncertainties described in “Risk factors.” In light of these assumptions, risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus may not occur as contemplated, and actual results could differ materially from those anticipated or implied by the forward-looking statements.

Forward-looking statements contained herein speak only as of the date of this prospectus. Unless required by law, we undertake no obligation to update publicly or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission (SEC) after the date of this prospectus. See “Where you can find additional information.”

Unless otherwise indicated, all population data in this prospectus have been derived from the 2004 World Population Data Sheets published by the Population Reference Bureau. Unless otherwise indicated, all data in this prospectus relating to the sales of automobiles and the number of automobiles in use in India, China, Western Europe and the WorldSpace broadcast coverage area have been drawn from J.D. Power and Associates. Unless otherwise indicated, purchasing power parity income statistics for segments of, respectively, the Indian and Chinese economies have been taken from the World Bank’s World Development Indicators. The sources for other statements concerning the definition, size and development of potential markets for our products and services are set forth in the text of this prospectus. Where the cited source for any statement is a specified website, such website should not be deemed to be a part of, or to be incorporated into, this prospectus.

The market data included herein, whether based on external sources or based on our internal research, constitute our best current estimates of the markets described. However, the assumptions underlying such data may not prove to be correct and unanticipated events may occur which could materially affect our actual markets. Moreover, the risks associated with market analysis are heightened in this case because the analysis deals with products and services that are not directly comparable to any products or services with which you may be familiar. Consequently, the actual markets for our products and services should be expected to vary from the estimated markets used by us in designing our products and services as described in this prospectus and such variations may be material.

Unless otherwise indicated, references herein to “U.S. dollars,” “dollars” or “$” are to United States Dollars, the legal currency of the United States; references to “Rupees” or “Rs.” are to Rupees, the legal currency of the Republic of India; references to “Renminbi,” “Renminbi Yuan” or “Yuan” are to Renminbi, the legal currency of the People’s Republic of China.

This prospectus contains conversions of certain amounts in Dollars, Rupees and Renminbi solely for the convenience of the reader.

On March 31, 2005, the U.S. dollar traded for approximately 43.6 Indian Rupees and approximately 8.3 Chinese Renminbi Yuan at the noon day buying rate. Unless otherwise indicated, U.S. dollar amounts in this prospectus have been translated from Rupees at the March 31, 2005 noon day buying rate. Any discrepancies between the U.S. dollar translations presented within this prospectus and the arithmetical translations are due to rounding. Exchange rates are subject to significant volatility and also undergo long-term shifts based on economic policies in the United States and abroad as well as market expectations.

Except as otherwise stated, any discrepancies between the numbers presented within this prospectus and those found within the Company’s consolidated financial statements are due to rounding.

The net proceeds to us from the sale of the shares of our Class A Common Stock we are offering will be approximately $ million, after deducting the underwriting discounts and commissions and estimated expenses payable by us and assuming we sell the shares for $ per share (the midpoint of the estimated price range set forth on the cover page of this prospectus). If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds to us (including those shares) will be approximately $ million.

We intend to use the net proceeds of this offering in connection with the implementation of our India business plan, including build-out of the terrestrial repeater network, service launch in key cities in India and marketing expenses related to subscriber acquisitions in India; business development activities in China, Western Europe and other selected markets within our broadcast coverage area; and the roll-out of our services in China. Pending specific application of the net proceeds, we intend to invest the net proceeds received from this offering in short-term, investment grade interest-bearing instruments.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not currently anticipate declaring or paying cash dividends on our capital stock in the foreseeable future. Any future determination to declare and pay dividends, should we legally be entitled to do so based on our surplus or earnings, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, cash flow, capital requirements, restrictions contained in financing instruments to which we are a party and such other factors as our board of directors deems relevant. Our royalty agreement with Stonehouse places limitations on our ability to make distributions, including dividend payments, to holders of shares of our Class B Common Stock; there are no contractual restrictions on dividends or other distributions to holders of shares of our Class A Common Stock, including the shares of Class A Common Stock being offered by this prospectus. See “Description of capital stock.”

The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2004:

You should read this table together with “Management’s discussion and analysis of financial condition and results of operations,” “Description of capital stock,” and our consolidated financial statements and related notes for the years ended December 31, 2002, 2003 and 2004 which are included elsewhere in this prospectus.

If you invest in our Class A Common Stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share of our Class A Common Stock and the net tangible book value per share of our common stock after this offering.

Our net tangible book value as of December 31, 2004 was approximately $(1,689,406), or $(181.03) per share of common stock. We determined the net tangible book value per share by dividing our net tangible book value, which is the total book value of our tangible assets less our total liabilities, by the number of shares of common stock outstanding as of December 31, 2004. After giving effect to the sale of the shares of Class A Common Stock in this offering at the assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our adjusted net tangible book value as of December 31, 2004 would have been approximately $ million, or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares in this offering. The following table illustrates this per share dilution:

The following table summarizes, on an as adjusted basis as of December 31, 2004, after giving effect to this offering, the total number of shares of our common stock purchased from us and the total consideration and the average price per share paid by existing stockholders and by new investors:

The following table presents selected historical consolidated financial data as of, and for the years ended, December 31, 2000, 2001, 2002, 2003 and 2004, which data have been derived from our audited consolidated financial statements. You should read this information in conjunction with the information set forth in “Management’s discussion and analysis of financial condition and results of operations,” and our consolidated financial statements and related notes for the years ended December 31, 2000, 2001, 2002, 2003 and 2004 which are included elsewhere in this prospectus. These historical financial data are not necessarily indicative of our future results or performance.

Management’s discussion and analysis of financial condition and results of operations

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes which appear elsewhere in this prospectus. It contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly under the heading “Risk factors.”

We are a global provider of satellite-based digital audio radio services (DARS). Since our inception, we have pursued various activities designed to secure frequency allocations to provide our service, develop the technology and build a network of satellites to cover our target markets and launch a commercial service. We have established our business in an environment where most of the critical elements for conducting such a business, including a regulatory framework, technology and satellites, did not exist prior to our initiatives. We are currently the only company positioned to offer DARS in our broadcast coverage area (other than in South Korea and Japan), which includes India, China and Western Europe. Our immediate target markets of India and China are areas where traditional broadcast media and internet services are limited.

Until 2004, we were a development stage company with no significant revenue-generating operations. During 2004, we began generating sales in India related to our DARS business and exited the development stage, as defined by Statement of Financial Accounting Standards (SFAS) No. 7, Accounting

Management’s discussion and analysis of financial condition and results of operations

and Reporting by Development Stage Enterprises. Since January 2005, subsequent to a New Investment Transaction (as described below under “—Stonehouse restructuring and pre-offering recapitalization”) we have initiated the commercial roll-out of our services in India.

We offer on an international basis a variety of quality international, national and regional radio programming not available from AM and FM broadcasters. This programming is accessible through low-cost portable and mobile radio receivers. We were the first company to establish an operational DARS system and today are the only company licensed to provide DARS outside of North America, Japan and South Korea.

The U.S. business model has been characterized by strong subscriber growth and declining subscriber acquisition costs as the U.S. DARS subscriber base grows. In the U.S., the DARS industry is an FCC-licensed duopoly between XM and Sirius Satellite Radio, Inc. (Sirius). The consumer response to the launch of XM’s and Sirius’ programming in November 2001 and July 2002, respectively, has been positive, with XM reporting approximately 3.8 million subscribers as of March 31, 2005 and Sirius reporting 1.1 million subscribers as of December 31, 2004. We believe the competitive advantages of DARS in the United States as compared with traditional AM and FM radio include significantly greater programming quality and choice, commercial free music, coast-to-coast coverage, improved audio quality and greater availability of innovative products. In the United States, satellite radio subscribers have been primarily acquired through agreements with car manufacturers and partnerships and alliances with retail distributors.

Our international DARS broadcast coverage area encompasses the most densely populated parts of Asia, including India and China, all of Africa and the Middle East and most of Western Europe—an area that includes approximately 5 billion people and 300 million automobiles. To compete effectively against existing media and entertainment which are prevalent in our markets, including AM and FM radio, we must provide high quality programming, including a wide variety of music, news and entertainment channels. It is also important to deliver content to satisfy demand in specific markets that is otherwise unavailable in such markets. DARS subscription service can provide several advantages over existing radio programming in our target markets, including greater diversity of content, multi-lingual programming, broader geographic coverage and the inclusion of only limited advertising. Our business is characterized by both regulatory and economic barriers to entry. These barriers include the expertise needed to acquire and maintain the necessary licenses and approvals required by a complex and evolving international and national regulatory framework and the high capital costs required to build and launch satellites and construct the infrastructure necessary for the provision of DARS.

We believe that the most important factor for our success will be the successful acquisition and retention of paying subscribers. As of March 31, 2005, we had more than 53,000 paying subscribers, including more than 22,000 in India. We have recently refined our business plan and intensified our subscriber acquisition marketing efforts, focusing first on acquiring subscribers in India and continuing preparation for the roll-out of our service in China, where we have taken steps toward obtaining required regulatory approvals and content partnerships. We are also planning for the subsequent roll-out of our service in Western Europe, which we believe offers a significant opportunity for a mobile DARS targeted at Western Europe’s approximately 200 million automobiles. Our regulatory franchise positions us to be the likely provider of DARS in Western Europe; however, we will need to obtain additional local regulatory approvals as well as develop a terrestrial repeater network prior to offering mobile DARS in Western Europe.

Management’s discussion and analysis of financial condition and results of operations

We have also provided services to the U.S. government and other governmental entities around the world. We intend to continue to offer our services to business and government entities, including government agencies in India and the United States, who we believe would be interested in using our technology and broadcast footprint to provide inexpensive and a wide range of audio and data transmission services. Since 2002, we have had initial success with U.S. government agencies, receiving and performing more than $8.0 million in contracts. We also intend to target select markets as relevant business and marketing opportunities arise. For example, we currently target U.S. and U.K. expatriates living in our service areas, who we believe will be receptive to our services as a “voice from home.” In the future, we anticipate targeting our service to other niche markets, including Indian and Chinese expatriates living in our broadcast coverage area.

As noted above, our satellite and ground network system covering the chosen markets of India and China is substantially completed. However, we expect to incur significant operating losses for the next several years as we first roll out our commercial subscription services in India, then in China and eventually in Western Europe. We expect to fund marketing and distribution costs from the proceeds of this offering as we increase the number of subscribers to our service to a level sufficient to generate a stream of cash flows to cover these and other operating costs. We also intend to enhance our infrastructure in India with the addition of terrestrial repeater (i.e., “gap filler”) networks and a next generation of receivers designed to receive broadcasts from our networks of repeaters as well as from our satellites, which will allow us to expand our service offering to include mobile DARS. As described under “—Liquidity and capital resources—Historical sources of cash,” while the net proceeds of $142.3 million from our December 2004 sale of senior convertible notes in the aggregate principal amount of $155.0 million (Convertible Notes) together with the net proceeds from this offering are expected to cover our financing requirements to execute our current business plan with respect to India and China, our ultimate profitability and the timing and extent of any need for additional capital resources are materially dependent on the ability to generate our revenue through substantial increases in subscribers, among other factors.

In December 2004, the former WorldSpace group of companies was reorganized and recapitalized. On December 30, 2004, the group’s principal operating company, WorldSpace International Network Inc., a British Virgin Islands company (WIN), was merged with and into the group’s former holding company, WorldSpace, Inc., a Maryland corporation (WorldSpace Maryland). Immediately thereafter, for purposes of reincorporating WorldSpace Maryland in Delaware, WorldSpace Maryland was merged into a newly-formed Delaware company, also named WorldSpace, Inc. (WorldSpace or the Company).

On September 30, 2003, WorldSpace Maryland entered into a Loan Restructuring Agreement with Stonehouse, WIN, and WorldSpace Satellite Company Ltd. to extinguish approximately $2.0 billion in the aggregate of outstanding debt and accrued interest owed to Stonehouse by WIN, and guaranteed by WorldSpace Satellite Co. and WorldSpace Maryland, in exchange for certain royalty payments to be made to Stonehouse pursuant to a related Royalty Agreement. On December 31, 2004, the Loan Restructuring Agreement closed and the Royalty Agreement contemplated thereby became effective. Under the Royalty Agreement, we are required to pay Stonehouse 10% of our EBITDA (earnings before income, taxes, depreciation and amortization), if any, for each year from January 1, 2005 through December 31, 2015. On December 31, 2004, we also issued the Convertible Notes to a group of private investors (New Investment Transaction). See “Certain relationships and related party transactions” and “—Liquidity and capital resources—Historical sources of cash” for a more detailed description of the reorganization, the Loan Restructuring Agreement, the Royalty Agreement and the New Investment Transaction.

Management’s discussion and analysis of financial condition and results of operations

We derive revenue from subscription fees for our services, sales of receivers, our provision of services to governments, leasing of satellite capacity, and certain other items, including technology licensing. We do not expect our historical revenue mix to be indicative of our future revenue streams. Since we began to roll out our subscription-based service in India during 2004, subscription revenue has become an increasingly significant component of our revenue. We expect that subscription fees will be the main source of revenue for the Company in the future, followed by revenue from receiver sales and from the provision of government services. Although we expect revenue from receiver sales to increase as we fully roll out our subscription services, initially in India and subsequently in China, we expect that receiver sales as a percentage of total revenue will decline. We do not expect revenue from leasing capacity to constitute a significant portion of our future revenue as we are intending to focus primarily on subscriber acquisition and will utilize our capacity to broadcast content tailored to consumer demand in the different markets within our broadcast coverage area. We believe we have established adequate reserves to offset uncollectable revenue from capacity leases and from receiver sales.

Our cost of revenue consists of engineering and broadcast operations expenses, content and programming expenses, customer care, billing and collections expenses and other costs of revenue expenses. Currently, our primary expenses are from engineering and operations, content and programming and other costs of revenue. We do not expect our historical cost of revenue mix to be indicative of our future cost of revenue mix. Because we intend to increase our subscription services in India and other target markets, we expect our cost of revenue to increase, especially in the initial phases of our expansion into these markets. We further expect that our engineering and operations costs will increase as we establish terrestrial repeater networks in India and pay for in-orbit insurance for our AsiaStar and AfriStar satellites, and that our content and programming expenses will rise as we both increase headcount to produce in-house programming content and acquire additional content, pay additional royalties and potentially provide additional compensation to content providers in connection with the acquisition or development of programming content. In addition, we expect our customer care, billing and collections costs to significantly increase in the future as we increase the number of our subscribers. We anticipate our other costs of revenue, currently consisting principally of receiver hardware costs, will increase as the sale of our receivers increases in conjunction with the planned expansion of our services.

Our operating expenses include research and development expenses, selling, general and administrative expenses, stock based compensation and depreciation and amortization. We do not expect our historical operating expense mix to be indicative of our future operating expense mix. We expect that our research and development expenses will increase as we invest in the development of next generation receivers for use in homes and automobiles as well as in our terrestrial repeater network. We currently expect that we will incur significant costs in 2005 and beyond related to financial reporting requirements and developing, implementing and maintaining internal controls, including those mandated by the Sarbanes-Oxley Act of 2002, and that the costs related to maintaining such controls will continue in subsequent years. We anticipate that our professional fee expenses, including costs of compliance with reporting and other requirements as a public company, which we classify as part of our selling, general and administrative expenses, will also continue to increase as our business expands and we continue the roll-out of our service. As we implement our business plan, we expect our sales and marketing expenses, which we classify as part of our selling, general and administrative expenses, to increase significantly in 2005 and in subsequent years. We anticipate that this increase will primarily be due to higher subscriber acquisition costs as we increase subscribers in India and other target markets, implement large marketing and advertising campaigns and increase the sales incentives we make available to our distribution partners.

Management’s discussion and analysis of financial condition and results of operations

Beginning July 1, 2005, the Company will be required to adopt FAS 123R, Accounting for Stock Based Compensation. This rule will require the Company to record stock-based employee compensation plans at their fair value. Presently, the Company uses the intrinsic value method as prescribed by APB Opinion No. 25 Accounting For Stock Issued to Employees. Since FAS 123R’s application depends on the number of new employee options granted in the future, it is not clear how this new requirement will affect future compensation expense. To the extent old options are not yet fully vested, there may be an adverse impact; options already fully vested will not be impacted. As a result of a significant stock option adjustment made in 2004, which increased compensation expense, it is unlikely that adopting FAS 123R in 2005 will increase compensation expense beyond that level.

Our depreciation and amortization expenses have remained relatively constant over the past three years due in large part to the long-life of our depreciable assets. However, we expect to deploy terrestrial repeater networks to support the full roll-out of commercial operations in 2005 and to launch a third satellite in subsequent years, which will increase our depreciation expense.

Our interest income is currently not material since we have not typically had significant cash balances. Interest income will increase in 2005 and beyond as a result of the cash raised in the New Investment Transaction and in this offering.

Our interest expense increased from 2002 through December 2004 due to our now extinguished long-term debt owed to Stonehouse, related-party long-term notes and related-party working capital notes and advances. As a result of the transactions in December 2004 described under “Stonehouse restructuring and pre-offering recapitalization” above, we currently have no long-term debt other than the Convertible Notes and, therefore, we expect interest expense in 2005 to decline, as compared with 2004. In the future, we may need to raise debt capital as we continue to expand our business, which would increase our total interest expense.

Insurance premiums related to satellite launches and subsequent in-orbit testing are capitalized and amortized over the term of the insurance policy. Although we intend to maintain insurance on both of our satellites, any determination we make as to whether to purchase or maintain in-orbit insurance coverage will depend on a number of factors, including the availability of insurance in the market and the cost of available insurance.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. We base our estimates and judgments on historical experience and on various other assumptions which we believe are reasonable under the circumstances. Due to the inherent uncertainty

Management’s discussion and analysis of financial condition and results of operations

involved in making estimates, actual results could differ from those estimates. We believe the following critical accounting policies require the most significant management estimates and judgments used in the preparation of the financial statements.

Revenue from subscribers consists of subscription fees and non-refundable activation fees. We recognize subscription fees as our service is provided to a subscriber. We record deferred revenue for prepaid subscription fees and amortize these prepayments to revenue ratably over the term of the respective subscription plan. Activation fees are recognized ratably over the term of the subscriber relationship, currently estimated to be 40 months. The estimated term of a subscriber relationship is based on management’s judgment and, if necessary, will be refined in the future as historical data becomes available. If the actual term of our subscriber relationships is significantly greater or less than our current estimate of 40 months, the period over which we recognize the non-refundable activation fee will be extended or shortened to reflect the actual term of our subscriber relationships. Promotions and discounts are treated as an offset to revenue during the period of promotion. Sales incentives, consisting of discounts to subscribers, offset earned revenue. Management estimates the amount of required allowances for the potential non-collectibility of accounts receivable based upon past collection experience and consideration of other relevant factors. However, past experience may not be indicative of future collections and therefore reserves for doubtful accounts may increase as a percentage of accounts receivable and sales.

Evaluation of satellites and other long-lived assets for impairment and satellite insurance coverage

We assess the recoverability of our long-lived assets pursuant to Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The costs of specific satellites are grouped together with other associated assets when assessing recoverability. Periodically, and when a change in circumstances occurs, this group of assets is compared with the expected future undiscounted cash flows to be generated by us from the related satellite. Any excess of the net book value for this group of assets over the expected future undiscounted cash flows of the related satellite would result in an impairment charge that would be recorded in our statement of operations in the period the determination is made. The impairment charge would be measured as the excess of the carrying value of the asset or group of assets over the present value of estimated expected future cash flows related to the asset or asset group using a discount rate commensurate with the risks involved. Changes in estimates of future cash flows could result in a write-down of the asset in a future period. Estimated future cash flows could be impacted by, among other things:

If an impairment loss was indicated, such amount would be recognized in the period of occurrence, net of any insurance proceeds to be received so long as such amounts are determinable and receipt is probable.

We calculate depreciation on a straight line basis over a ten-year period. As the communications industry is subject to rapid technological change and our satellites have been subject to certain anomalies, we may be required to revise the estimated useful lives of our satellites and communications equipment or to

Management’s discussion and analysis of financial condition and results of operations

adjust their carrying amounts. Accordingly, the estimated useful lives of our satellites are periodically reviewed using current engineering data. If a significant change in the estimated useful lives of our satellites is identified, we would account for the effects of such changes on depreciation expense on a prospective basis. Reductions in the estimated useful lives of our satellites would result in additional depreciation expense in future periods and may necessitate acceleration of planned capital expenditures in order to replace or supplement the satellite earlier than planned. If the reduction in the estimated useful life of a satellite results in undiscounted future cash flows for the satellite, which are less than the carrying value of the satellite, an impairment charge would be recorded.

We account for employee and director stock options using the intrinsic-value method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations and have adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Stock options issued to non-employees are recorded at their fair value as determined in accordance with SFAS No. 123 and Emerging Issues Task Force (EITF) No. 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, and amortized over the service period.

Stock compensation expense, which is a noncash charge, has resulted from the following:

We have recorded deferred compensation representing the difference between the option exercise price and the fair value of our common stock on the grant date for financial reporting purposes. Deferred compensation is amortized to stock compensation expense on a straight line basis over the vesting period of the underlying option, generally five years. The amount of deferred compensation expense to be recorded in future periods may decrease if unvested options for which we have recorded deferred compensation are subsequently cancelled or expire. Of the $90.3 million of stock compensation recorded during 2004, $87.0 million was attributed to recording compensation related to modified options. In the future, it is unlikely that stock-based compensation expense will exceed 2004 levels.

Pro forma information regarding net loss and net loss per share is required in order to show our net loss as if we had accounted for employee stock options under the fair value method of SFAS No. 123, as amended by SFAS No. 148. This information is contained in Note B to our consolidated financial statements contained elsewhere within this prospectus. The fair values of options and shares issued pursuant to our option plan at each grant date were estimated using the Black-Scholes option-pricing model.

We currently are not required to record stock-based compensation charges if the employee stock option exercise price equals or exceeds the deemed fair value of our common stock at the date of grant. In December 2004, the FASB issued SFAS No. 123 (Revised 2004) Share Based Payment, which is a revision to SFAS 123 and supersedes APB 25 and SFAS No. 148. This statement requires that the estimated fair value resulting from all share-based payment transactions be recognized in the financial

Management’s discussion and analysis of financial condition and results of operations

statements. If we had estimated the fair value of the options on the date of grant in our financial statements, and then amortized this estimated fair value over the vesting period of the options, our net loss would have increased in 2004, 2003 and 2002. See Note B to our consolidated financial statements contained elsewhere within this prospectus for the pro forma impact of stock compensation on net loss and net loss per share.

The Company is subject to taxation by federal, state and international jurisdictions. The Company’s annual provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of management judgment and are based on the best information available at the time. The Company believes that it has recorded adequate liabilities and reviews those balances on a quarterly basis.

Judgment is also applied in determining whether deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred tax assets will not be realized, a valuation allowance is established for the amount of the deferred tax assets that are determined not to be realizable. Realization of our deferred tax assets may depend upon the Company’s ability to generate future taxable income, which is dependent upon the Company’s ability to successfully introduce and market its product, general economic conditions, competitive pressures, and other factors beyond management’s control.

Fiscal year ended December 31, 2004 compared with fiscal year ended December 31, 2003

The table below presents our operating revenue for the years ended December 31, 2004 and 2003, together with the relevant percentage of total revenue represented by each revenue category.

Total revenue for 2004 was $8.6 million, a 34.4% decrease compared with $13.1 million in 2003. This decrease in total revenue was primarily due to a reduction in revenue from government service contracts, capacity leases and receiver sales partially offset by increased revenue from subscribers to our DARS service. Our total revenue consists of subscription fees, leasing of satellite capacity, government services, receiver sales, and other items such as advertising and technology licensing. The mix of our revenue changed during 2004 as we emerged from development stage and launched subscription services in a limited manner.

Subscription revenue. Subscription revenue for 2004 was approximately $1.0 million, or 12.1% of total revenue, an increase of 359.3% compared with $0.2 million, or 1.7% of total revenue, generated in

Management’s discussion and analysis of financial condition and results of operations

2003. This increase in subscription revenues was primarily due to the increase in our paying subscribers from approximately 15,000 in 2003 to approximately 40,000 in 2004 and an increase in average monthly per subscriber revenue from $1.70 in 2003 to $3.00 in 2004.

Capacity lease revenue. Satellite capacity leasing revenue for 2004 was $2.0 million, or 23.3% of total revenue, a decrease of 42.0% compared with $3.4 million, or 26.4% of total revenue, in 2003. This decrease was a result of a reduction in the number of broadcasters contracting to use our satellite capacity for their broadcasts as we shifted focus toward acquiring new subscribers and away from the capacity leasing business. In 2004, we increased our reserve for doubtful accounts with respect to capacity leasing to $0.7 million as compared with $0.3 million in 2003.

Government services revenue. Government services revenue for 2004 was $1.9 million, or 22.7% of total revenue, a decrease of 65.5% compared with $5.6 million, or 43.1% of total revenue, in 2003. Government services revenues decreased principally because in 2003 we completed and recognized payment for the bulk of the services rendered under a $10.0 million multi-year contract with a United States government agency, or the PEI Contract, which included $3.5 million in receiver sales accounted for under government services revenue.

Receiver sales revenue. Receiver sales revenue was approximately $1.7 million for 2004, or 19.9% of total revenue, a decrease of 12.3% compared with $1.9 million, or 14.9% of total revenue, in 2003. This decrease was primarily due to the greater availability of low-cost receivers and, as a result, a reduction in high-end receiver sales. Excluding approximately 40,000 receivers sold in 2003 under the PEI Contract, as described above, we sold a total of approximately 19,000 receivers in 2004, compared with approximately 16,000 receivers sold in 2003. In 2004, we increased our reserve for doubtful accounts with respect to receiver sales to $0.2 million as compared with $0.1 million in 2003. Although receiver sales revenue decreased in 2004, receiver sales revenue as a percentage of total revenue increased due to the decline in total revenue.

Other revenue. Other revenue, including licensing revenue, for 2004 was $1.9 million, or 22.0% of total revenue, an increase of 3.9% compared with $1.8 million, or 13.9% of total revenue, in 2003. This increase was related to factors which we do not consider operationally significant, including an increase in advertising barter revenue, which offset a decrease in licensing and syndication revenue.

The table below presents our costs of revenue for the years ended December 31, 2004 and 2003, together with the relevant percentages of total revenue represented by each revenue category.

Total cost of revenue for 2004 was $14.7 million, a 36.0% decrease compared with $22.9 million in 2003. This decrease was primarily due to a $4.8 million write-down on receiver inventory in 2003, the

Management’s discussion and analysis of financial condition and results of operations

expiration and non-renewal of in-orbit insurance for our AfriStar satellite in October 2003 and the reduction in the number of receivers sold in 2004 compared with 2003. Other cost of revenue remained relatively constant as we deferred full roll-out of commercial operations to focus on obtaining new financing.

Engineering and broadcast operations. Engineering and broadcast expense, including the cost of operating our two satellites, ground control systems and telecommunications links as well as our in-orbit insurance, for 2004 was $8.3 million, or 56.4% of our total costs of revenue, a decrease of 18.4% compared with $10.1 million, or 44.2% of total cost of revenue, in 2003. This decrease was primarily due to the expiration and non-renewal of WorldSpace’s in-orbit insurance on the Afristar satellite in October 2003.

Content and programming. Content and programming expense, which include content production, music royalties and other content acquisition costs, for 2004 was $2.6 million, or 17.7% of our total costs of revenue, an increase of 3.6% compared with $2.5 million, or 10.9% of our total cost of revenue, in 2003. While content and programming expense remained materially unchanged from 2003 to 2004, this expense increased as a percentage of revenue because revenue declined as we deferred full roll-out of commercial operations to focus on obtaining new financing.

Customer care, billing and collections. Customer care, billing and collections expense for 2004 was $0.5 million, or 3.3% of our total cost of revenue. We commenced our customer care, billing and collections in 2004 to support the limited launch of our subscription services in India. Prior to this limited launch in 2004, our two subscription service packages were being tested, and as a result expenses related to customer care, billing and collections in 2003 were minimal.

Other cost of revenue. Other cost of revenue for 2004 was $3.3 million, or 22.6% of total cost of revenue, a decrease of 67.8% compared with $10.3 million, or 44.9% of total cost of revenue, in 2003. This decrease was primarily due to a decrease in receiver hardware cost of goods sold to $2.5 million in 2004 from $9.5 million in 2003, which included a $4.8 million write-down on receiver inventory. This write-down was a result of currency exposure under a contract where our payment obligation was denominated in Euros.

The table below presents our operating expenses for the years ended December 31, 2004 and 2003, together with the relevant percentage increase (decrease) year-over-year.

Total operating expense for 2004 was $184.3 million, an 88.2% increase compared with $97.9 million in 2003. This increase was primarily due to increase in our stock-based compensation. Our selling,

Management’s discussion and analysis of financial condition and results of operations

general and administrative expense for 2004 was $32.8 million, a decrease of 2.0% compared with $33.4 million in 2003 due to a compensation accrual reversal recorded in 2004. Our stock based compensation expense was $90.3 million in 2004, an increase of 2,460.2% compared with $3.5 million in 2003. This increase was due to a stock-based compensation expense the Company recorded in 2004 in connection with the conversion of WIN options into WorldSpace options pursuant to the merger transaction described under “Pre-offering recapitalization.” For additional detail, please see Note K to the Financial Statements. Depreciation and amortization expense between 2004 and 2003 was relatively flat: $61.2 million in 2004 and $60.9 million in 2003. Research and development had a minimal impact on our expenses in 2004 and 2003.

Interest income. Interest income for 2004 was $0.4 million, a decrease of 20.5% compared with $0.5 million in 2003. In 2004 and 2003 interest income was minimal and was a direct result of cash and restricted cash equivalents.

Interest expense. Interest expense for 2004 was $119.3 million, an increase of 10.1% compared with $108.4 million in 2003. This increase was primarily due a rise in interest rates which increased our interest obligations under our floating rate long-term debt held by Stonehouse. Interest expense for 2004 and 2003 was attributable to long-term debt held by Stonehouse, related-party long-term notes and related-party working capital notes and advances.

In September 2003 the Company’s predecessor, WorldSpace Maryland, entered into a Restructuring Agreement, which closed in December 2004, to extinguish approximately $2.0 billion in the aggregate of outstanding debt and interest owed by WIN, and guaranteed by WorldSpace Satellite Co. and WorldSpace Maryland, in exchange for certain royalty payments to Stonehouse as governed by a Royalty Agreement. For U.S. tax purposes, this transaction caused the Company to realize cancellation of indebtedness, or COD, income. In connection with this transaction, the Company reduced its U.S. tax attributes by approximately $1,726.0 million and, as a result, the U.S. Company’s U.S. net operating loss and capital loss carryforwards at December 31, 2004 were eliminated, and the remaining tax basis in its satellite assets, U.S. fixed assets and stock in its foreign subsidiaries were also reduced to zero.

For the years ended December 31, 2004 and 2003, as result of the factors referred to above, we incurred net losses of $577.4 million and $217.7 million, respectively, an increase of 165.2%.

Management’s discussion and analysis of financial condition and results of operations

Fiscal year ended December 31, 2003 compared with fiscal year ended December 31, 2002

The table below presents our operating revenue for the years ended December 31, 2003 and 2002, together with the relevant percentages of total revenue represented by each revenue category.

Total revenue for 2003 was $13.1 million, a 36.3% increase compared with $9.6 million in 2002. This increase was primarily attributable to a substantial increase in government service contract revenue, primarily under the PEI Contract, including $3.5 million in receiver sales accounted for thereunder, as well as a $0.4 million increase in capacity lease revenue. Excluding these government receiver sales, revenues from receiver sales declined as compared with 2002.

Subscription revenue. Subscription revenue for 2003 was approximately $0.2 million, or 1.7% of total revenue, an increase of 91.5% compared with $0.1 million, or 1.2% of total revenue, generated in 2002. The increase was primarily attributable to an increase in our paying subscribers as a result of the launch of two subscription packages in India during the second half of 2002.

Capacity lease revenue. Satellite capacity leasing revenue for 2003 was $3.4 million, or 26.4% of total revenue, an increase of 11.3% compared with $3.1 million, or 32.3% of total revenue, in 2002. This slight increase was attributable to an increase in revenue from our broadcaster relationships. In 2003, we reduced our reserve for doubtful accounts with respect to capacity lease revenue to $0.3 million as compared with $1.0 million in 2002, as we believed that two major contracts had become collectible in 2003.

Government services revenue. Government services revenue for 2003 was $5.6 million, or 43.1% of total revenue, an increase of 588.2% compared with $0.8 million, or 8.5% of total revenue, in 2002. Government services revenue increased principally because in 2003 we completed and recognized payment for the bulk of the services rendered, including $3.5 million in receiver sales under the PEI Contract.

Receiver sales revenue. Receiver sales revenue was approximately $1.9 million for 2003, or 14.9% of total revenue, a decrease of 48.0% compared with $3.7 million, or 39.0% of total revenue, in 2002. This decrease in receiver sales revenue, excluding approximately 40,000 receivers sold in 2003 under government services contracts, as described above, was due to the significant working capital constraints we experienced in 2003 which prevented us from purchasing receivers for sale. In 2003, we reduced our reserve for doubtful accounts with respect to receiver sales to $0.1 million as compared with $0.2 million in 2002.

Management’s discussion and analysis of financial condition and results of operations

Other revenue. Other revenue, including licensing revenue, increased 0.1% to $1.8 million or 13.9% of total revenue, as compared with 19.0% of total revenues in 2002 due to a decline in total revenues.

The table below presents our costs of revenue for the years ended December 31, 2003 and 2002, together with the relevant percentages of total revenue represented by each revenue category.

Total cost of revenue for 2003 was $22.9 million, a 6.9% increase compared with $21.5 million in 2002. This minimal increase is attributable to higher receivers sales in 2003 as compared with 2002, as well as a $1.9 million write-down on receiver inventory and associated hardware. Other cost of revenue remained relatively constant as we deferred full roll-out of commercial operations to focus on obtaining new financing.

Engineering and broadcast operations. Engineering and broadcast expense, including the cost of operating our two satellites, ground control systems and telecommunications links as well as our in-orbit insurance, for 2003 was $10.1 million, or 44.2% of total cost of revenue, an increase of 4.0% compared with $9.8 million, or 45.5% of total cost of revenue, for 2002. This marginal increase was due to an estimate adjustment in the accounting for the life of in-orbit insurance premiums.

Content and programming. Content and programming expense, which include content production, music royalties and other content acquisition costs, for 2003 was $2.5 million, or 10.9% of total cost of revenue, a 14.2% decrease compared with $2.9 million, or 13.6% of total cost of revenue, for 2002. This decrease was primarily due to a reduction in the number of content product employees in 2003 as compared with 2002.

Customer care, billing and collections. In 2003 and 2002, we did not incur meaningful expense related to customer care, billing and collections as we were still testing our subscription service in India.

Other cost of revenue: Other cost of revenue for 2003 were $10.3 million, or 44.8% of total cost of revenue, an increase of 17.3% compared with $8.8 million in 2002, or 40.9% of total costs of revenue, in 2002. This increase was due to an increase in receiver hardware cost of goods sold to $9.5 million, which included a $4.8 million write-down on receiver inventory recorded in 2003 as a result of currency exposure under a contract where our payment obligation was denominated in Euros. This increase was partially offset by lower costs of receiver hardware. In addition, a $1.9 million write-down on receiver inventory and associated hardware had a negative impact on other costs of revenue in 2002.

Management’s discussion and analysis of financial condition and results of operations

The table below presents our operating expense for the years ended December 31, 2003 and 2002, together with the relevant percentage increase (decrease) year-over-year.

Total operating expense for 2003 was $97.9 million, a 4.1% decrease compared with $102.1 million in 2002. This decrease was primarily due to a decline in sales and marketing expenses. Our selling, general and administrative expense for 2003 was $33.4 million, a decrease of 6.8% compared with $35.9 million in 2002. This decrease was due in part to a reduction in costs associated with maintaining our employee base, the closing of several foreign offices, temporary across the board salary reductions and a considerable reduction in sales and marketing expenses due to financial constraints. Stock based compensation expense for 2003 was $3.5 million a decrease of 11.4% compared with $4.0 million in 2002. The decrease was attributed to forfeited options initially issued at an exercise price less than the fair value, related to terminated employees. Depreciation and amortization expense were relatively constant over the two years as a result of fixed line depreciation on our existing assets and insubstantial replacement capital expenditures. Research and development and professional fees had a minimal impact on our operating expense in 2004 and 2003.

Interest income: Interest income for 2003 was $0.5 million, an increase of 60.8% compared with $0.3 million in 2002. This increase was due to an increase in interest rates and increased income on XM licensing revenue (effective in the fourth quarter of 2002). Interest income has been minimal and resulted mainly from cash and restricted cash equivalents.

Interest expense: Interest expense for 2003 was $108.4 million, a decrease of 5.2% compared with $114.3 million in 2002. This decrease was primarily due to a minor decline in interest rates. Interest expense was primarily attributable to long-term debt held by Stonehouse, related-party long-term notes and related-party working capital notes and advances. We will no longer incur any interest expense on these debts (see the discussion in “Certain relationships and related party transactions” section of this prospectus).

For the year ended December 31, 2003, we had approximately $861.0 million in domestic net operating loss and capital loss carryforwards and approximately $77.9 million in foreign net operating losses, which expire at varying dates through 2025. As discussed above, in 2004 our domestic net operating loss was fully extinguished upon the restructuring of our debt.

Management’s discussion and analysis of financial condition and results of operations

For the years ended December 31, 2003 and 2002 we incurred consolidated net losses of $217.7 million and $275.1 million, respectively. Net losses decreased by 20.9% between 2002 and 2003 due to a one time charge of $44.3 million related to impairment of goodwill which was taken in 2002.

We assess our liquidity in terms of our ability to generate cash to fund our operating and investing activities.

As of December 31, 2004, following the cancellation of approximately $256.0 million of debt owed to Yenura Pte. Ltd. in exchange for shares of our Class B Common Stock (Yenura Transaction), the extinguishment of debt pursuant to the Loan Restructuring Agreement, and the New Investment Transaction, we had cash and cash equivalents of $154.4 million. During 2004, 2003 and 2002, our monthly operating expense averages were $3.3 million, $3.3 million and $4.0 million, respectively, or approximately $40.0 million per year. We anticipate that our annual cash expenditures will increase to support the execution of our business plan and our planned increased level of activities. We believe our cash and cash equivalents at December 31, 2004 will provide adequate liquidity and capital to fund our operations for at least the next 12 months in accordance with our business plan.

We intend to use the net proceeds of this offering, together with the net proceeds from the New Investment Transaction ($142.3 million after payment of all transaction expenses), to execute our business plan, which includes the build-out of the terrestrial repeater network; service launch in key cities and marketing expenses related to subscriber acquisitions in India; business development activities in China, Western Europe and other selected markets within our broadcast coverage area; and the roll-out of our services in China. We expect that the majority of our expenditures in 2005 will be directed towards sales and marketing activities, including developing subscriber operations, increasing content and programming development, capital expenditures, operating and corporate expenses and several one-time corporate expenses.

We had operating losses of $190.4 million in 2004 compared with $107.8 million in 2003. As of December 31, 2004, we had total assets of $649.1 million and total liabilities of $2,338.5 million (or $277.0 million net of contingent royalty obligations and deferred tax liability) compared with total assets of $572 million and total liabilities of $2,032.6 million as of December 31, 2003.

The following table sets forth our net cash flows from operating activities, investing activities and financing activities for the periods indicated:

Management’s discussion and analysis of financial condition and results of operations

Net cash provided by (used in) operating activities. For the year ended December 31, 2004, net cash used in operating activities was $17.8 million. Net cash used in operating activities was related principally to the offset of $577.4 million in net loss by non-cash expenses including $247.3 in deferred tax expense related to the series of transactions described in “Pre-offering recapitalization,” $90.3 million in stock-based compensation, $86.7 in accrued interest, $61.2 million in depreciation and amortization and a reduction of $41.3 million attributable to the changes in assets and liabilities and, $31.0 million in amortization of debt discount liabilities and deferred financing costs.

For the year ended December 31, 2003, net cash used in operating activities was $27.7 million. Net cash used by operating activities in 2003 was related principally to the offset of $217.7 million in net loss by non-cash expenses, including $77.3 in accrued interest, $60.9 million in depreciation and amortization, $31.0 million in amortization of debt discount and deferred financing cost and a reduction of $11.7 million attributable to the changes in assets and liabilities.

For the year ended December 31, 2002, net cash used in operating activities was $36.0 million. Net cash used in operating activities was related principally to the offset of $275.1 million in net loss by non-cash expenses including $83.3 million in accrued interest, $61.4 million in depreciation and amortization, $31.0 million in amortization of debt discount and deferred financing cost, $44.3 million in goodwill impairment loss and $8.7 million attributable to the changes in assets and liabilities.

Net cash provided by (used in) investing activities. For the year ended December 31, 2004, net cash used in investing activities was $0.4 million. Our investing activities were minimal.

For the year ended December 31, 2003, net cash used in investing activities was $1.0 million. Our investing activities consisted of $1.0 million of capital expenditures for property and equipment.

For the year ended December 31, 2002, net cash provided by investing activities was $0.7 million. Our investing activities consisted of a $2.1 million refund on satellite and related systems partially offset by $0.6 million of capital expenditures for property and equipment and $0.8 million for purchases of satellite and related systems.

Net cash provided by (used in) financing activities. For the year ended December 31, 2004, net cash provided by financing activities was $170.9 million, consisting of $142.3 million in net proceeds from the issuance of the Convertible Notes in the New Investment Transaction, of $26.5 million in proceeds from short-term borrowings and notes payable and a $2.1 million decrease in restricted cash.

For the year ended December 31, 2003, net cash provided by financing activities was $27.7 million, consisting principally of $27.5 million in proceeds from the issuance of long-term debt to Yenura as described under “Pre-offering recapitalization” and “Certain relationships and related party transactions.”

For the year ended December 31, 2002, net cash provided by financing activities was $36.7 million, consisting principally of $36.5 million in proceeds from the issuance of long-term debt to Yenura as described under “Pre-offering recapitalization” and “Certain relationships and related party transactions.”

Management’s discussion and analysis of financial condition and results of operations

Historically, we have financed our business primarily through issuances of equity and debt and the sale of our interest in XM. As of December 31, 2004, we have raised approximately $1.5 billion, net of expenses, interest reserve and repayments of debt, as described below. We believe that the net proceeds from the New Investment Transaction, together with the net proceeds from this offering, should be sufficient for us to fund our operations, in accordance with our business plan, for at least the next 12 months.

To date, our net proceeds of approximately $1.5 billion are from the following sources:

New Investment Transaction. We issued senior convertible notes in the aggregate principal amount of $155.0 million to a group of private investors. The net proceeds, after deducting expenses, were $142.3 million.

Stonehouse Capital Limited. We received approximately $1.1 billion from Stonehouse and its predecessors in interest in several different transactions as described under “Pre-offering recapitalization—Stonehouse obligations.”

Yenura Pte. Ltd. We received approximately $118.5 million from Yenura, a Singapore company controlled by our founder Noah A. Samara, as described under “Pre-offering recapitalization—Yenura obligations.”

XM Satellite Radio Holdings, Inc. Sale. In 1999 in connection with the sale of our interest in XM to Motient, we received approximately $75.0 million and 8.6 million shares of Motient common stock, which at the date of the sale had a market value of $176.6 million. From 1999 to 2001, we sold 6.0 million shares of Motient common stock, and realized net proceeds of approximately $120.0 million before the shares lost virtually all of their value in Motient’s bankruptcy proceeding. The net proceeds from the sale of our XM interest, net of our initial investment of $144.0 million, was approximately $51.0 million.

In addition to the transactions discussed above, we also received a total of approximately $73.1 million from Saifcom Establishment, a Liechtenstein entity (Saifcom), and Industrial Development Inc. (Industrial Development).

From inception through December 31, 2004, the Company has received approximately $46.4 million in interest income.

The Yenura Transaction, the Stonehouse restructuring and the New Investment Transaction were all part of a series of transactions by which we reorganized and recapitalized our debt. See “Pre-offering recapitalization.”

While we had raised approximately $1.5 billion as of December 31, 2004, we have paid $719.5 million in capital expenditures, and incurred $497.7 million in operating expenses.

Satellite and Ground Systems. Alcatel Space (Alcatel) has delivered two satellites, AfriStar and AsiaStar, in-orbit, and we have two additional satellites, one fully assembled (F3) and another partially assembled (F4), which are currently maintained in Toulouse, France. Alcatel also provided us with ground equipment and software for our service system as well as certain launch and operations support services, including launch insurance. Ground equipment costs were related to the acquisition of satellite control

Management’s discussion and analysis of financial condition and results of operations

facilities, programming production studios and various other equipment and facilities. Approximately $666.0 million of the $719.5 million has been paid to Alcatel since inception through December 31, 2004. Approximately $40.1 million has accrued in unpaid amounts, including accrued interest. In addition, we are required to pay to Alcatel approximately $29.0 million if construction of our partially assembled satellite, F4, is restarted, excluding costs in connection with launch services and insurance.

On February 25, 2005, we reached an agreement with Alcatel to reduce our debt for the construction of our satellites to $19.0 million, of which $10.0 million has been paid in cash. The remainder of the debt will be paid to Alcatel at the closing of this offering with a $2.0 million cash payment and $7.0 million in unregistered shares of our Class A Common Stock, valued at the same price per share of shares sold in this offering.

Property and Equipment. As of December 31, 2004, we spent $45.7 million in aggregate for property and equipment, which principally include computers, furniture, fixtures and leasehold improvements.

Operating Expenses. From inception through December 31, 2004, we have spent $497.7 million in total operating expenses, which principally include expenses related to personnel costs, facilities, outside services, travel, programming and content costs and ground tracking stations.

Although in 2004 we launched subscription services on a limited basis in India, we anticipate that we will continue to require significant funds to cover our cash requirements until we generate sufficient cash flow from operations to cover our expenses. With the commencement of our operations, our monthly operating expenses have increased substantially compared with our development-stage operations.

Although we believe the net proceeds from the New Investment Transaction, together with the proceeds from this offering, will be sufficient to fund our operations, in accordance with our business plan, for at least the next 12 months, our estimated cash requirements may change and we may require additional financing. We will need cash to cover the incremental roll-out of our India business plan, including the build-out of terrestrial repeater networks, accelerating service launch in key cities in India and marketing expenses related to subscriber acquisitions over the next three years. Furthermore, we will require additional cash to continue our business development activities in China and Western Europe, as well as for working capital and selling, general and administrative corporate expenses. We anticipate securing all the required regulatory clearances in China and we intend to use a portion of the proceeds of this offering to fund the roll-out of our services in China and continue our business development activities in Western Europe.

Our ability to generate revenue and ultimately to become profitable will depend on several factors, including whether we can attract enough subscribers and advertisers; whether our system continues to operate at an acceptable level; whether we compete successfully; and whether the local regulators grant us all additional necessary authorizations in a timely fashion.

We may undertake additional financing activities in the future to acquire additional financing as necessary to further develop and support our business plan. However, there can be no assurance that we will be successful in securing financing or that it will be available to us at attractive terms.

Our ability to obtain the financing in the future will depend on several factors, including future market conditions; our success in developing, implementing and marketing our satellite radio service; our future creditworthiness; and restrictions contained in agreements with our investors or lenders. If we fail to obtain any necessary financing on a timely basis or on attractive terms, our results of operations could be materially adversely affected. In addition, we could default on our commitments to creditors or others and we may have to discontinue operations or seek a purchaser for our business or assets.

Management’s discussion and analysis of financial condition and results of operations

We have spent approximately $719.5 million on capital expenditures related to the development and launch of our satellites, for our ground systems and for property and equipment. We expect to spend additional amounts to enhance our infrastructure with terrestrial repeaters. Our future capital expenditures will depend on our business strategy and our response to opportunities and trends in our industry and our markets.

Our market risk from changes in interest rates is not material because our long-term debt only includes the Convertible Notes which have a fixed interest rate.

We anticipate that the vast majority of our revenue will be derived from our operations outside of the United States, particularly India, China and Western Europe, which subjects us to foreign currency risk. Because we report our financial results in U.S. dollars, changes in the exchange rates between the local currencies of our operations and the U.S. dollar could materially affect the translation of financial results into U.S. dollars for purposes of reporting our financial results. In addition, currency controls, devaluations, trade restrictions and other disruptions in the currency convertibility and in the market for currency exchange could limit our ability to timely convert sales earned abroad into United States dollars, which could adversely affect our ability to fund our United States dollar costs and finance capital expenditures.

A significant amount of our expenses are incurred in Rupees and the balance is primarily incurred in U.S. dollars, Chinese Renminbi, the Australian dollar, South African Rand and European currencies. Although we currently pay all expenses in the local currency in which they were incurred, we do incur an exchange risk in connection with the initial funds transfer and repatriation. As we expand our services, we anticipate that we will incur a greater proportion of our expenses in both Chinese Renminbi and European currencies.

Management’s discussion and analysis of financial condition and results of operations

In January 2003, and as revised in December 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities. This interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities. Prior to this interpretation, two enterprises had been generally included in consolidated financial statements, because one enterprise controlled the other through voting interests. This interpretation defines the concept of variable interests, and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risks among the parties involved. The Company’s adoption of this interpretation in fiscal year 2004 did not have an impact on its financial position or results of operations.

In December 2004, the FASB issued revised SFAS No. 123R, Share-Based Payment. SFAS No. 123R sets accounting requirements for share-based compensation to employees and requires companies to recognize, in the income statement, the grant-date fair value of stock options and other equity-based compensation. SFAS No. 123R is effective in interim or annual periods beginning after June 15, 2005. The Company will be required to adopt SFAS No. 123R in its third quarter of fiscal year 2005. The Company is currently evaluating the impact of the adoption of SFAS 123R on its financial position and results of operations, including the valuation methods and support for the assumptions that underlie the valuation of the awards.

Also in December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets—An Amendment of APB Opinion No. 29. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. SFAS No. 153 is to be applied prospectively for non-monetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company’s adoption of SFAS No. 153 is not expected to have a material impact on its financial position or results of operations.

We were founded in 1990 by our Chairman and Chief Executive Officer, Noah Samara, who pioneered the development of satellite-based digital radio service, commonly known as Digital Audio Radio Service (DARS). His vision was to offer on an international basis a variety and quality of international, national and regional radio programming not available from AM and FM broadcasters through low-cost portable and mobile radio receivers owned by customers.

Through the end of December 2004, we have spent approximately $1.2 billion in connection with the development and launch of our business. Our infrastructure is a fully operational system consisting of three main elements: two geostationary satellites, AfriStar (launched in 1998) and AsiaStar (launched in 2000); the associated ground systems that provide content to and control the satellites; and the receivers owned by our customers. Our broadcast coverage area encompasses the most densely populated parts of Asia, including India and China, all of Africa and the Middle East and most of Western Europe, an area that includes approximately 5 billion people and 300 million automobiles. Each of our two operational satellites can service three large geographic areas through three beams capable of carrying up to 80 channels each. As a result, we have the technical capacity to broadcast a tailored mix of up to 80 channels in each of our target markets on a subscription basis for fees currently averaging between $3 and $5 per month. We intend to enhance our infrastructure with the addition of networks of terrestrial repeaters (i.e., “gap fillers”) in our target markets and a next generation of receivers designed to receive broadcasts from our networks of terrestrial repeaters as well as from our satellites, which will allow us to expand our service offering to include a mobile service for automobiles.

We provide high quality radio programming, including a wide variety of music, news and entertainment channels. Our programming philosophy is to meet the demands of listeners from different linguistic and cultural backgrounds by providing channels of international interest such as BBC, CNN, Virgin Radio as well as channels with more national and regional focus, such as, in India, NDTV and RM Radio. We also develop and broadcast WorldSpace-branded programming in response to demand in specific markets that is otherwise unavailable in such markets. For example, in India, we broadcast international music channels such as Upop, Maestro, Riff and UpCountry and proprietary Indian niche channels such as Ghandharv, Shruti and Farishta. By providing programming from leading international, national and regional content providers, together with our own WorldSpace-branded channels developed to meet the demands of specific markets, we are able to offer our subscribers a choice of programming largely unavailable in their local markets. Our subscription service provides a number of advantages over existing radio programming in our target markets, including greater diversity of content, multi-lingual programming, broader geographic coverage and limited advertising.

As the only company licensed to offer DARS in our broadcast coverage area (other than in South Korea and Japan), we are able to roll-out our subscription service on a sequential basis in the markets we find the most attractive, subject to obtaining any required local regulatory approvals. The main limitation, historically, to our ability to roll out our services and acquire subscribers has been our limited access to capital. We began offering service in Africa in 2000 on a free-to-air basis.

In 2002, we began trials of our subscription service by offering a limited number of encrypted channels and began transitioning our free-to-air customers into paying subscribers. As of March 31, 2005, we had more than 53,000 paying subscribers, including more than 22,000 in India. We have focused our recent efforts on refining our business plan and intensifying our subscriber acquisition marketing efforts in India, where we have begun the roll-out of our service; continuing planning for the roll-out of our service in China, where our core broadcast infrastructure is in place; and in planning for the roll-out of our service in Western Europe—the markets in which we believe demand for our service is greatest. Our strategy is to establish a strong set of local alliances and strategic partnerships to assist in distribution, content procurement, regulatory compliance and the build-out of a terrestrial infrastructure prior to embarking on a full roll-out in a particular market.

We believe India represents the most attractive immediate market opportunity for our subscription service given its significant size, with more than one billion people, including a large and growing middle class. The National Council of Applied Economic Research estimates that India has 188 million households. We have commenced the roll-out of our service in India and are initially targeting the most affluent segments of India’s population living in India’s top eight metropolitan areas, which, according to Org-Marg, a division of A.C. Nielsen, comprise approximately 70 million people and 14 million households. The most affluent 20% of India’s population has an annual income level of approximately $37,500 per household, on a purchasing power parity basis (i.e., adjusted for the general differences in the costs of living in India as compared to the United States). We believe that this target group is underserved by the existing radio infrastructure and programming offered in India and has the disposable income to afford our services. We believe we are well positioned to expand our service in India given that we have the necessary operating licenses and that our system and our technology are operational and scalable. We are in the process of developing a mobile DARS and, in connection therewith, we will need to establish a terrestrial repeater network to improve the reliability of our service in urban areas. We are currently in discussions with regulators to put into place new terrestrial repeater networks in two of India’s major metropolitan areas, New Delhi and Bangalore, which will allow us to supplement our broadcast coverage area and offer a mobile subscription service for automobiles. In addition we have worked with leading local manufacturers, such as BPL Limited (BPL), to provide low-cost receivers in India. For our next generation of receivers, we are working with Analog Devices Inc. (Analog Devices), the manufacturer of our second-generation chipsets, and other receiver manufacturers to develop enhanced capabilities and services.

While we have in place our satellite infrastructure for China, we have not yet begun commercial operations and we believe that there will be significant demand for our service in China, which has a population of more than 1.3 billion people, 360 million households, as estimated by China Media Monitor, a large and growing middle class and one of the fastest growing automobile markets in the world. We intend to use a portion of the proceeds from this offering to continue development of our China business plan as well as for the roll-out of our service in China. We are currently in discussions with two media entities under the direct supervision of China’s State Administration of Radio, Film and Television (SARFT) and other media entities to establish joint ventures for content to be broadcast on the WorldSpace system in China, and we are discussing with SARFT approval of content to be provided by these entities as well as content we expect to provide to independent Chinese broadcasters. Pursuant to a series of agreements, China Satellite Communications Corporation (ChinaSat), our agent and one of six state-owned telecommunications operators in China, has acquired spectrum allocation and certain other approvals necessary to operate our system and provide our service in China. Additionally, we have established, with ChinaSat, an uplink station in Beijing for our AsiaStar satellite.

We are also continuing business development in Western Europe, which we believe offers a significant opportunity for mobile DARS. We have conducted system tests with and negotiated preliminary

agreements with major automobile manufacturers such as Citroën, a division of PSA Peugeot Citroën, for the integration of DARS receivers in certain of their vehicles. Although we can provide DARS in Western Europe today through portable receivers, we believe that significant demand will be generated once we launch our mobile DARS targeted at Western Europe’s approximately 200 million automobiles. We believe the demand for mobile DARS in Western Europe may be greater than that of the United States, given Western Europe’s wide variety of ethnic and linguistic groups as well as a significant portion of the population that has emigrated to other parts of Europe from their countries of origin. Our regulatory franchise positions us to be the likely provider of DARS in Western Europe. However, as in India and China, we will need to develop a terrestrial repeater network prior to offering mobile DARS in Western Europe. In addition, in various Western European jurisdictions, we will need to obtain additional local regulatory approvals.

In 1991, we received the first DARS license for broadcasting satellite-based digital radio over the S band (between 2310 and 2360 MHz) granted by the FCC. This license granted us the authority to launch a satellite and broadcast into Africa.

The 1992 International Telecommunication Union (ITU) World Radiocommunication Conference allocated the L band (between 1452 and 1492 MHz) for satellite broadcasting services, such as DARS, on a global basis, with the upper 25-MHz segment of the L band made available for immediate licensing. The lower 15-MHz segment of the L band will not be available for allocation until the conclusion of a planning conference of the ITU, which has not yet been scheduled. Following the 1992 conference, the FCC converted our S band license into an L band license.

The 1992 World Radiocommunication Conference also allocated the S band (between 2535 and 2655 MHz) for satellite broadcasting services in a limited number of countries, including India, Japan, South Korea, Pakistan and Thailand, with the upper 25 MHz segment of the S band (between 2630 and 2655 MHz) available for immediate use. In most of the countries in our broadcast coverage area, the L band has been reserved for DARS broadcasts and the S band is used by other services. Since the 1992 frequency allocation decisions, the Indian government has accepted the WorldSpace L band DARS system for operations in India, but has taken no action for use of the S band for DARS. Because the

United States used the L band spectrum for mobile aeronautical applications in 1992, it selected an alternative 50 MHz allocation for DARS in the S band (between 2310 and 2360 MHz), which was subsequently reduced to 25 MHz (between 2322.5 and 2347.5 MHz). Currently, XM and Sirius share that allocation in the United States. India and Mexico have also accepted the S band from 2310 to 2360 MHz as an additional allocation for DARS.

We currently are licensed to broadcast in the 1467 to 1492 MHz portion of the L band on a global basis outside of the United States.

Since L band satellites require less transmitted power than S band satellites to achieve the same link margin, or quality of service, the L band is generally more cost effective as compared to the S band for the provision of satellite DARS operation. Therefore, L band satellites may be either less expensive to build or they may provide a higher quality of service as compared with equivalently priced S band satellites. In addition, L band terrestrial repeaters provide improved terrestrial link margin, or quality of service, compared to S band repeaters for the same emitted power. This could either reduce the L band terrestrial repeater power and associated costs, or increase the radius of terrestrial coverage of each terrestrial repeater, which reduces the number of terrestrial repeaters required for a given market.

The U.S. DARS industry is an FCC-licensed duopoly between XM and Sirius Satellite Radio, Inc. (Sirius). In April 1997, the FCC auctioned two 12.5 MHz DARS licenses in the S band to XM and Sirius. These licenses permit XM and Sirius to offer satellite radio service in the United States. The consumer response to the launch of XM’s and Sirius’s programming in November 2001 and July 2002, respectively, has been very positive, with XM reporting approximately 3.8 million subscribers as of March 31, 2005 and Sirius reporting 1.1 million subscribers as of December 31, 2004. As reported by GreyStone Communications and Yankee Group, satellite radio was the second-fastest consumer technology (after DVD players) to reach one million users as of October 2003.

We believe the competitive advantages of DARS in the United States as compared to traditional AM and FM radio include significantly greater programming quality and choice, commercial free music, coast-to-coast coverage, improved audio quality and greater availability of innovative products. To date, the U.S. DARS business model has been characterized by high barriers to entry, strong subscriber growth and declining customer acquisition expenses as the subscriber-base grows. In the United States, satellite radio subscribers have been primarily generated through agreements with car manufacturers and partnerships and alliances with retail distributors.

We are the only company currently providing DARS outside of North America, Japan and South Korea.

In Japan and South Korea, a joint venture between Mobile Broadcasting Corporation of Japan (MBCO) and SK Telecom of Korea (SK), launched the MBSAT broadcast communications satellite in 2004. MBCO was established to provide cars and mobile terminals with digital satellite broadcasting for audio, video and data services throughout Japan and has been authorized by the Japanese government. SK is Korea’s leading wireless telecommunications services provider. The MBSAT satellite has four high power transponders for direct broadcast services and the satellite is expected to deliver high quality interactive music, video and data to mobile users in Japan and Korea. The MBSAT satellite has focused broadcast beams that only target the Korean peninsula and Japan. It broadcasts in the S band (from 2630 to 2655 MHz) and its broadcast does not interfere with our satellite’s broadcast over the L band into Japan and Korea. MBCO has begun selling receivers and is broadcasting on a trial basis.

Significant regulatory and economic barriers to entry for additional DARS providers

We have built, launched, and are currently operating two satellites for our broadcasts, and we have constructed multiple uplink stations to send content to our satellites for broadcast. We believe that no other similar DARS network is in active development and that a comparable DARS system would require substantial capital expenditures and take a significant amount of time to develop. In addition, we have successfully completed ITU frequency coordination for the use by each of our two satellites—AfriStar and AsiaStar—of the whole 25 MHz DARS allocation in the L band (1467 to 1492 MHz) that was made available for use in 1992. ITU regulations give us the right to use the whole 25 MHz of the L band spectrum currently available for DARS in our broadcast coverage area. The combined operations of the two satellites currently utilize most of these 25 MHz. Since under the rules of the ITU, a competitor may not broadcast in a fashion that would interfere with the Company’s broadcast signal, and because our satellites broadcast over most of the allocated range, we do not believe a competitor can broadcast into our target markets in the allocated range without causing unacceptable interference. We believe that the regulatory approvals, required satellite coordination and capital necessary to establish a DARS system in the markets in which we operate make a direct DARS competitor in the near term unlikely.

We pioneered the early development of the DARS industry and the technology used extensively in the industry today and we continue to develop state-of-the-art transmission, antenna and receiver technology. Our Chairman and Chief Executive Officer, Noah Samara, has been involved in the industry since its inception. Mr. Samara was instrumental in the international allocation of broadcast spectrum for DARS. We received the first experimental license for DARS from the FCC, which was later converted into a full license, and are currently the only entity providing DARS in the internationally allocated L band. We were the first company to establish an operational DARS system and also the first company to demonstrate a mobile receiver service for automobiles that uses satellite broadcasts and complementary terrestrial repeater networks. We developed the state-of-the-art transmission, antenna and receiver technology, which represents the foundation of both our own satellite-based digital broadcasting network and XM’s DARS system. WorldSpace, which was one of the initial investors in, and a principal shareholder of, XM from 1997, sold its interest in XM in 1999.

Our service is fully operational in India, where we currently broadcast 39 channels of music, talk, sports and news from our AsiaStar satellite. We have the capacity to expand our service to 80 channels, and will continue to tailor our programming to the needs and preferences of major, as well as niche, target listener segments within each geographic region in India. Our receivers are manufactured in India by BPL, a leading electronics manufacturer in India which has historically produced the majority of our receivers for the Indian market, and by three other electronics manufacturers. Our receivers are being marketed through four WorldSpace-branded “Experience Stores” and a limited retail distribution network, located primarily in Bangalore, with a recently expanded distribution platform in Chennai and a smaller set of outlets in New Delhi. Based on our discussion with receiver manufacturers, we believe that they are able to increase production to meet our anticipated demand. We have established a fully scalable back-office infrastructure to support our Indian operations, including billing, customer care, customer management, installation and support services necessary to support the growth of our business.

Our satellite broadcast coverage area includes approximately five billion people, representing more than 75% of the world’s population, and approximately 300 million automobiles. Now that our satellites are launched and operational and our ground uplink stations are established, subject to obtaining required regulatory approvals, we can broadcast to subscribers in this entire area at relatively small additional expense.

Strong strategic relationships for developing the WorldSpace system and services

We have established strong relationships in developing our satellite system, system equipment, receivers and services. As we pursue our plans to launch our mobile receivers for use in automobiles, we will seek development alliances with companies in the automobile, telematics and terrestrial infrastructure segments. We work with leading local manufacturers, including BPL, one of India’s leading electronics manufacturers, to produce low-cost receivers for the Indian market, and are currently working with Analog Devices to produce a chipset that will increase the functionality of our receivers. Other strategic relationships include:

We intend to use the net proceeds of this offering in connection with the implementation of our India business plan, including build-out of the terrestrial repeater network, service launch in key cities and marketing expenses related to subscriber acquisitions in India; business development activities in China, Western Europe and other selected markets within our broadcast coverage area and the roll-out of our services in China. Our strategy is as follows:

Roll out our subscription-based DARS on a sequential basis in markets with strong demand for subscription radio service

As the only company licensed to use the L band to offer DARS in our broadcast coverage area other than South Korea and Japan, we are well-positioned to roll out our subscription service, on a sequential basis, in the markets we find the most attractive, subject to obtaining required local regulatory approvals and funding. Our broadcast coverage area includes India, in which we have commenced commercial operations, and China, which will be our next focus of a targeted launch. These markets are characterized by large and growing populations, strong economic growth and increasing demand for entertainment services.

We have obtained all the required authorizations for the national roll-out of our subscription DARS in India and are in the process of establishing joint ventures with Chinese entities to broadcast content in China. Following our initial roll-out in India, we plan to extend our services and marketing efforts into China. In addition, we have begun to develop DARS for Western Europe and are establishing the necessary partnerships for the launch of mobile DARS in Western Europe.

Develop and provide unique and compelling content targeted to the markets we serve

Our goal is to satisfy the demand for compelling content in our target markets by offering the most varied, high quality, must-have programming line-up in each of our target markets. We will continue to pick from the best content available globally, nationally and regionally and, where appropriate, create in-house programming to meet the needs of our target audiences. Satellite radio has significant advantages in our target markets, including:

Continue to lower chipset and receiver costs and increase receiver capabilities

Lowering the price of our receivers is an important factor in our ability to acquire subscribers. Our strategy consists of three main elements: (i) to continue to lower the costs of the enabling receiver technology for our receivers in order to bolster sales of stand-alone receivers; (ii) to provide a “WorldSpace-Embedded” solution whereby consumer electronics manufacturers can embed our chipsets into their hi-fi systems and televisions; and (iii) to provide WorldSpace functionality through separate “attachment products” which will allow customers to upgrade their current home or automobile systems to receive the WorldSpace service. We are working closely with Analog Devices (manufacturer of our second generation chipset) as well as product manufacturers and distributors to ensure the execution of this plan.

For our stand-alone receiver products, we will seek to continue to lower the costs of the receivers and increase their functionality. We currently offer a number of receiver products to address both the high- end consumer and the more price sensitive segments of our target markets. Our initial receivers sold between 2000 and 2001 retailed for between $200 and $300. Working with our receiver manufacturing partners, WorldSpace receivers currently sell for between Rs.3,790 and Rs.11,690 (approximately $85 to $270), and BPL, one of the largest consumer electronics manufacturers in India, offers a low-cost receiver for Rs.2,790 (approximately $65), after subsidy from WorldSpace. Our next generation receivers will

have a number of improvements over our current receivers; we anticipate that these will initially be offered at prices between Rs.4,500 and Rs.10,000 (approximately $100 to $230). We expect prices of our next generation receivers to fall over time as sales volumes increase and technology follows a trend, similar to our first generation devices. We plan to continue selectively subsidizing receivers in order to drive subscriber acquisition.

In addition, we intend to work with our producers to enhance the features and lower the costs of our chipsets to allow for these producers to offer “WorldSpace-Embedded” consumer electronics, enabling our manufacturing partners to offer devices such as TVs and hi-fi systems with our chipsets embedded inside without adding materially to the price of these devices. BPL is currently considering embedding TVs and hi-fis with our chips. Similar efforts are underway in China.

Together with Analog Devices, we are developing an automobile compatible mobile receiver and service, initially for the Indian market and eventually for the Chinese and Western European markets as well. To commercialize this product, we will need to:

Form partnerships with name-brand manufacturers, distributors and content providers in each of the markets we serve

In order to penetrate any given market, we will attempt to work together with the strongest partners for distribution, receiver manufacturing, content and other key areas in each market to ensure the timely launch and successful execution of our business plan. Our position as the only DARS service provider in our target markets allows us to select strong local partners on a basis favorable to us. In contrast, in the United States, XM and Sirius compete for automobile manufacturers, content providers and distributor relationships. We believe we have been successful in India and intend to employ similar strategies in other markets as well, including China. In India, we partnered with BPL, which is a leading consumer electronics manufacturer and distributor in India. We also secured relationships in India with other leading distributors and consumer electronic dealers. As we introduce our mobile receivers, we intend to establish relationships with automobile manufacturers that will allow us to integrate receivers in their automobiles and promote product awareness. Since the after-market automobile accessory market is well-established in India, we are also working with those accessory retailers and installers who we believe will be responsible for most of the early mobile service sales and installations. We have also established relationships with some of the strongest Indian news, sports, music and general programming providers, such as NDTV, a leading Indian news and information provider, RM Radio and others.

In China, we are poised to become the only broadcaster, foreign or domestic, with the ability to nationally broadcast directly to individuals, homes and automobiles in China. We have a partnership with ChinaSat, which has acquired certain of the licenses required to operate our system. Additionally, we have established a programming uplink station in Beijing for the AsiaStar satellite. We are currently

awaiting approvals from SARFT relating to our content and finalizing partnerships with China National Radio and China Radio International, both subsidiaries of SARFT, for Chinese content and programming. As is the case in India, we are working with local government broadcasters and local media companies who are attracted by our national, regional and local coverage reaching virtually all of China as well as Chinese expatriates within our broadcast coverage area.

Expatriate market. There are more than 12 million Indians and 25 million Chinese living outside of India and China, but within our broadcast coverage area according to the High Level Committee on Indian Diaspora established by the Indian Government and the China Overseas Communication Society. There are approximately 3.3 million U.S. expatriates, and we believe a similar number of U.K. expatriates, living within the broadcast coverage area of our satellites. We believe this expatriate market will be receptive to the programming that we currently offer. Our programming will serve as a “voice from home” that connects them with the day-to-day events and culture of their country of origin. For example, we believe that CNN, NPR and Fox News will appeal to western expatriates, while Indians living abroad will appreciate the chance to receive NDTV news channels. We also expect that, because we can provide programming in expatriate subscribers’ native languages, there will be demand for our services despite the local entertainment and news services already available to them in their host country.

Seek relationships with government agencies. Our technology is capable of disseminating information other than traditional radio programming. For example, we have strategic relationships with U.S. developmental and defense agencies, as well as a relationship with the Indian Meteorological Department, with whom we plan to create a service to provide coastal fishing vehicles with a low-cost up-to-the-minute weather report system capable of displaying graphical depictions of local weather patterns. We continue to seek, on a case-by-case basis, relationships with other governments and regulatory agencies similar to those we currently have in place.

Within our broadcast coverage area, we believe that India and then China, followed by Western Europe, are the most attractive target markets for initial launch of our service. We are in the process of launching a marketing campaign in India that is designed to expand significantly our subscriber base, continuing the roll-out of our business, and planning for a mobile market with terrestrial repeater networks in selected urban areas. Following our roll-out in India, we plan to extend our services and marketing efforts into China.

India is our initial target market and the initial focus of our business plan. We believe that there is high potential demand for our services in India as a result of the size and diversity of the market, the potential for sustained economic growth, the relative underdevelopment of local traditional radio markets and the high potential for consumer adoption of our services that was identified by a recent market survey conducted by IDC. India has the second-largest population in the world behind China, with approximately 1.1 billion people; Org-Marg, an A.C. Nielsen company, reports that India has 32 major cities with populations of more than 1 million people. India’s economy is one of the fastest growing in the world. A Moody’s investor service report, dated April 30, 2004, estimates that India’s real GDP grew by 4.4% in 2000, 5.8% in 2001, 4.0% in 2002, 8.5% in 2003 and was anticipated to grow by 6.9% in 2004. With more than 7 million passenger cars, India has experienced robust growth in passenger car sales over the past few years. Total annual passenger car sales were 570,000 in 2001, 598,000 in 2002 and 701,000 in 2003; Asia Times estimates that passenger car sales were approximately 1.1 million in 2004.

While Hindi and English are the two main national languages of India, many of the people in India identify with an alternative language associated with their ethnic group. In total, 17 principal languages are spoken in India.

The Indian radio market remained underdeveloped and was dominated by AM transmissions until the beginning of 2001, when India’s government permitted private FM broadcasters to enter the radio market on a limited basis across the country. Although an aggregate of 22 private FM channels are broadcast in India, none of these private FM broadcasters is permitted to broadcast news and current affairs content according to a 2004 report by the Telecom Regulatory Authority of India (TRAI). Currently, the Information and Broadcasting Ministry limits the number of licenses available for FM broadcasting in each market to seven. The FM channels rely on advertising revenue and therefore cater to the widest market. As a result, their formats and content are generally similar in nature. Additionally, the programming quality and signal power of the FM stations are limited.

Over the last several years, India has experienced rapid growth in consumer adoption of subscription-based services such as mobile phones, cable television, direct-to-home satellite television (DTH) and Internet services. The rapid growth in subscription-based services demonstrates demand for, and adoption of, new technologies and services, as well as the financial ability to pay for these services.

Indian mobile phone services have experienced substantial growth over the past two years. Cellular Operator Association of India reports that, from December 2002 to December 2004, mobile phone subscriptions grew by 256%. India now has more than 37 million mobile phone subscribers, representing a market penetration rate of approximately 3.5%, with Bharti Tele-Ventures Limited, a large Indian mobile phone operator, reporting subscribers paying an average fee of approximately Rs.520 ($12) per month for service in 2004. A low-end mobile phone in India retails for approximately Rs.3,500 to Rs.4,000 (approximately $80 to $90).

India has an estimated 45 million cable television subscribers, according to the website of the Daily Dispatch, representing a 52% penetration of households. The cable television market in India is highly fragmented, with numerous independently owned operators controlling different geographic regions. A small low-end television retails for approximately Rs.6,000 (approximately $140).

DTH television in India is relatively new. Aside from the Indian government-owned entity, Doordarshan, there is only one private broadcaster that is currently operational, Zee Telefilms, with a second competitor, Star, in development. While there is no independent data, numbers released by Zee Telefilms indicate a base of approximately 180,000 subscribers in India as of February 2005, with subscription prices between Rs.100 and Rs.450 (approximately $2 to $10) per month and with an average monthly subscription price of Rs.170 (approximately $4). According to Doordarshan, the initial cost of hardware, which is a decoder set top and a satellite dish, is approximately Rs.3,000 to Rs.3,500 (approximately $70 to $80).

In 2003, India had approximately 18.5 million total Internet users and nearly 4.1 million paying subscribers, as reported by websites of Internet World Stats and the Internet Service Providers Association of India. According to TRAI, the monthly subscription fee for Internet service is approximately Rs.310 (approximately $7) per month. The cost of a low-end personal computer in India is approximately Rs.30,000 (approximately $690) according to Euromonitor plc.

Our target market comprises upper, upper middle and middle class households, which currently number approximately 60 million and is anticipated to reach 105 million by 2010 according to estimates of the U.S. National Council of Applied Economic Research. The most affluent 20% of the Indian population (approximately 37 million households) has an average income level of $37,500 per year, converted on a purchasing power parity basis.

We believe that there is significant demand for our satellite radio service in India. An IDC market study completed in January 2005 indicates that approximately 40% of the respondents in our target markets would be interested in our services, would be willing to pay between Rs.100 and Rs.150 (approximately $2 to $3) per month for our services and would be willing to purchase receivers for Rs.5,000 to Rs.5,500 (approximately $115 to $125).

Existing infrastructure. We have spent the past four years building the required infrastructure to execute our business plan in India. We have developed and implemented the necessary technology, satellites, regulatory authorizations, distribution network and customer care service to deliver home audio services. We began broadcasting our home audio service in India in 2000 on a free-to-air basis. Concentrating our initial marketing efforts in one metropolitan area, Bangalore, we have added content to our subscription service and are transitioning certain free-to-air content to subscription service. As of March 31, 2005, we had more than 22,000 paying subscribers in India, at an average subscription rate of Rs.1,200 (approximately $30) per year. We currently offer our subscribers in India 39 channels of music, entertainment and information programming in eight languages, and anticipate introducing six new channels in the near future. This programming ranges from regional to national and international in its focus.

Distribution and market penetration. In 2005, we intend to concentrate on the largest metropolitan areas in India: New Delhi, Mumbai (formerly known as Bombay), Chennai (formerly known as Madras), Hyderabad and Bangalore. In the second half of the year, we plan to expand our market to include Ahmedabad, Kolkata (formerly known as Calcutta), Chandigarh and Pune (formerly known as Poona). In 2006, we plan to expand our service to nine additional Indian cities with populations greater than 1 million people.

Our distribution strategy includes (i) consumer electronics retail outlets, (ii) branded WorldSpace experience stores, (iii) direct-to-consumer sales, and (iv) corporate sales and corporate gift programs. We plan to distribute our receivers through more than 250 retail outlets in target metropolitan markets during 2005. We currently distribute to retail outlets through regional distributors, but we expect to outsource distribution to third parties as we increase our sales and penetrate additional markets. We selected the retail outlets in cooperation with our regional distributors based on their traffic volume and marketing focus. About a third of the retailers will participate in our Priority Retailer Program in 2005, which includes in-store support from WorldSpace, the ability to utilize certain locations to test particular marketing and sales tactics, and particular inventory and space commitments from the retailer. We have begun to establish exclusive WorldSpace brand showrooms in key metropolitan markets as part of our branding and distribution strategy. We currently operate one showroom in Bangalore and have franchised one other WorldSpace-only brand store in Bangalore and one in Chennai. We expect our priority retailers and branded showrooms stores to generate a significant portion of our subscriber additions, as well as offer an ideal environment for potential customers to understand and appreciate the value of our services. For our direct-to-consumer channel, we have established a network of agents with experience serving the consumer electronics and telecommunications industries in India. Corporate sales are expected to come mainly from telecommunications, credit card, hospitality and pharmaceutical companies, and are expected to include, for example, bundling solutions with gifts or special offers to their own employees and clients.

We have manufacturing arrangements in place with BPL, Tongshi, P.T. Hartono Istana Teknologi (Polytron) and G-Hanz GmbH (G-Hanz) to produce and develop our receivers.

Content. The basic subscription package that we offer in India consists of international news and sports channels; WorldSpace-branded English language channels playing a full range of international music;

Indian niche genre channels such as Jhankaar, Ghandharv, Shruti and Farishta; Indian regional news channels such as NDTV India and NDTV 24*7; and Indian regional music channels such as Sparsha, Spandana, Radio Tara, KL Radio and RM Radio. The channels are broadcast 24 hours a day.

We intend to launch six new channels: Moksha, a lifestyle and meditation channel; a regional music and lifestyle channel in the Punjabi language; a business channel; a sports channel; and an educational channel. We also intend to start to broadcast four of our channels live. Our long term strategy focuses on live music broadcasting, as well as increasing channels with a regional, talk and children focus.

Mobile service. We plan to introduce a terrestrially augmented mobile service in India after receiving appropriate regulatory approvals and to develop next generation receivers capable of receiving signals from both our satellites and from the terrestrial repeater networks that we will establish in certain urban areas once they have been authorized. One of our chipset developers, Analog Devices, is now in the advanced stages of implementing terrestrial waveform reception capability on its proprietary Blackfin Digital Signal Processor.

We plan to use India’s extensive electronics and automobile aftermarket networks to sell our early automobile-mountable mobile receivers. Currently, we have an agreement with BPL to manufacture and sell automobile aftermarket mobile receivers worldwide. We plan to establish partnerships with automobile manufacturers so that they can offer factory-installed WorldSpace receivers in their new cars. We also plan to establish distribution relationships with auto accessories store chains, which play an important role in the Indian aftermarket.

Sales, marketing and customer care. Retail outlets currently carry WorldSpace products in New Delhi, Mumbai, Bangalore and Chennai. Our local retailers and distributors make the initial sales of receivers and subscription packages, collect customer information and assist customers in setting up our service.

Our marketing plan includes advertising in various types of traditional media, experiential selling in stores and malls with a high volume of customer traffic and through events, promotions and co- marketing arrangements. We will initially focus on category creation, trade acceptance and experiential placements with a focus on product and service awareness and expansion in stores with a high level of customer service and an ability to demonstrate the subscription service.

We have a proprietary Subscriber Management System that is operating in India. Our call center function has been outsourced to Spanco, a leading Indian call center service provider. Installation and support is provided by ACCEL, a leading Indian customer care and installation service provider.

China is the most populous nation in the world with approximately 1.3 billion people and 8 million passenger cars. According to China Median Monitor, there are 360 million households in China. At the end of 2002, China had 30 major cities with populations greater than five million, and nine cities with populations greater than 50 million. In addition, China’s economy is one of the fastest growing in the world. China’s real GDP grew by 8.0% in 2000, 7.3% in 2001, 8.0% in 2002 and 9.1% in 2003. A Moody’s investor report estimates that China’s real GDP grew 9.0% in 2004 and is expected to grow by 7.8% in 2005. The most affluent 20% of the Chinese population (approximately 72 million households) has an average income level of $38,500 per year, converted on a purchasing power parity basis with the United States.

China is also one of the fastest growing automobile markets in the world and is the third largest behind the United States and Europe. We believe there are unique opportunities to market our automobile

receivers in this developing market just as the industry itself is experiencing significant growth. There are currently more than 8 million passenger cars, of which 735,000 were sold in 2001, 1.1 million in 2002 and 2 million in 2003. An estimated 2.8 million passenger cars were sold in 2004, which would represent a 40% growth over the prior year.

China has eight recognized languages with numerous additional minority and ethnic languages. China is a communist state with a centrally planned economy and business and popular entertainment remains highly regulated.

Traditional radio, the Internet and television are the largest comparable services now available in China. China has developed a large infrastructure for each. Zenith Optimedia reports that there are approximately 330 million radios and televisions in China. According to Media & Marketing Limited, there are over 40 channels of cable and an average of 10-15 FM stations in each of China’s major metropolitan markets.

Mobile phone use has become extremely common in China. The website of the China Internet Information Center reports that there are approximately 330 million mobile phone subscribers. The Chinese mobile phone market has experienced double-digit growth over the past four years; Euromonitor plc. reports that, in 2003, mobile phone subscriptions grew by 30%. China’s approximately 330 million mobile phone subscribers represent a penetration rate of approximately 25%, with subscribers paying an average fee of $12 per month for service (reported by Sino Cast China IT Watch). Euromonitor plc. reports that a mobile phone in China currently retails for between $60 to $600 depending on the brand name, design and functionality, with the average mobile phone costing an average of approximately $200.

In February 2005, the New York Times reported that China has an estimated 105 million cable television subscribers, representing a 30% penetration of television households. Monthly cable subscription fees vary depending on the level of consolidation of the industry in a particular region, with subscription packages, as reported by Zenith Optimedia, at approximately $1.80 per month.

China Internet Network Information Center (CNNIC) and the Industry Standard report that there are approximately 94 million Internet users and 72 million Internet subscribers, representing a 5.5% penetration rate of the total population. A monthly subscription fee for Internet services ranges from $6 to $24 per month (reported by CNNIC). According to Euromonitor plc., the average cost of a personal computer in China is approximately $1,250 for a desk-top and $1,600 for a notebook, with prices varying depending on brand and functionality, among other variables.

Although China is one of the most highly regulated countries with respect to media and has not committed to increasing openness in the broadcasting industry, we believe that we are well-positioned to benefit from its increasing openness to Western companies following China’s accession to the World Trade Organization.

We began exploring business opportunities in China with the establishment of a representative office in Beijing in 1998. We chartered a wholly foreign-owned enterprise, WorldSpace (China) Information Technology Ltd., in January 2002. Our primary goals with respect to China have been to establish a presence in the Chinese market, to open and solidify relations with the central government and its regulatory agencies and to convert these relationships into contractual, regulatory and operational approvals and consents into cooperative ventures.

In 2000, ChinaSat secured spectrum allocation from the Ministry of Information Industry and our agent, ChinaSat, constructed a state-of-the-art uplink station for ChinaSat in Beijing. After conducting a beta test of our system, SARFT approved our technology, including our “China-Only” receiver, for use in China. We have developed important relationships with SARFT and with two media entities under direct supervision of SARFT, China National Radio and China Radio International, as well as with ChinaSat, our agent in China. We expect, in cooperation with local partners, to gain acceptance as the first non-government direct-to-consumer broadcast satellite service in China.

We have developed a “China-Only” version of our receivers, which is programmed to decode only those broadcasts intended for listeners within China. This feature will ensure that programming from outside China will not be decoded by China-Only receivers within China. To facilitate local low-cost production in China, we have entered into agreements with China-based receiver producers Tongshi and Tesonic. Receivers from these suppliers are expected to retail for approximately $85 to $150.

Initially, we intend to introduce our Chinese service in Beijing, Shanghai and Guangzhou. Thereafter, we intend to expand to the next five largest metropolitan areas, then to all developed provincial capitals and, finally, to all of China. Our short-term goals in China are to: (i) conduct research in order to determine appropriate content; (ii) acquire programming content; (iii) identify compatible receiver distributors and put distribution agreements into place; and (iv) identify and implement our regional office staffing needs. With respect to content, we intend to focus on three initial types of service:

We believe we are well positioned to offer an initial DARS system to the Chinese market, subject to any required local government approvals with respect to broadcast content. We have already entered into memoranda of understanding with several third-party providers of content relating to these services, including China National Radio, China Radio International, SEEC, Hunan Radio & TV and Guoxin/Tongshi.

Our approach to content comprises three key strategies: (i) to form partnerships with the best international, national and regional content providers; (ii) to create high-quality original content where appropriate; and (iii) to aggregate in each of our markets the most appealing mix of audio programs. The mix of audio content provided in each market is tailored to the needs and preferences of major, as well as niche, target listener segments within such market. Each of our satellites broadcasts three beams of information covering different parts of the satellite’s footprint. Each beam has the capability to broadcast up to 80 channels with its own individual mix of programming. For example, our AsiaStar satellite offers one set of content on the beam primarily targeting India and will offer a different set of content on the two beams targeting China and the surrounding areas.

Overall, we currently broadcast a total of 63 separate digital channels, delivering music and multilingual news, sports, information and data. Currently, 41 channels are provided by international, national and regional third parties and 22 are WorldSpace-branded channels produced by us, or by third parties

uniquely for us. The WorldSpace-branded channels represent the most popular international music formats, including contemporary hits, country, classic rock and jazz. In our studios in Washington D.C., Bangalore, India and Nairobi, Kenya, we create 16 original music and lifestyle channels for distribution on the WorldSpace platform. In the Washington, D.C. studios, we also create 4 original music channels for distribution on the XM platform.

In order to protect the programming offered on our satellites, we use encryption technology to mitigate signal piracy and to protect access to, copying of and tampering with the manner and method through which our content is offered as well as the content itself. Our next generation receivers will use improved compression technology, eventually allowing a greater number of channels to be sent over our existing bandwidth.

We have agreed to provide free of charge 5% of the capacity of each of our satellites to First Voice through the life of such satellites and to provide uplink service for First Voice’s content for two years. First Voice is a nonprofit organization whose establishment was inspired by our Chairman and Chief Executive Officer, Noah Samara, and which provides free informational and educational programming to local communities within our broadcast coverage area. Mr Samara is also the Chairman of First Voice.

The northwest beam of our AsiaStar satellite offers 39 channels to our primary market of India. As we increase our marketing, we intend to increase the number of channels offered to approximately 50.

The chart provided below details the type of content offered on each of the 39 channels currently offered in India. We are presently preparing to launch six new channels, including Moksha, a lifestyle/meditation channel, and a regional music and lifestyle channel in the Punjabi language. Some of our channels are available free-to-air, but most require a subscription service. In the chart, “Broadcaster” channels are channels for which we acquire the content from a third-party broadcaster and “WS-branded” channels are channels for which we produce the content or have the content produced for us.

We plan to use the other two beams on the AsiaStar satellite to broadcast in China and Southeast Asia.

Our AfriStar satellite offers 41 channels, most of which are available on all three beams. The programs offered on these channels are broadcast into Africa, the Mediterranean basin countries, the Middle East and parts of Western Europe. This programming includes all of our international music and news programming, and also includes regionally specific programming such as Radio Caroline, Virgin Radio U.K., East FM, Lamp FM, Europe 1 and Sunrise Radio.

WorldSpace receivers are currently available in a range of individual, home and office models. Models available on the market today include portable, durable individual units specially suited to meet the needs of travelers, the military and rural conditions to boom-box type units with CD, AM and FM features designed to interest the younger, electronics savvy consumer. Working with Analog Devices, we are developing our next generation of receivers based on a new digital signal processing chipset. These next generation receivers will have a number of additional capabilities. In order to take advantage of those capabilities, we will have to broadcast our signal in a new waveform. However, our current generation of receivers will not be able to interpret this new signal. As we introduce and market our next receivers, we expect to broadcast in both waveforms. However, at some point in the future as our next receivers achieve broad market acceptance, we expect that we will discontinue broadcasting the signal used by our current generation of receivers.

Our customers can access our digital audio service using special receivers with a small antenna (about 6-8 cm). All receivers have liquid crystal display screens capable of displaying text messages of up to 32 characters in length and can paginate to allow longer messages. This capability is not currently utilized. This text could include messages such as information on the music being played (e.g., the artist’s name, song title, words and record company), advertisements and/or ordering information, weather updates, financial information or other public service announcements. In addition, each of our receivers includes a data port, so that any receiver can be used to receive multimedia or data services at 128 kbps. Some of our current receivers can also be mounted on automobile dashboards with their antenna placed on the roof. As long as line of sight with our satellites is not obscured, the receiver will operate. This mobile solution will be improved upon in our next generation receivers and by the creation of a terrestrial repeater network.

Our receivers used in India are manufactured by a number of third-party companies, including BPL, AMI, Tongshi, Polytron and JS Information & Communication Co., Ltd. (JS Info). They are sold in the retail market at prices currently ranging from Rs.3,790 to Rs.11,690 (approximately, $85 to $275). In addition, BPL offers a low-cost receiver for Rs.2,790 (approximately $65). To help achieve this price point, we currently provide a subsidy for this receiver. A key strategy is to reduce the price of receivers by licensing manufacturing in the local markets, and obtaining manufacturers’ commitments to reduce receiver prices over time. We continue to pursue all opportunities to reduce receiver costs. At the same time, we encourage manufacturers to produce a diversity of receiver products to appeal across market segments.

The table below shows the different types of our receivers that are currently offered in the India market.

We are working with Analog Devices and our receiver manufacturers to produce a next generation of receivers with advanced capabilities. These receivers will use Digital Signal Processing (DSP), technology in their chipset. The DSP technology allows a stock chipset to be programmed to operate in our receivers. These new receivers will incorporate interleaver processing technology that will allow them to buffer broadcast signals for approximately 4 seconds, reducing signal disruption due to temporary blockages (such as passing under a bridge). The new receivers will be capable of receiving a multi carrier modulated (MCM) replica signal from a network of terrestrial repeaters. The new receivers will also use improved audio compression technology, allowing us to broadcast high quality audio from our satellites using less bandwidth. This will eventually allow us to distribute more channels per satellite beam. When we begin marketing these receivers, we will introduce an over-the-air authorization channel (OAAC). This will allow us to activate or deactivate these receivers quickly without the customers having to enter passwords manually into their receivers.

Our new product line will include receivers specifically intended for automobile use. Initially, we plan to introduce after-market oriented products, which will be housed in a docking station on the automobile’s dashboard and will use an omni-directional antenna mounted on the automobile’s roof. Similar to the receivers used by Sirius and XM, these automobile receivers would access our satellite when in line of sight of our satellite or a terrestrial repeater network when line of sight to our satellite is blocked, which would generally only be the case when the receiver is in a major metropolitan area and large buildings,

trees and other natural obstructions obscure line of sight with our satellites. We intend to introduce automobile receivers that can function as a plug-in add-on to existing sound systems and as an integrated after-market receiver that will entirely replace a traditional automobile receiver in 2006. We also intend to include telematics services delivered to a dashboard receiver and display unit, as well as audio services in our next generation of receivers and services. The types of telematics services that we would offer include navigational aids and downloads of news and information, weather data and streamed content.

We are currently in negotiations with third-party companies, including BPL and Nippon Audiotronics, to manufacture our next generation of receivers. We expect that the initial line of our next generation products will retail for prices ranging from Rs.4,500 to Rs.10,000 (approximately $100 to $225). We may, as part of our marketing program, selectively subsidize receivers in the future.

To take advantage of the chipset in our next generation receivers, we will have to establish a terrestrial repeater network. We have contracted with LCC, Inc., a U.S. wireless design, deployment and management company with experience in India, and Webel in India to assist in building a terrestrial network. We expect that approximately 150 terrestrial repeaters will be necessary to establish adequate network coverage for India’s major markets. These terrestrial repeaters will be clustered primarily around the major metropolitan areas where obstruction of line of sight to our satellites is more common.

Our satellites can broadcast up to 80 channels per beam. We currently carry no more than 39 channels on any single beam, so we currently have the capability to broadcast substantially our entire programming choice in both current and new waveforms. But, to the extent we increase the number of channels we offer, our ability to do this will decrease. In addition, we have agreed to provide free of charge 5% of the capacity of each of our satellites to First Voice through the life of our satellites. We intend to initially broadcast approximately 25 channels in the new waveform. Gradually the number of channels offered in the new waveform will increase until all our programming is available in that format. In order to free bandwidth for additional programming in the new waveform, we will begin to discontinue broadcasting in the current format. The pace of this transition will be dependent on our ability and opportunity to add new channels and the acceptance of our next generation receivers.

In addition to the receivers we currently offer, we intend to integrate our next generation receivers into televisions and high-end audio systems. Adding WorldSpace functionality to a television or stereo system would increase the cost for the total system, but we believe the added cost to the customer will be significantly less than purchasing a standalone receiver.

We plan to target our multimedia and data broadcasting services to the business-to-business and business-to-government market. We have two primary products dedicated to multimedia and data services at 128 kbps, the Personal Computer (PC) card kit and the Digital Data Adapter (DDA). This technology is well suited for multicast applications and closed user group settings. Both of our primary multimedia and data port products allow the reception of our audio channels and multimedia data. The PC card kit consists of an internal card to be installed on the PCI bus of a PC, an antenna and a standard length of cable. This card contains two chipsets so that two broadcast channels can be received simultaneously; our audio programming and multimedia data. Since June 2001, we have made available a USB compliant Digital Data Adapter (DDA) as an external unit that extracts the data from our receivers and forwards it to the PC. Our customers can purchase the DDA to link their PC with their receiver and access multimedia and data services. We are exploring relationships with certain Indian governmental agencies and plan to focus more on multimedia and data broadcasting when we enter the Chinese market.

We have been broadcasting our service and our receivers have been on the market in India since 2000. Initially, we broadcast only free-to-air channels, but in July 2002 we began offering a limited subscription service consisting of a package of three international music channels. In October 2002, we added another subscription package of three Hindi language channels. By the end of 2003, we had approximately 12,000 subscribers for these services in India. In March 2004, we encrypted the majority of our channels. As of March 31, 2005, we had more than 22,000 subscribers in India. Previous funding constraints severely limited our ability to market our service in India. In each of 2002 and 2003, we spent only $200,000 on marketing in India. In 2004, we spent $550,000 on marketing in India.

Using the proceeds of our December 2004 sale of senior convertible notes in the aggregate principal amount of $155 million together with the proceeds from this offering, we intend to increase our marketing efforts, principally in India. Our marketing plan encompasses advertising in different types of media, demonstration based sales in high customer traffic stores and malls, events, promotions, incentives for key retail partners and co-marketing arrangements. We intend to focus initially on target markets in India that have a population that is more likely to consume high-end entertainment goods and services. We intend to spend approximately $10 million in 2005 on our marketing efforts in India.

The marketing agency Ogilvy Mather will help us to refine our advertising strategy in India. We intend to open at least one experience store in a high traffic area of each of our target cities where we will offer in-store demonstrations and samples of our products. We anticipate that this will require us to open approximately 11 experience stores in the near term. We currently operate one such store in Bangalore and have franchised to third parties the operations of another store in Bangalore and one in Chennai. We also plan to use mobile experience environments housed in trucks in the future. In order to attract sufficient customers, we have contracted with specialized promotional agencies to organize promotional activities in high traffic malls. We plan to stage promotions and events such as concerts, using our content as the central focus. Each event would be followed with direct sales efforts through our direct selling agents. Finally, we intend to enter into co-marketing arrangements with various retail stores and locations, some of which already play our channels, such as restaurants, malls, theaters, stores and pubs. In each such location we will provide channels for customers to experience that match the ambience of that location, and in certain instances we will provide listening posts with fully operational receivers at which customers can listen to all 39 channels that we offer. In addition to the above, we will market through the local daily press and national media to establish a brand name in the media landscape. We intend to rely in part on public relations initiatives that portray us as a potent, new, creditable and serious media in order to attract media attention and garner a certain amount of non-paid editorial led media space.

We have outsourced our customer care and call center operations to Spanco, an established operator in India with a centralized call center in Bangalore. A typical customer uses a uniform toll free number that is accessible to everyone across India in order to reach our customer care center. The call center is responsible for collecting customer information and providing passwords, handling customer queries over the phone, scheduling calls for service visits, handling sales inquiries and providing service information.

Except in Bangalore, where we offer this service ourselves, we have a contract with a single service agency, ACCEL, that has a presence in the major metropolitan areas in order to ensure a uniform and consistent service delivery if a customer requires assistance to install a receiver at the time of purchase or to resolve any other complaints related to receiving satellite signals.

In 2002, we launched our Government Sales Unit, which is focused on sales to U.S. and non-U.S. governments and government agencies, primarily in response to the U.S. government’s communication needs after September 11, 2001. Our service is capable of providing a secure, reliable and low-cost method of voice and other data broadcasting without additional terrestrial infrastructure. We have entered into contracts with U.S. and Indian governmental agencies for the provision of dedicated broadcasts using our system and receivers. To date, we have received more than $8 million in revenue from these contracts. We are also working with the Indian Meteorological Department to provide a dedicated service broadcasting weather forecasts and other data to India’s fishing industry.

In the areas where we broadcast there are many millions of people living outside of their home country. There are more than 12 million people of Indian origin and 25 million people of Chinese origin living outside of India and China, but inside our broadcast coverage area, according to the High Level Committee on Indian Diaspora and the website of China Oversees Communication Society. There are also approximately 3.3 million U.S. expatriates, and we believe a similar number of U.K. expatriates, living in our broadcast coverage area. We believe these people are often more affluent than their countrymen living at home, thereby making our services an attractive and affordable proposition even at higher price points. We can offer compelling programming such as CNN, the BBC, NPR, Virgin Radio U.K. and Fox News, as well as local Indian programming tailored for specific ethnic populations, to these groups. We believe that these groups will be receptive to programming developed for their native countries and appreciative of being able to receive that programming in their host country.

Our system is a complete digital audio, data and multimedia system comprising three major components: the space segment, the ground segment, which includes satellite control and content uplinking, and the user segment. The space segment is designed to cover most of the geographical areas of the world (except North America and Australia) using three high-powered geostationary satellites. We have spent approximately $674 million on required infrastructure, including the satellites and the earth stations. Presently, two of the satellites, AsiaStar and AfriStar and their associated ground control systems, are providing operational services to Asia, all of the Middle East and Africa, and parts of Western Europe. We have two more satellites, one fully assembled (which we plan to use to provide mobile DARS in Europe) and another that is partially assembled and for which we have procured all parts (which will serve as a ground spare). The satellites are designed to provide digital audio, multimedia and data broadcasting to small fixed and portable L band receivers in their line of sight anywhere in their broadcast coverage area. We also plan to implement terrestrial repeater networks that will be part of our system in selected markets within our satellite broadcast coverage area. With the addition of suitably located terrestrial repeater networks, the system can provide more reliable urban broadcast services to receivers in automobiles (similar to the services provided by XM, whose system is based on our proprietary technology).

The ground segment consists of the ground control system and the network management system. The ground control system provides the capability to monitor and maintain our satellites in-orbit over the desired life of the satellite. The network management system consists of centralized hub stations, or individual broadcast stations, with the ability to aggregate the program channels and uplink to the satellite within their view. Individual broadcasters that choose to uplink to a satellite directly from their broadcast facilities lease or purchase individual feeder link stations from suppliers approved by us. Using program encryption/decryption, the system provides subscriber management service through selective addressing of receivers and supports small messaging services.

We built our system working with industry leaders, including Alcatel Space, EADS Astrium and Arianespace (France), SED (Canada), GSI (USA), Fraunhofer Institute (Germany), ST Microelectronics (Italy), Micronas (Germany) and others, to realize high quality and reliability of service.

Both our AfriStar and AsiaStar satellites are Matra Marconi Eurostar 2000+ buses built by Alcatel Space and EADS Astrium, formerly known as Matra Marconi Space. Both are geostationary orbit satellites broadcasting programs in the L band frequency (1452-1492 MHz range). Each of the two satellites has three downlink spot beams, with each beam covering approximately 14 million square kilometers of the earth. The AfriStar satellite, launched in October 1998, is located at the 21º East Longitude orbital location with beams covering all regions of Africa, the Mediterranean basin countries, the Middle East and parts of Europe. The AsiaStar satellite, launched in March 2000, is located at the 105º East Longitude orbital location with beams covering the most densely populated parts of Asia, including India, China and the southern part of Russia. The third satellite, which is fully assembled and ready for launch, is currently in storage at EADS Astrium’s facilities in Toulouse, France. A fourth satellite of identical design, for which long lead parts have been procured and partially assembled, is also maintained in storage in Toulouse, France and can be integrated and tested for launch in an abbreviated period of time.

Each satellite has a design life of twelve years, with an orbital maneuver life of 15 years, which means that each satellite has been designed to maintain its assigned orbital position (within 0.1 degrees) for 15 years. After that point, the satellite must be decommissioned. Our AfriStar satellite has developed a defect in its solar panels. As a result of this defect, the panels are collecting less power than intended and we expect that the defect will affect that satellite’s operation starting in 2008. At that point, the panels will not be collecting enough energy to fully power all three broadcast beams. As a result, we will have to make an operating decision in order to conserve power at that time, which may include broadcasting a smaller number of channels over one of the beams, or reducing our broadcast coverage area in our least utilized beams.

We use a digital data transmission scheme to transmit programs to portable receivers. Our digital format incorporates interleaving, Reed-Solomon and convolution encoding techniques to protect our service against transmission errors. Each of our satellites provides two types of channel capacity: transparent and processed. In the transparent mode, signals from ground stations are sent to the satellite in a time sequence known as time division multiplex (TDM). In this mode, different channels are brought to a central hub station for aggregation and uplink to the satellite. The satellite receives and rebroadcasts these channels to ground receivers within its coverage area. The three downlink beams receive programs from corresponding uplinks in different frequencies. In the processed mode, the satellite has the ability to process the received signals before retransmission. This second mode allows individual broadcasters to uplink to the satellite directly from their respective studios. In the processed mode, any program uplinked on a single frequency can be broadcast in any or all of the downlink beams.

Common to both types of transmission modes is the concept of Prime Rate Channels (PRCs). A PRC is a basic 16 kbps channel. Each beam consisting of two TDM carriers has a maximum capacity of 192 PRCs leading to a total capacity of 3,072 kbps. The PRCs can be combined to produce various levels of service for broadcasters—from 16 kbps to 128 kbps to meet the quality needs of programs. Channels can be split in real-time so that low data rate services, such as voice tracks or advertisements, can blend seamlessly with high data rate services, such as high quality music programming. We can provide up to 80 program channels per beam, ranging from mono AM to near CD quality audio, using this capacity and MP3 audio encoding. We can also provide multimedia channels combining audio, video and data of

desired quality. With advanced coding techniques, such as AAC+, we will be able to realize our desired quality of service with less capacity usage, provided that appropriate modifications are made to the user receivers.

We are presently working to introduce mobile service using both satellite and ground retransmission capabilities. For this service we have modified the satellite waveform with the introduction of a long interleaver. It also uses advanced audio source coding techniques such as AAC+, which uses less bandwidth and also provides better audio quality. We are developing new receivers to receive mobile services, which will have the ability to receive programs coded in both MP3 and AAC+ formats. With the introduction of our mobile service, we will need to transmit separate broadcasts to our existing customers using our new products for a limited time.

Operation of each satellite currently in-orbit is monitored and controlled by the ground control system, comprising a regional operations center (ROC), two telemetry, command and ranging (TCR) stations and one communications system monitoring (CSM) station that performs monitoring of the downlink signal quality and control of each satellite. Our regional operations centers are located in Washington, D.C. for AfriStar and Melbourne, Australia for AsiaStar. The regional operating centers, through their satellite control centers, manage the performance and status of the satellite by controlling the satellite and monitoring the status of the onboard communications payload. In addition, the regional operations centers, through mission control centers, facilitate delivery and control the quality of the signals from the individual uplink stations to the satellites by assigning signals to the appropriate uplink frequencies and routing them to their appropriate downlink carriers. The system architecture is identical for each region.

The regional operating centers control the satellites via dedicated data lines to the TCR stations. Each satellite has two TCR stations with sufficient geographic distance between them so that if natural disasters or any unforeseen events were to make one inoperable, a back-up station will be available. TCR stations consist of an X-band uplink command and control system and an L band telemetry monitoring system. A backup mode has also been provided using an S band link from Bangalore, India. The TCR stations for AfriStar are located in Bangalore, India and Port Louis, Mauritius and for AsiaStar in Melbourne, Australia and Port Louis, Mauritius.

In addition to the TCR stations, a Communications System Monitoring (CSM) station is associated with each satellite to monitor continuously the quality of the downlink services. Our CSM facilities are located in Libreville, Gabon for AfriStar and Melbourne, Australia for AsiaStar.

Our network management system provides the connectivity between the programming sources, the satellites and the receivers. The satellite transponders permit (i) a multiplicity of uplinks to the satellites directly from the broadcaster’s studio or from common hub feeder link stations (linked terrestrially to broadcasters through dedicated communication lines) and (ii) downlinks directly to receivers.

[There follows in the text a map depicting the current WorldSpace broadcast center network, including Production Operations Centers (POC) (Washington, D.C., and Bangalore, India) where programming is produced and Broadcast Operations Centers (BOC) (London, U.K.; Toulouse, France; Nairobi, Kenya; Dakar, Senegal; Johannesburg, South Africa; Beijing, China; Singapore; and Melbourne, Australia) where content is gathered and transmitted to one of our satellites. The satellites and BOCs are coded in white or in black to show which BOCs communicate with which of our two in-orbit satellites. The depiction also shows the communication paths from the POCs to the BOCs.]

In the common hub mode, the WorldSpace-branded broadcast channels, all audio channels from external broadcasters and multimedia content are backhauled and aggregated to a broadcast operations center (BOC) and the content is fed directly to a transparent hub feeder link station (TFLS). The external broadcaster’s contents are backhauled to the BOC using off-the-shelf codec equipment and dedicated communication lines. The TFLS multiplexes all the incoming audio channels and data, translates the encoded signal into PRCs in the TDM format compatible with the receivers. The TFLS then uses a single carrier frequency to uplink transmissions to the satellite. Onboard the satellite, the signal is routed by the transparent transponder to a specific downlink beam and transmitted via L band frequencies to the receivers. A TFLS located in Johannesburg provides the uplink to the AfriStar satellite. A station in Singapore provides the uplink for the west and south beams of the AsiaStar satellite. The north beam of the AsiaStar satellite is supported by a TFLS located in Beijing, China.

As an alternative to the TFLS, individual broadcasters may also uplink directly to the satellite from their own facilities or from a central location via a Processed Feeder Link Station (PFLS). The PFLS can be installed at the broadcaster’s location or a location central to several broadcasters (to which programming is transmitted by the broadcasters via dedicated communication lines). The PFLS, after coding, translates the signal into PRCs for onward transmission to the processed transponder onboard the satellite. The processed payload transponder receives multiple uplink signals and processes them for rebroadcast in L band. PFLSs in London, Nairobi and Dakar provide access to AfriStar. PFLSs in

Melbourne and Singapore provide access to AsiaStar. The TFLSs and the PFLSs are equipped with custom-built encryption nodes to encrypt any channel or a group of channels to support the subscription management service.

We will also introduce an over-the-air authorization channel, which will allow any suitably equipped receiver to be activated or de-activated using a dedicated channel without requiring consumers to enter passwords directly into a receiver. This will facilitate quick and easy activation and deactivation of receivers over the air without requiring the manual entry of passwords into a receiver. The over-the-air authorization channel will also have the capability to send short messages to individual receivers.

Users must purchase a receiver compatible with the L band frequency in order to access our system. The radio receiver processes, decodes and descrambles the signals to allow users to receive our programming content. Our broadcast frequency and satellites require a special receiver design incorporating a small patch antenna measuring approximately 6 to 8 cm (2.4 to 3.2 inches) which folds neatly into the receiver unit. Each receiver is individually addressable via a unique identifier that can be used to unlock specially coded audio or multimedia signals. This capability provides us with the flexibility to deliver free, subscription and/or premium services to consumers.

The small, attached receiver antenna facilitates satellite reception within the line of sight of the satellite. To allow for indoor use of the receiver, the antenna can be detached and placed against a window for line-of-sight view of the satellite. Where direct line of sight to the satellite is not possible, we offer a long-range Yagi antenna, which can be mounted outdoors and connected to the receiver. As with any wireless broadcast service, we expect that our transmission coverage will be subject to occasional “dead zones” where the service from the satellite may be blocked or interrupted and reception adversely affected by nearby tall buildings, elevations in topography, tree clusters, highway overpasses and similar obstructions.

Since line of sight reception may be difficult in the urban areas in which we operate, we intend to install terrestrial repeating transmitters to rebroadcast our satellite signals in the largest cities in India. Our next generation receivers would be capable of receiving this broadcast. The development of next generation mobile receivers will coincide with our installation of terrestrial repeating transmitters in the markets in which we operate in order to increase the reach of our broadcasts. The satellite component of the system will be based on the same TDM signal we currently use, but will use a modified waveform with several significant enhancements designed to improve in vehicle reception in areas partially shadowed by trees or other obstructions.

We expect competition for our services from a diverse mix of audio, video and data providers ranging from traditional AM/FM and shortwave broadcasters, cable television and DTH satellite broadcasters, Internet-based radio broadcasters and other potential satellite DARS providers.

We face competition from traditional AM/FM and shortwave radio broadcasters. The shortwave and AM/FM radio industries are well established and generally offer free-to-air reception paid for by commercial advertising. In addition, certain stations offer free-to-air programming without commercial interruption. Many shortwave and AM/FM radio stations also offer information programming of a local nature, such as local news or traffic, which we may not be able to offer. Radio stations compete for listeners and advertising revenue directly with other radio stations within their markets on the basis of a

variety of factors, including program content, on-air talent, transmitter power, audience characteristics, local program acceptance and the number and characteristics of other radio stations in the market. In India, traditional AM/FM radio is not as important a source of competition as in other markets because of the poorer quality and narrow selection of programming currently offered. We may also face competition from Terrestrial Digital Radio (TDR) services in the future. TDR is a digital technological upgrade of traditional radio that offers up to CD-quality radio in over-the-air broadcasts with text information such as song title, weather and news alerts included. TDR experimental services are being conducted in a number of countries worldwide, including China, parts of Europe, India and Israel. A few countries, including Canada, the U.K. and Germany, have started regular commercial TDR services. Standards for providing such services in the United States were authorized by the FCC in October 2002. However, commercial TDR is not currently offered in any of our target markets, and we do not have reason to believe that the experimental services currently offered in some of our markets will be commercialized in the near future.

Traditional cable operators and DTH satellite broadcasters programming television distributors offer programming that may compete with ours. Many cable television operators provide a set of music channels as an ancillary service for cable subscribers. Delivery of television via DTH satellite transmission is a growing phenomenon worldwide, including in most of the countries we have targeted, and these satellites may broadcast audio channels. Many DTH satellite services provide a set of music channels accessible through fixed dish receivers mounted on a home or building as an ancillary service for customers investing in the television dish and receiver, and paying the monthly or annual subscription price. DTH and cable audio programs may offer high quality signals and a customer’s choice of available programming is considerably broadened by these offerings—both aspects common to our planned service. Cable services and DTH television, however, are not portable and can only be heard through televisions or stereo receivers wired into the satellite antenna or cable television system, so they will not compete with our portable receivers, including our intended mobile automotive service. In addition, most DTH and cable audio services are presently limited to packaged recorded music and are secondary in marketing emphasis to television. However, there are a few existing providers of DTH radio, such as Digital Music Express, which offers over ninety channels of digital commercial free sound through a subscription service.

There are large numbers of Internet radio broadcasts which can be accessed from any PC connected to the Internet anywhere in the world. In general, the audio quality of these broadcasts is dependent on the bandwidth available and the quality of the Internet connection. To the extent that higher quality sound is available, for the listener to experience a high quality broadcast they must have a broadband connection to the Internet and the listeners must connect their PC to quality speakers. This is currently unlikely to be a portable solution in the markets that we are targeting. Much of the current radio broadcasts are pre-programmed music playlists, not traditional radio type broadcasts with live DJs or up-to-the-minute news programming.

PC users can download music in formats suitable for storage and playback on their PCs. In contrast to music that is played on a PC directly from the Internet, the sound quality of music that is downloaded from specialty Internet sites for future listening on PCs can be comparable to our broadcasts.

Direct satellite DARS competition in the L band is limited by the digital satellite radio spectrum allocation established by the 1992 WRC, referred to as WARC-92, and by our current use of this allocation. Although a number of countries have since submitted filings to the ITU for potential use of the same unique L band frequencies allocated to satellite radio, we are not aware of any commercial

undertakings to offer L band satellite radio services. While new competitors could emerge, particularly if our service proves to be a commercial success, any potential satellite users of the L band are required to protect our receivers from harmful interference. Moreover, our two satellites currently occupy most of the L band spectrum allocation in our target regions.

Direct satellite DARS competition is also possible in the S band frequencies that WARC-92 set aside for satellite radio. While all of our target countries have selected the L band allocation for satellite radio, India, Pakistan, Mexico and Thailand have also selected the S band as an additional allocation within their respective territories. We are not, however, aware of any ITU satellite filings or related commercial undertakings aimed at offering S band satellite radio services in India or any other country within our broadcast coverage area, other than in Japan and Korea.

In addition, listeners increasingly have additional choices for high quality music reproduction, such as CDs, cassettes and MP3 players. Prices for devices to play these media may be lower than the price for our receivers. However, CDs, cassettes and MP3 players cannot provide the “real-time” news and public affairs programming offered on radio. The vast majority of mass-produced, portable MP3 players do not have any AM, FM or satellite radio capability.

We use and hold intellectual property rights for a number of trademarks, service marks and logos for our system and services and for our receivers. We have two main marks—“WORLDSPACE” and the “Orbital Logo”—both of which are registered in over 25 countries in the international categories for satellite communications or radio and data business. We also hold, in various jurisdictions, a small number of regional taglines or channel brand names including but not limited to “AmeriSpace,” “AmeriStar,” “AfriStar,” and “AsiaStar.” In addition, we currently own or have applied for more than 45 patents in more than 40 countries relating to various aspects of our system and receivers, and at any time we may file additional patent applications in the appropriate countries for various aspects of our system. Our patents cover various aspects of the satellite direct radio broadcast system and terrestrial repeaters with formatting of broadcast data, and the processing thereof by the satellite and reception by remote radio receivers. In India we have six patents pending, and in China we have been issued two patents and have five additional patents pending. We also have exclusive rights in various Fraunhofer Gesellschaft patents.

We believe that all intellectual property rights used in our system were independently developed or duly licensed by us, by those we license the rights from or by the technology companies who supplied portions of our system. We cannot assure you, however, that third parties will not bring suit against us for patent or other infringement of intellectual property rights.

We have granted XM Satellite Radio Holdings Inc. a royalty-free, non-exclusive and irrevocable license to use and sublicense all improvements to our technology. This license renews automatically on an annual basis unless terminated for a breach which has not been or cannot be remedied.

We also hold a blanket license granted by the Composers and Authors Society of Singapore (COMPASS), to broadcast, perform, transmit and otherwise use all musical works which COMPASS has or will have the right to license. The license is deemed to continue from year to year unless terminated by notice in writing by either party at least 60 days before the end of the prior covered year. It was granted concurrently with the launch of transmissions through our AsiaStar satellite. The license covers the transmission of our signals to and from AsiaStar on a direct-to-receiver basis only, but does not cover third-party retransmissions.

Although we believe the license granted by COMPASS would cover all necessary broadcasting rights for transmissions from our Singapore uplink station to India, China and other countries within the AsiaStar broadcast coverage area, it is possible that sister rights societies in other jurisdictions within the AsiaStar broadcast coverage area will not recognize such license and will seek to require separate licenses for broadcasts into their jurisdictions. This could increase our cost of broadcasting in such jurisdictions.

As of March 31, 2005, we had 219 full time employees. Of these employees, 83 were located in the United States and 47 in India, with the other 89 employees located in China, Europe, the Middle East and Africa. None of our employees is represented by a labor union. We believe that our relationship with our employees is good.

As of March 15, 2005, we leased approximately 253,000 square feet of executive offices, regional offices, studio and production facilities, broadcast operations centers, uplink stations and sales offices in various locations as indicated in the chart below.

In addition to the locations leased by WorldSpace listed above, the following locations are owned or operated by partners of WorldSpace:

We anticipate relocating our principal executive offices from Washington, D.C. to 8515 Georgia Avenue, Silver Spring, Maryland in July 2005.

We are subject to various claims and assessments during the normal course of business. In our opinion, these matters are not expected to have a material, adverse impact on our financial position or results of operations.

As an international satellite system operator and provider of DARS, we are subject to regulation at the international and national levels. At the international level, we are subject to the radio frequency spectrum allocation process and satellite coordination procedures of the ITU. Additionally, at the national level, we are subject to regulation by jurisdictions that have licensed our satellites and their associated ground segments. Finally, while provision of our service in most markets does not require service authorization, a limited number of jurisdictions do require that we obtain an authorization for provision of our DARS service.

The ITU, a specialized agency of the United Nations with over 190 member countries, meets every three to four years at a World Radiocommunication Conference (WRC). The purpose of the WRC is to update frequency allocation decisions and other conditions for use of radio frequency spectrum at the international level. Once the ITU allocates a particular frequency band to a given service, individual member countries may assign and license frequencies within that band to specific communications and media service providers in such countries.

At WARC-92, the ITU allocated the 1452-1492 MHz frequency band (within the so-called “L Band”) to Broadcasting-Satellite Service (Sound), (BSS (Sound)) referred to as DARS in the United States, on a global basis. Recognizing the line of sight physics of satellite broadcasting and the need to provide seamless coverage in urban areas, the ITU specified that the global allocation covered BSS (Sound) and complementary terrestrial broadcasting. The allocation is co-primary with fixed terrestrial microwave, broadcasting and mobile services. Further, WARC-92 limited BSS (Sound) initial operations to the upper 25 MHz of the L Band allocation (1467-1492 MHz), with the use of the lower 15 MHz of the L Band to commence after the conclusion of a planning conference, which has not yet been scheduled.

Our use of the orbital locations assigned to us in our licenses is subject to the frequency coordination and registration process of the ITU. In order to protect satellite systems from harmful radio frequency interference from other satellite communications systems, the ITU maintains a Master International Frequency Register (MIFR), of radio frequency assignments and their associated orbital locations. Each ITU member state (referred to as an “administration”) is required by treaty to give notice of, coordinate, and register its proposed use of radio frequency assignments and associated orbital locations with the ITU’s Radiocommunication Bureau.

In our case, the governments of the United States, Australia and Trinidad and Tobago have licensed our AfriStar, AsiaStar and AmeriStar satellites, respectively, and are therefore the notifying administrations for each of those respective satellites. As our notifying administrations, they are responsible for filing and coordinating our allocated radio frequency assignments and associated orbital locations for each satellite with both the ITU’s Radiocommunication Bureau and the national administrations of other countries in each satellite’s service region.

BSS (Sound) services share the L Band frequencies on a co-primary basis with terrestrial services (including fixed, mobile and broadcasting services). Therefore, our satellites were required to be coordinated with existing systems either lawfully operating in our service regions or enjoying date priority ahead of us. While our notifying administrations, as the formal members of the ITU, are responsible for coordinating our

satellites, in practice they require that we, as the satellite licensee, identify any potential interference concerns with existing systems or those enjoying date priority ahead of us, and coordinate with such systems. If we are unable to reach agreement and finalize coordination, our notifying administrations would then assist us with such coordination.

When the coordination process is completed, the ITU formally enters each satellite system’s orbital and frequency use characteristics in the MIFR. Such registration notifies all proposed users of frequencies that such registered satellite system is protected from interference from subsequent or nonconforming uses by other nations.

In the event disputes arise during coordination, the ITU’s Radio Regulations do not contain mandatory dispute resolution or enforcement mechanisms. Rather, the Radio Regulations’ dispute resolution procedures are based on the willingness of the parties concerned to reach a mutually acceptable agreement. Neither the ITU specifically, nor international law generally, provides clear remedies if this voluntary process fails.

AfriStar: Regulation by the United States. On December 17, 1999, the FCC granted AfriSpace, Inc., our wholly-owned subsidiary (AfriSpace), a license authorizing AfriSpace to launch and operate the AfriStar satellite at the 21° East Longitude orbital location to provide commercial digital audio broadcasting services in the L Band to Africa and the Middle East. The license specifically provides for a ten year license term and expires in January 2010. It is renewable at that time.

We successfully coordinated the operation of the AfriStar satellite with each of the administrations in the satellite’s coverage area. In June 1999, on behalf of AfriSpace the FCC (as the U.S. government notifying administration before the ITU) submitted to the ITU the relevant satellite frequency assignments to be registered in the MIFR. Formal registration of AfriStar in the MIFR remains pending due to administrative delays at the ITU. However, these delays in no manner diminish our priority with respect to use of the relevant radio frequencies and the associated orbital position.

As noted above, AfriSpace received its license to serve the Africa and Middle East regions. As a U.S.-licensed satellite system, AfriStar is subject to the FCC’s general policies governing satellite services. In this regard, in its DISCO I Report and Order, the FCC gave U.S. satellite operators the flexibility to serve any market within their satellites’ footprint, provided the United States’ international obligations to coordinate the spacecraft are satisfied. AfriStar has been fully coordinated for service throughout its service region, which includes not only the Middle East and Africa, but also portions of South Asia and Western Europe. Therefore, on April 8, 2004, AfriSpace notified the FCC that it intended to provide service to all regions within the satellite’s footprint.

AfriStar-2: Regulation by the United States. On April 13, 2004 we submitted an application with the FCC to launch and operate AfriStar-2, and to co-locate it with AfriStar-1 at the 21° East Longitude orbital location. The satellite would operate within the same authorized frequency band (from 1467 to 1492 MHz) as Afristar and is expected to enhance our service coverage in North America, the Mediterranean basin and Western Europe, as well as provide certain “overlap” redundancy for the northwestern and northeastern portions of AfriStar’s current coverage area. On April 21, 2004 the FCC submitted a request to the ITU for coordination with respect to AfriStar-2. Due to certain minor technicalities relating to the proposed AfriStar-2 feeder link antenna beam operating parameters, the

satellite application was dismissed twice without prejudice and was resubmitted with the FCC on March 11, 2005 and is currently pending before the FCC. The application was placed on public notice on March 18, 2005. Objections and/or comments to the March 11, 2005 filing are due on April 18, 2005.

While there is no guarantee that the FCC will grant our AfriStar-2 satellite application, in practice, the FCC generally grants such requests if the applicant is found to be technically, financially and legally qualified under the FCC’s rules. Given our current standing before the FCC, we expect that our AfriStar-2 application will be granted this year. In accordance with its current rules and regulations, the FCC may impose date-based satellite construction, launch and deployment milestones and a performance bond requirement on the AfriStar-2 satellite.

Finally, a number of ITU filings for the L Band currently have date priority over our AfriStar-2 filing. Although we are required to coordinate our AfriStar-2 filing with these prior-in-time filings, those filings must themselves be coordinated with our AfriStar and AsiaStar satellite notifications.

Other United States regulation. We are also subject to U.S. export controls laws and regulations, specifically the Arms Export Control Act, the International Traffic in Arms Regulations, the Export Administration Regulations and the trade sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Controls in the operation of our business. We have obtained all the specific authorizations currently needed to operate our business and believe that the terms of these licenses are sufficient given the scope and duration of the activities to which they pertain.

Satellite operations in Australia are currently subject to regulation under the Space Activities Act of 1998 (Cth), the Radiocommunications Act 1992 (Cth) and the Radiocommunications License Conditions (Apparatus License) Determination 2003 (Cth).

In 1995, the Australian government agreed to be the ITU notifying administration for our AsiaStar satellite, operated by AsiaSpace Ltd., our wholly-owned (indirect) Australian subsidiary (AsiaSpace). In 1999, following the ACA filings with the ITU on behalf of AsiaStar, a Deed of Agreement between the ACA and AsiaSpace was executed that provided for the frequency coordination and operational control of the AsiaStar satellite network from Australia (the Deed).

The Deed remains in force as long as AsiaSpace fulfills its obligations as specified therein, which relate to compliance with the ITU Radio Regulations, maintenance of a telemetry, tracking and control facility in Australia and AsiaSpace’s continued incorporation in Australia. If AsiaSpace is determined to have violated the terms of the Deed, the ACA has the discretion to terminate the Deed and suppress the ITU notification of the network. Additionally, once the AsiaStar satellite reaches the end of its service life, we will need to apply to the Australian Space Licensing and Safety Office for authorization to launch and operate a replacement satellite at the same orbital location. However, there can be no guarantee that the ACA will grant such an authorization, and in that case, the orbital location currently occupied by our AsiaStar satellite could become available for use by other satellite operators. AsiaSpace also currently holds apparatus licenses 1105214 and 1105215 which authorize the use of certain frequencies and facilities necessary in Australia for the operation of the AsiaStar satellite. The licenses remain in force so long as AsiaSpace fulfills its obligations under them.

AsiaSpace has successfully coordinated the AsiaStar satellite at the 105º East Longitude orbital location and, by letter dated October 8, 2004, the ACA (as the Australian notifying administration before the ITU) has been notified by the ITU that the relevant satellite frequency assignments for AsiaStar are registered in the MIFR.

On December 30, 1992, the Government of Trinidad and Tobago granted a special license to WorldSpace Caribbean Ltd., a wholly-owned (indirect) subsidiary, to provide commercial digital audio broadcasting services from the 95° West Longitude orbital location. This license expired on April 2, 2000 and was subsequently renewed in December 2001 and remains effective until 2013.

As a result of a lengthy coordination process, the initial filing for AmeriStar expired in January 2002. The Government of Trinidad and Tobago subsequently submitted a new advance publication filing to the ITU effective the same month, and a request for coordination filing with a July 2002 date of receipt. Coordination of this new filing, which is identical in all respects to the expired one, is on-going.

Our satellites are monitored and controlled by the ground control system, which is comprised of regional operations centers (ROCs) in Washington, D.C. and Melbourne, Australia; telemetry, command and ranging (TCR) stations in Bangalore, India, Melbourne, Australia and Mauritius; and in-orbit testing/communications system monitoring (IOT/CSM) stations in Libreville, Gabon and Melbourne, Australia that control and monitor the downlink signal quality of each satellite. Pursuant to our contracts with relevant in-country service providers such as Gabon Télécom, Antrix Corporation Limited of India and Mauritius Telecom, the responsibility for obtaining and maintaining all necessary regulatory authorizations for operation of the ROC, TCR and IOT/CSM stations not owned or operated by WorldSpace resides with the applicable local service providers. We believe that our ground system service providers have obtained all necessary regulatory authorizations for the operation and monitoring of the AfriStar and AsiaStar satellites. In certain locations, including Mauritius, Gabon and South Africa, the agreements with our ground system service providers have expired and we are currently negotiating extensions or renewals of such contracts.

Regulation of Receivers. Our receiver manufacturers have the broad responsibility to market the receivers. Pursuant to our receiver development, production, marketing and license agreements, the relevant receiver manufacturers are responsible for obtaining and maintaining any permits and similar approvals relating to the sale of the receivers and for complying with all applicable export compliance laws.

We believe that the single and multiband receivers which will be used as part of our system will be regulated internationally in the same manner as current analog radios. Thus, customs restrictions and tariff levels may vary from country-to-country or region-to-region. However, there can be no assurance that some countries will not apply to the receivers a separate regulatory regime than that applied to conventional analog radios.

In the international trade of products, most countries follow the Harmonized Commodity and Coding System, also referred to as the Harmonized System (HS), as a basis to calculate customs tariffs. To date, most countries that have allowed the importation of satellite DARS receivers have used the Harmonized System 85.27 classification, which also applies to conventional analog radios.

We began offering free-to-air service to India in 2000, and started providing the first subscription digital radio service in India in 2002. We are now in the early stages of seeking approval to offer a “hybrid” digital radio service in India. This service will utilize terrestrial repeaters located in urban and other areas

where reception is problematic, in conjunction with our AsiaStar satellite, in order to develop a new mobile service intended for use in automobiles. Each successive step in our Indian business strategy entails an increased level of regulation, and involves various regulatory authorities. These include: the Telecom Regulatory Authority of India (TRAI), an autonomous government entity charged with regulating the telecommunications sector and providing recommendations to the government; the Ministry of Information and Broadcasting; the Wireless Planning & Coordination (WPC) Wing of the Ministry of Communications & Information Technology, which sets spectrum policy in India; the Ministry of Home Affairs; the Department of Space; and the Standing Advisory Committee on Radio Frequency Allocation (SACFA). The regulatory aspects of the different stages of our business plan for India, as well as the respective roles of these governmental bodies, are described in more detail below.

Free-to-air services. India does not currently require downlink service/frequency authorizations to provide free-to-air, satellite-only digital radio services, including ancillary data transmissions. Currently, only Indian companies are authorized to uplink television channels from India. With respect to protection from interference into our L Band frequencies, the Indian administration has adopted the WARC-92 allocation for BSS (Sound) in its national table of allocations on a co-primary basis with the fixed service. Any potential interference issues are coordinated on a case-by-case basis.

Satellite-based subscription services. We have secured a general business license that permits WorldSpace India to carry out various activities on behalf of WorldSpace, including the collection of revenue for WorldSpace. This, in turn, allows WorldSpace to provide subscription audio services in India. We also hold an import license for our receivers.

“Hybrid” services. For the terrestrial retransmission component of our “hybrid” digital radio services, we must obtain a spectrum allocation, spectrum license, transmitter license and service authorization from the Indian government. Our terrestrial component will require only 2 x 2.5 MHz frequency “slots” in each urban/suburban area where the satellite signal will be retransmitted. The WPC will allocate terrestrial frequencies after assessing the spectrum requirement and utilization in each city. The WPC will carry out this exercise in advance of issuing a full wireless operating license, and in parallel with the separate process of obtaining a service authorization.

The transmitter license, which is issued by SACFA, will cover the transmitter equipment inclusive of antenna, RF, IF and Baseband. All radio transmitters require SACFA and WPC clearance, which is issued by the WPC after it receives the equipment specifications. The transmitter license is also required for importing equipment into India, as is a Telecommunications Engineering Center certificate. The manufacturers of our receivers are contractually required to obtain all relevant regulatory authorizations.

In addition to the SACFA and WPC licenses described above, the terrestrial retransmission component will require a service authorization from the Ministry of Information and Broadcasting to operate a digital “multiplex” of channels. At the moment, the Ministry does not have regulations governing service authorizations for hybrid DARS.

An Indian company involved in the development of our mobile technology is currently operating a single terrestrial repeater in Bangalore for laboratory testing purposes. In addition, we are preparing to apply for an experimental license to operate a complementary terrestrial repeater network in New Delhi. We intend to process the experimental license into an operational license in advance of the launch of our mobile DARS service by 2006.

Pending DARS proceeding. In response to the gap described above in the regulations of the Ministry of Information and Broadcasting, TRAI issued a consultation paper in December 2004 with a view to

issuing recommendations to the Ministry on appropriate terms and conditions for satellite DARS licensees. As we are currently the only DARS provider in India, WorldSpace India is participating in the TRAI consultation process.

When a regulatory regime is established, WorldSpace may be required to obtain approval from the WPC, SACFA, the Ministry of Home Affairs, the Department of Space or another government body. WorldSpace may also be required to partner with a local entity to provide service, as a satellite radio regulatory regime may include foreign ownership restrictions as do the laws governing most other telecommunications and broadcasting services in India. We anticipate that WorldSpace will be able to continue providing service in India in some fashion, either through its wholly-owned subsidiary, a joint venture with a locally-owned service provider, or some other arrangement.

WorldSpace India maintains good relationships with a number of Indian governmental entities, including contracts with:

We also intend to work with Webel, a leading government-owned electronics manufacturer, and other possible local manufacturers and operators, for the supply, installation, operations and maintenance of terrestrial repeater hardware.

Our wholly owned subsidiary, WorldSpace (China), provides technical and content services to local Internet content providers who hold appropriate licenses granted by the MII to engage in value-added telecommunication services in China. In addition, WorldSpace (China) intends, through local Chinese media entities or joint ventures with local Chinese media entities, to provide such services to local radio broadcasters and other media groups who hold appropriate licenses granted by SARFT to engage in radio broadcast and television programming business in China. While we are not yet providing commercial DARS service in China, we have established the necessary satellite infrastructure that will allow us, through joint ventures with local Chinese media entities, or cooperation with local China media entities, to begin providing service.

The telecommunications industry in China is subject to extensive government regulation. The Ministry of Information Industry (MII) is the primary agency of the Chinese government for regulating the telecommunications industry in China. As such, MII is responsible for, among other things: formulating and enforcing telecommunications industry policies and regulations; establishing technical standards; granting telecommunications services licenses; supervising the operations and quality of service of telecommunications operators; allocating and administering telecommunications resources, such as spectrum and telephone numbers; and, together with other relevant government agencies, formulating tariff standards.

Currently, a national telecommunications law is in the process of being drafted. If and when the telecommunications law is adopted, it is expected to become the basic telecommunications statute and provide a new regulatory framework for the telecommunications industry in China. The Telecommunications Regulations, effective as of September 25, 2000, were promulgated by the State Council, and provide the primary regulatory framework for China’s telecommunications industry until finalization and adoption of the new telecommunications law. The Telecommunications Regulations primarily address: entry into the telecommunications industry; network interconnection; telecommunications resource allocation; tariffs; and service standards.

The Telecommunications Regulations distinguish between basic and value-added telecommunications services, which are subject to different licensing requirements. According to the Catalog of Telecommunications Services, promulgated by the MII and made effective as of April 1, 2003, satellite communications services are categorized as basic telecommunications services. All operators of telecommunications businesses in China must obtain appropriate licenses or permits. An operator of a basic telecommunications business is required to obtain certain authorizations, such as a license for providing VSAT service, a license for leasing a satellite transmitter and a frequency approval, in order to provide such specific telecommunications services. Further, foreign investment in basic telecommunications services, including but not limited to satellite communications services, is highly restricted and regulated.

Currently spectrum utilization by our AsiaStar satellite for broadcasting services to individual households in China must be, and is, implemented through a local satellite service provider with appropriate license(s) granted by the MII. In 2000, we entered into several agreements, including an exclusive agency agreement, with China Communications Broadcasting Satellite Corporation (ChinaSat) through which ChinaSat became the sole agent to lease channels of our AsiaStar satellite and develop our satellite leasing business in China. ChinaSat is one of six state-owned telecommunications operators in China and is the largest satellite operator. All existing licenses/permits regarding our satellite leasing business in China were granted to ChinaSat by the MII, including a frequency approval, a basic telecommunications business license, and an operation license for leasing a satellite transmitter. According to the agency agreement, ChinaSat assumes full responsibility for obtaining the requisite government approvals, licenses and permits (if any) to ensure the legality of our satellite leasing business. The frequency approval was initially authorized to ChinaSat by the MII in September 2000, together with a service license, both of which were effective for one year in connection with commercial testing of our system. Both authorizations lapsed in September 2001. The frequency authorization was reissued in October 2004 on an indefinite basis, and is subject to annual review by the MII. We currently anticipate that a similar re-issuance of the service license will be granted to ChinaSat.

Foreign investment in value-added telecommunications services, including but not limited to Internet data center and Internet access services, electronic data interchange services and information transmission services, is also subject to regulatory restrictions. In connection with China’s entry into the World Trade Organization (WTO), the threshold of the foreign investment in a company, which is engaged in value-added telecommunications services, can be up to 50%. It is, however, not permitted in China to operate value-added telecommunications services by either a foreign company or its wholly foreign-owned enterprise. Under such a WTO commitment, we, through our wholly-owned subsidiary, WorldSpace (China), provide technical and content services to local content providers, radio broadcasters and other media groups who hold appropriate licenses to engage in value-added telecommunication services in China. WorldSpace (China) is duly incorporated in China and holds a business license to engage in, among others, researching and developing technologies for multimedia information services, providing e-business information services, and providing technology services, consultations and training.

The radio and television industry in China is highly regulated by the Chinese government. The SARFT, along with the Ministry of Culture and the Information Office of the State Council regulate and censor the information which can be provided via radio, film and television. Foreign investors are currently prohibited from operating radio and television stations, radio and television transmission networks comprising transmission stations, relaying stations, satellite up-link stations, satellite receiving stations, microwave stations, monitoring stations and cable broadcasting and television transmission networks as well as publishing and playing broadcast and television programs. However, as of November 28, 2004, foreign investors are allowed, subject to approval by the SARFT and the Ministry of Commerce, to

cooperate with local partners in China to produce and release television and radio programs and films, provided that the local Chinese partners hold a majority of the interests.

Although beginning in 2004, the regulatory framework for the radio and television industry in China has become more deregulated and transparent, restrictions remain tight on foreign investment in the radio and television fields in China and censorship procedures remain relatively restrictive with respect to content that is to be broadcast in China. The SARFT has indicated its intention to further liberalize this industry, however, it is uncertain as to when and how these restrictions will be liberalized. Under the current Chinese regulatory regime, we are neither allowed to hold a license or permit with respect to the broadcasting business, nor are we currently engaged in the radio or television broadcasting business in China. If the Chinese government further opens the radio and television industries and grants licenses and permits to foreign investors or foreign-invested companies, we intend to implement a broadcast service using our AsiaStar satellite.

In China, a permit from the Ministry of Commerce or its local counterparts is required for any technology licensing agreements between foreign companies and the Chinese licensees for technology which is subject to restrictions on importation under Chinese Laws. With regards to technology that may be freely imported, Chinese licensees are required to register the technology licensing agreements with the Ministry of Commerce or its local counterparts and obtain a registration certificate. Chinese licensees are also required to present the permit or the registration certificate, as the case may be, to the Chinese foreign currency control departments, local banks, taxation departments and customs when they make payment of the royalties to us. We have entered into technology license agreements with several Chinese companies to manufacture the receivers necessary for Chinese customers to listen to our programming.

In February 2000, The Singapore Broadcasting Authority issued an International Satellite Radio Service License to WorldSpace Asia which authorizes WorldSpace to downlink its DARS service into Singapore. The license expired on January 31, 2005, but has been renewed for an additional 5 year term.

In May 2001, the Radio Authority issued WorldSpace UK a Radio Authority Satellite Service License under Part III of the Broadcasting Act 1990, which authorizes WorldSpace UK to offer a multi-channel service receivable via custom-built receivers and carried on the AfriStar satellite. The Radio Authority ceased to exist on December 29, 2003, and its duties were assumed by a new communications regulator, the Office of Communications (Ofcom). Ofcom varied the license in December 2003 to conform with the requirements of the Communications Act 2003. The license will remain in effect until surrendered by WorldSpace UK or revoked in accordance with the conditions of the license, and requires payment of such fees as Ofcom may specify.

Digital radio broadcasting services constitute a relatively new commercial sector in Europe; consequently, many European administrations are re-examining their existing regulatory frameworks to accommodate the potential new services. At the pan-European level, European administrations recently established a frequency plan, known as the Maastricht 2002 plan, to facilitate and encourage the introduction of national terrestrial digital radio networks. As described below, one consequence of the terrestrial frequency plan is the reduction of the available spectrum in Europe for the deployment of satellite radio networks.

In July 1995, the European Conference of Postal and Telecommunications Administrations (CEPT), met in Wiesbaden, Germany and agreed on a Special Arrangement concerning the introduction and planning

of Terrestrial Digital Audio Broadcasting (T-DAB), in the VHF frequencies (174-230 MHz) and L Band (1452-1467.5 MHz) in the territories of the signatory Administrations (referred to as the WI-95 arrangement). In the Special Arrangement, each of the signatory administrations received a certain number of allotments, consisting of T-DAB frequency blocks that were geographically limited and pre-coordinated so as not to interfere with each other, and distributed with a view to forming two complete national coverages per country.

Subsequently, terrestrial digital radio proponents requested that additional L Band spectrum resources above 1467.5 MHz be allocated for T-DAB, in addition to the WI-95 plan. In October 2000, the European Radiocommunications Committee (ERC), the highest body within the CEPT in charge of radio communications matters, authorized seven additional frequency blocks (approximately 12 MHz) from the satellite-only part of the upper 25 MHz of the L Band to be used for the planning of one further T-DAB coverage in each country. A CEPT Conference took place in June 2002 in Maastricht to develop this third coverage plan and to transfer former L Band T-DAB allotments from the WI-95 arrangement into the resulting new “MA-02 Special Arrangement.”

The resulting MA-02 plan leaves 12.5 MHz (1479.5—1492 MHz) of the original WARC-92 allocation for satellite digital audio broadcasting, including ancillary terrestrial components, and our AfriStar satellite has been coordinated to use this frequency range within its broadcast coverage area, which includes most of Europe. We believe the 12.5 MHz set aside by the MA-02 plan provides sufficient radio-frequency spectrum to execute our business development plans in Western Europe, including our contemplated provision of DARS and mobile DARS.

The following table sets forth certain information concerning each of our executive officers and directors:

Noah A. Samara has served as the Chairman, Chief Executive Officer and President of WorldSpace and its predecessors since inception. Mr. Samara has been involved in the development of both geostationary and low earth orbit (LEO) satellite systems since the mid-1980s. Mr. Samara’s early career was in satellite telecommunications, first with Geostar Corporation and later with the Washington law firm of Venable, Baetjer, Howard & Civiletti.

Sridhar Ganesan has served as Executive Vice President—Chief Financial Officer of WorldSpace and its predecessors since October 2004. Mr. Ganesan joined the WorldSpace group in September 2001 as Senior Vice President, Corporate Strategy & Development. Prior to joining the WorldSpace group, Mr. Ganesan was the founder and Chief Executive officer of a U.S.-based applications services provider, Skymach Corporation, from 2000 to 2001. Mr. Ganesan has more than twenty years of experience in business development, implementation of international businesses and projects and marketing and sales in the satellite, telecommunication, Internet, information technology and media areas.

Andy Ras–Work has been the Chief Operating Officer of WorldSpace and its predecessors since March 2002. From March 2000 to February 2002, Mr. Ras-Work was President and Chief Executive Officer of Semantix Inc., an enterprise software firm. Prior to joining Semantix, Mr. Ras-Work held several senior management positions at Hewlett Packard, most recently as E-Commerce Group Manager from 1990 to 2000. Mr. Ras-Work’s career experience includes international marketing and corporate development and supply chain management in the information technology as well as the telecommunications industries.

M.G. Chandrasekhar has served as Executive Vice President—Technology and Product Development of WorldSpace and its predecessors since July 2003. Prior to joining the WorldSpace group in 1997, Dr. Chandrasekhar was involved in the Indian space program. In 1988, he was elected Scientific Secretary of ISRO, the Indian Space Research Organization, and Member-Secretary of the Apex Management Council of ISRO. Dr. Chandrasekhar is an internationally renowned and award-winning professional in the space industry, is a “Fellow” of a number of Indian and International Academic institutions and has won numerous awards in recognition of his contribution to satellite technology and its applications.

Donald J. Frickel has served as Executive Vice President, General Counsel and Secretary of WorldSpace and its predecessors since January 1999. Mr. Frickel joined the WorldSpace group in March 1996 as Senior Vice President, Legal & Regulatory Affairs. Prior to joining the WorldSpace group, Mr. Frickel served as Associate General Counsel for Mobil Oil Corporation.

Jack Kemp has served as a director of WorldSpace and its predecessors since 2003. Mr. Kemp serves as the Chairman of the board of directors of FreeMarket Global, Limited, which conducts merchant banking, trading and investment activities with global interests in natural resources, energy markets and real estate. Mr. Kemp also serves as the Chairman of Kemp Partners, a strategic consulting firm he founded in 2003. Mr. Kemp is Co-Chair of Freedom Works Empower America and previously served on the Board of Directors of Empower America, a public policy and advocacy organization he co-founded in 1993. Prior to founding Empower America, Mr. Kemp served for four years as Secretary of Housing and Urban Development. In 1996, Mr. Kemp was the Republican Party’s vice presidential candidate. From 1971 to 1989, Mr. Kemp represented the Buffalo area and Western New York in the United States House of Representatives. Mr. Kemp serves as a Distinguished Fellow at the Heritage Foundation, a Visiting Fellow at the Hoover Institution, and is on the board of directors of Habitat for Humanity, the Opportunities Industrialization Centers, Howard University, Oracle Corporation, IDT Corporation and Hawk Corporation. Prior to joining Congress, Mr. Kemp played professional football as a quarterback for thirteen years for the San Diego Chargers and the Buffalo Bills. He also co-founded the AFL Players Association and was elected president for five terms.

James R. Laramie has served as a director and Assistant Secretary of WorldSpace and its predecessors since 1990. Mr. Laramie also served as the General Counsel of WorldSpace’s predecessors from November 1995 to 1998. Mr. Laramie is the President of Laramie & Associates, a management consulting company. From February 2002 to April 2004, Mr. Laramie served as the Chairman of Freeport Technologies, Inc., a company that provides collaborative conferencing systems for business development and management.

Charles McC. Mathias has served as a director of WorldSpace and its predecessors since 2000. From 1993 to 1999, Mr. Mathias served as President and Chairman of the board of directors of First American Bankshares, Inc. and, from 1987 to 1993, he was a partner of the law firm of Jones, Day, Reavis & Pogue. From 1968 to 1986, Mr. Mathias represented the State of Maryland in the United States Senate, where he served as chairman of the Committee on Rules and served on such committees as the Foreign Relations, Judiciary, Appropriations and Intelligence Committees. Prior to being elected to the Senate, Mr. Mathias served four terms in the House of Representatives as a representative from the Sixth Congressional District of Maryland. Mr. Mathias has served as President of the North Atlantic Assembly, the organization of NATO parliamentarians, having previously served as Vice-President and as Chairman of the United States Senate delegation to the Assembly.

Dr. Michael Nobel has served as a director of WorldSpace and its predecessors since 2001. Since 1990, Dr. Nobel has served as the Chief Executive Officer of a group of companies which performs diagnostic

imaging services. Dr. Nobel also serves as the chairman of the Nobel Family Society. Dr. Nobel has been a consultant to UNESCO in Paris and the United Nation’s Social Affairs Division in Geneva on methods for substance abuse prevention. Dr. Nobel also worked for seven years as a researcher in social sciences at the Institute for Mass Communication at the Lausanne University and at the Institute of Social and Preventive Medicine in the field of primary drug abuse prevention. He also participated in the introduction of magnetic resonance imaging as vice president of Europe for Fonar Corporation and has remained in this field since 1980. He is a member of the board of several privately-held international companies involved in advanced medical diagnostics and treatment as well as internet service provision, management consulting and e-learning, and sits on several prominent international prize committees.

L. G. Schafran has served as a director of WorldSpace and its predecessors since 2000. Mr. Schafran is a Managing Director of Providence Capital, Inc. and the Managing General Partner of L. G. Schafran & Associates, LLP, a private real estate investment and development firm. Mr. Schafran serves as a director of PubliCARD, Inc., Tarragon Corporation and Glasstech, Inc., was a director, Chairman, Chief Executive Officer and interim president of the Banyan Strategic Realty Trust and served as as a co-liquidating trustee of a special liquidating trust succeeding the Banyan Strategic Realty Trust.

William Schneider, Jr. has been a Director of the Company since January 2005. He is a Washington, D.C. based economist and defense analyst, is President of International Planning Services, Inc., an international trade and finance advisory firm, and an Adjunct Fellow of the Hudson Institute. From 1981 to 1982, he served as the Associate Director for National Security and International Affairs at the Office of Management and Budget and from 1982 to 1986, as Under Secretary of State for Security Assistance, Science and Technology. Subsequent to his government service, Dr. Schneider served, from 1987 to 1993, as an advisor to the U.S. government in several capacities, including Chairman of the President’s General Advisory Committee on Arms Control and Disarmament, and is currently Chairman of the Defense Science Board of the Department of Defense as well as a member of the Defense Trade Advisory Group of the Department of State. He is the author of several works on defense policy, including Why IBM? Policy Issues in the Missile Defense Controversy (1969), and Arms, Men, and Military Budgets, an annual review of defense budget issues, and has also published numerous articles and monographs.

Our business and affairs are managed under the direction of our board of directors. Our board of directors is divided into the following three classes, with the members of the respective classes serving for staggered three-year terms:

Mr. Samara, Mr. Schafran and Mr. Schneider are our Class 1 directors, Mr. Laramie and Mr. Mathias are our Class 2 directors and Mr. Kemp and Dr. Nobel are our Class 3 directors.

We have an audit committee that oversees our accounting and financial reporting processes and the audits of our financial statements. Our audit committee is authorized to, among other things:

Messrs. , and are currently serving as members of our audit committee. Each of the members of our audit committee meets the independence and financial literacy requirements of the NASDAQ National Market, Inc. (NASDAQ), the SEC and applicable law. All members of our audit committee are able to read and understand fundamental financial statements, including the balance sheet, income statement and cash flow statement. The board of directors has determined that Mr. is an “audit committee financial expert” pursuant to the definition adopted by the SEC. Mr. serves as the Chair of our audit committee.

We have a compensation committee that discharges responsibilities relating to compensation of our executives. Our compensation committee is authorized to, among other things:

Messrs. , and are currently serving as members of our compensation committee. Each of the members meets the independence requirement of the NASDAQ and applicable law. Mr. serves as Chair of our compensation committee.

We have a nominating and corporate governance committee. Our nominating and corporate governance committee is authorized to, among other things:

Messrs. , and are currently serving as members of our nominating and corporate governance committee. Each of the members meets the independence requirement of the NASDAQ and applicable law. Mr. serves as Chair of our nominating and corporate governance committee.

None of our present or former officers or other employees serves as a member of our compensation committee. During the 2004 fiscal year, none of our executive officers served on the board of directors or compensation committee (or other committee serving a similar function) of any entity, one of whose executive officers served as a member of our board of directors or compensation committee.

After the closing of this offering, each of our non-employee directors will receive an annual retainer of $ and a fee of $ for each board of directors meeting attended.

We have entered into employment agreements with certain of our executives for terms of up to three years, as described in “—Employment agreements” below. The following table sets forth information for the three years ended December 31, 2004 regarding the compensation of our chief executive officer and each of our other four most highly-compensated executive officers, referred to in this prospectus as the named executive officers.

No stock options to purchase our common stock were granted to the named executive officers during the year ended December 31, 2004 other than Donald J. Frickel.

Aggregate option exercises in last fiscal year and fiscal year-end option values

The following table sets forth as of December 31, 2004 the number and value of options held by each of our named executive officers. With respect to the named executive officers, no options or stock appreciation rights were exercised during 2004, and no stock appreciation rights were outstanding as of December 31, 2004.

Prior to the completion of this offering, we intend to standardize our employment arrangements with our executive officers.

Our former Chief Financial Officer, Ron Johnston, had his employment with us terminated in September 2004. Pursuant to a severance arrangement with Mr. Johnston, we made payments, the last of which was paid in January 2005.

Prior to the completion of this offering, we plan to adopt the 2005 WorldSpace Incentive Award Plan, an omnibus benefit plan.

Our predecessor’s, WorldSpace International Network Inc.’s 1996 Shares Option Plan was approved by our board of directors and became effective in December 1996. This 1996 plan provides for the grant of non-qualified stock options. Our employees and consultants, and employees and consultants of any parent or subsidiary of us, are eligible to receive awards under the 1996 Shares Option Plan.

A total of 15,000,000 shares of our Class B Common Stock are authorized for issuance under the 1996 Shares Option Plan. Under the terms of the 1996 Shares Option Plan, our board of directors or any committee of the board of directors is authorized to establish the exercise price for an award at the time of grant. The 1996 Shares Option Plan also provides that in the event that we experience a recapitalization, reorganization or stock split or dividend, the options shall be adjusted to account for the changed circumstances.

Options granted under the 1996 Shares Option Plan generally become vested in increments over a period of years, and no options granted under the 1996 Shares Option Plan plan may have a term longer than 10 years.

A terminated employee may only exercise options granted under the 1996 Shares Option Plan if the employee’s award agreement provides for post-termination exercise, and only if the termination was involuntary, but not for good cause, or voluntary, but with the consent of our board of directors.

Generally, in the event of a change in control, the successor corporation is required to assume each option or replace it with a substitute option. If the outstanding options are not assumed or substituted after a change in control, the vesting of the options will generally accelerate in full.

Options granted under the 1996 Shares Option Plan generally do not provide for the transferability of awards. Shares acquired pursuant to option award agreements under the 1996 Shares Option Plan generally must be offered to us for repurchase following the date of exercise, with acceptance of such offer to be made within 30 days, and we generally reserve the right of first refusal with respect to any subsequent third party offers to purchase the shares.

Prior to December 30, 2004, awards under the 1996 Shares Option Plan to acquire a total of $10.1 million shares of WIN’s Class B Common Stock were issued and outstanding at a weighted average price of $9.77 per share.

Prior to this Offering, in December 2004, the former WorldSpace group of companies was reorganized and recapitalized. On December 30, 2004, the group’s principal operating company, WorldSpace International Network Inc., a British Virgin Islands company (WIN), was merged with and into the group’s former holding company, WorldSpace, Inc., a Maryland corporation (WorldSpace Maryland). Immediately thereafter, for purposes of reincorporating WorldSpace Maryland in Delaware, WorldSpace Maryland was merged into a newly-formed Delaware company, also named WorldSpace, Inc. (WorldSpace or the Company).

As discussed in more detail below, immediately following these mergers, (i) all of WorldSpace’s predecessor companies’ outstanding long-term debt obligations were converted, in the case of certain of such obligations, into shares of Class B Common Stock and, in the case of other of such debt obligations, into a right to royalty payments based on the Company’s annual EBITDA, if any, for each year through December 31, 2015 and (ii) WorldSpace issued $155 million of senior convertible notes (Convertible Notes) to a group of private investors (New Investors). As a result of these transactions, our only long-term debt is the Convertible Notes. The background to the conversion of such debt obligations and the issuance of the Convertible Notes is described in more detail below.

During the mid-1990s, two Saudi Arabian citizens, Mr. Mohammed H. Al Amoudi and Mr. Khalid Bin Mahfouz (through companies controlled by them and through Credit Suisse as a fiduciary) provided a majority of the capital necessary to develop the WorldSpace system and commence commercial operations. In total, they provided approximately $1.1 billion in cash to the WorldSpace group.

In 1999, Mr. Al Amoudi transferred all of his interests, direct or indirect, in any of the WorldSpace companies to the Bin Mahfouz family. Pursuant to certain rescission transaction agreements dated as of April 21, 2000 (Rescission Transaction Agreements), all of the direct and indirect Bin Mahfouz family debt and equity interests in the WorldSpace group were consolidated into a single debt obligation owed by the WorldSpace group to Stonehouse Capital Limited (Stonehouse), a Cayman Islands company wholly owned by two sons of Mr. Bin Mahfouz.

On December 30, 2004, a Loan Restructuring Agreement (Loan Restructuring Agreement) and a Royalty Agreement (Royalty Agreement), each dated September 30, 2003 and amended through December 30, 2004, superseded the Rescission Transaction Agreements. Pursuant to the Restructuring Agreement and the Royalty Agreement, the debt owed by the WorldSpace companies to Stonehouse, upon the effective date of such agreements, was cancelled and replaced by an obligation to make certain annual royalty payments to Stonehouse. Under the terms of the Royalty Agreement, WorldSpace is required to pay to Stonehouse 10% of the EBITDA (earnings before interest, taxes, depreciation and amortization), if any, of WorldSpace and its consolidated subsidiaries for each year from January 2005 through December 31, 2015. The principal condition to the effectiveness of the Loan Restructuring Agreement and the Royalty Agreement was the receipt by the Company of at least $50 million in funding from outside investors. Simultaneously with the issuance by the Company, on December 30, 2004, of the Convertible Notes to the New Investors, Stonehouse and WorldSpace agreed that the conditions to effectiveness had been satisfied, and the Loan Restructuring Agreement and Royalty Agreement became effective.

The terms of the Loan Restructuring Agreement, the Royalty Agreement and related documents are described more fully in the “Certain relationships and related party transactions” section of this prospectus.

Prior to 1998, Salah Idris, a Saudi Arabian citizen, was a director of WIN and held 4,674,826 shares of WIN through his wholly-owned British Virgin Islands company, Industrial Development Inc. (Industrial Development). In 1998, Mr. Idris and WIN agreed to exchange the shares owned by Industrial Development for debt. Pursuant to this agreement, WIN issued a $56,097,912 convertible note dated November 20, 1998 to Industrial Development in return for all of the shares of WIN held by Industrial Development. A further $10 million loaned by Mr. Idris to WIN was later recorded in a promissory note dated as of October 29, 1998, which was issued by WIN in favor of Industrial Development in October 2000.

Between 2001 and 2004, most of the operating expenses of the WorldSpace group of companies were funded by advances made by Mr. Idris and by the Company’s Chairman and Chief Executive Officer, Noah A. Samara, to WorldSpace Maryland. Most of these advances were made through Yenura Pte. Ltd., a Singapore company (Yenura) owned by Mr. Samara and Mr. Idris. Mr. Samara owns all of the voting shares of Yenura. Mr. Idris owns only non-voting shares, but holds a majority of the economic interest in Yenura. The advances made by Yenura were formally reflected in a September 21, 2002 Loan Agreement and Guarantee, dated as September 21, 2002 between WorldSpace Maryland, WIN, WorldSpace Satellite Company and Yenura (as amended to date, the Loan Amendment and Guarantee). Pursuant to this Loan Agreement and Guarantee, and in consideration for the funds advanced, WorldSpace Maryland issued three Senior Convertible Notes in favor of Yenura in an aggregate principal amount of $118,512,579 through December 29, 2004.

With WIN’s consent, in December 2004, Yenura entered into agreements with Industrial Development and with one other holder of WIN debt (Saifcom) whereby Yenura purchased all of the then outstanding WIN debt held by such entities in the aggregate amount of $73,097,912. On December 30, 2004, immediately after the merger of WIN into WorldSpace Maryland and the subsequent merger of WorldSpace Maryland into WorldSpace, Yenura exchanged its pre-existing debt and the debt it acquired from Industrial Development and the unrelated holder, together with allocated interest thereon (all of which debt, as a result of the mergers, were now obligations of the Company), for 27.9 million shares of Class B Common Stock in WorldSpace. As a result of this exchange, WorldSpace and its subsidiaries owe no debt to Yenura or Industrial Development.

The terms of the agreements among Yenura and members of the WorldSpace group pursuant to which this debt was acquired and exchanged are described more fully in the “Certain relationships and related party transactions” section of this prospectus.

As discussed above, in addition to the reorganization of the WorldSpace group of companies and the restructuring of debt, on December 30, 2004 we issued $155 million of Convertible Notes to the New Investors pursuant to the terms of a Securities Purchase Agreement dated December 30, 2004 (Securities Purchase Agreement). In connection with the issuance of the Convertible Notes, we granted to the New Investors certain registration rights with respect to the shares of Class A Common Stock underlying the Convertible Notes. Our obligation to register such shares is embodied in a registration rights agreement with the New Investors dated December 30, 2004 (Registration Rights Agreement). The terms of the Convertible Notes, the Securities Purchase Agreement and the Registration Rights Agreement are more fully described in the “Certain relationships and related party transactions” section of this prospectus.

As a result of the transactions described above, none of the Bin Mahfouz family, Mr. Al-Amondi or Mr. Idris hold any direct debt or equity interest in our company or has any voting control rights in our company. An entity controlled by two Bin Mahfouz sons is entitled to conditional royalty payments from us for each annual period through December 31, 2015. Yenura, a company whose voting shares are controlled by our Chairman and Chief Executive Officer, Mr. Samara, holds 27.9 million shares of WorldSpace Class B Common Stock. Although Mr. Idris holds only non-voting shares, he holds the majority of the economic interest in Yenura.

The summaries of the agreements described below are not complete and are subject to, and qualified in their entirety by, the provisions of the actual agreements. These agreements have been filed as exhibits to the registration statement of which this prospectus is a part and we suggest you read the agreements in their entirety.

We have engaged, and in the future may engage, in transactions with our shareholders and companies affiliated with our shareholders. We believe that these transactions have been made on terms no less favorable than could have been obtained from unaffiliated third parties. We comply with Delaware law with respect to transactions involving potential conflicts. Delaware law requires that all transactions between us and any director or executive officer are subject to full disclosure and approval of the majority of the disinterested members of our board of directors, approval of the majority of our stockholders or the determination that the contract or transaction is intrinsically fair to us.

Other than the transactions described below, for the last three full fiscal years there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we are or will be a party:

On September 30, 2003, WorldSpace Maryland entered into a Loan Restructuring Agreement with Stonehouse, WIN and WorldSpace Satellite Company Ltd. (Satellite Co.). This agreement superseded the Amended and Restated Loan Agreement (the Loan Agreement) and certain Security Agreements (Security Agreements) each dated as of April 21, 2000, among the same parties and, upon its effectiveness, provided for the extinguishment of the debt owed thereunder by WIN, Satellite Co. and WorldSpace Maryland, collectively referred to as the WorldSpace Parties, in exchange for certain royalty payments (the Restructuring), provided that certain conditions were met prior to September 30, 2004 (the Outside Date).

On September 28, 2004 the parties to the Loan Restructuring Agreement entered into a First Amendment to Loan Restructuring Agreement and Royalty Agreement (the Amendment) to amend certain provisions of the aforementioned arrangements, including the extension of the Outside Date to March 31, 2005. The Restructuring was completed on December 31, 2004.

Under the Loan Restructuring Agreement, Stonehouse cancelled, released and discharged all obligations and liabilities of the WorldSpace Parties arising under the Loan Agreement, and all liens and security interests under the Security Agreements upon satisfaction or waiver of certain conditions precedent, including, among other things, the delivery of executed release agreements and the Royalty Agreement described below, the completion of a third-party investment of not less than $50 million in the WorldSpace Parties and their affiliates (see “—New Investment Transaction” below), which we refer to as the WorldSpace Enterprise, and payment of a $1.25 million success fee to Houlihan, Lokey, Howard and Zukin. Each of the conditions precedent was satisfied or waived on December 30, 2004, and, thereafter, the releases and Royalty Agreement were released from escrow and the Royalty Agreement became effective.

The WorldSpace Parties entered into a Royalty Agreement with Stonehouse dated as of September 30, 2003, which was placed, along with the Original Agreement Release described below, into escrow until the completion of the Restructuring. The Royalty Agreement, as amended by the Amendment as of September 29, 2004, was released from escrow on December 30, 2004 and became effective on December 31, 2004. Together with the Loan Restructuring Agreement, the Royalty Agreement provides for all WorldSpace Parties’ debt to Stonehouse to be replaced with an obligation by WorldSpace to make royalty payments to Stonehouse in the amount of 10% of the annual consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) (the Royalty Payment) for each calendar year from 2003 through 2015 (the Term). An interim payment of 80% of any Royalty Payment owed is to be made within 60 days of the end of a calendar year, with the remaining 20% to be paid within 180 days of the end of the calendar year.

The Royalty Agreement requires that WorldSpace establish and maintain a segregated reserve account with a sub-account for each calendar year during the Term. WorldSpace must deposit into the appropriate sub-account, within 45 days after the beginning of each quarter, an amount equal to 25% of the Royalty Payment for such year as estimated in good faith by WorldSpace on the basis of the best information then reasonably available. Each of those separated accounts or sub-accounts constitute deposit accounts within the meaning of the New York Uniform Commercial Code (UCC) and will be subject to the ‘control’ (within the meaning of the UCC) of Stonehouse during the Term. Except as otherwise agreed, funds that have been deposited by WorldSpace in the accounts in respect of any royalty payment obligations may only be invested in certain agreed permitted investments.

The Royalty Agreement provides that in the event that all or substantially all of the assets of any WorldSpace Party are sold or any WorldSpace Party is liquidated (each Scale-Down Transaction) Stonehouse may, at its option, receive a fee, (a Scale-Down Fee) in lieu of future royalty payments with respect to the WorldSpace Party that was the subject of the Scale Down Transaction. In the event that Stonehouse elects to receive a Scale-Down Fee with respect to a Scale-Down Transaction, WorldSpace will pay a Scale-Down Fee equal to 60% of the portion of the proceeds (whether cash or property) of the sale or liquidation that is to be included in any distributions to WorldSpace’s stockholders as of December 31, 2004 in such Scale-Down Transaction; provided, however, that the percentage of proceeds owed to Stonehouse in respect of any Scale-Down Transaction will be reduced by 10% (i.e., 60% to 54%) for each $50 million in royalty or scale-down fee payments actually made to Stonehouse theretofore.

In addition to the foregoing, the Royalty Agreement provides that upon a sale, liquidation bankruptcy of a foreclosure on WorldSpace at any time prior to December 31, 2015, then to the extent that the portion of the total distributions to the WorldSpace Parties’ stockholders as at December 31, 2004 which is received by Noah A. Samara (and his affiliates, and other related parties) exceeds the cumulative amounts received by Stonehouse, Noah A. Samara will immediately pay Stonehouse a cash payment equal to one-half of such excess amounts.

The Royalty Agreement provides further that “Distributions” (i.e., dividends, return of capital, etc.) by the WorldSpace Parties on the Class B Shares held by Noah A. Samara and his affiliates may only be paid out of certain excess funds (i.e., unspent funds earned by WorldSpace in any calendar year less the royalty payment owed to Stonehouse for the year) available at calendar year-end, on or after the 180th day of the calendar year, and only after the Royalty Payment due and payable on the 180th day of the calendar year has been paid in full. In addition, no Distribution may be paid to such stockholders unless on the date of such payment the WorldSpace Parties are current on all expenses and other amounts owed to any person, and the contemplated payment of the Distribution will not result in any reasonably foreseeable or likely shortfall in funds available to meet future expenses and other amounts which will become due to any person during the subsequent twelve-month period.

Moreover, for a period of three years from the date of the Restructuring, none of the WorldSpace Parties may voluntarily liquidate, without the prior written consent of Stonehouse, which consent will not be unreasonably withheld.

WorldSpace is required to apply the proceeds of the new fiduciary required as a condition to effectiveness of the Royalty Agreement substantially in accordance with the funding expenditure plan that was provided to Stonehouse on September 30, 2003. In December 2004, Stonehouse approved the funding expenditure plan with respect to the proceeds of the new financing described below.

Stonehouse will have the right to audit the books and accounts of the WorldSpace Parties at any time during the Term, but not more frequently than once per year, upon reasonable advance notice for the purpose of determining or confirming any calculation of WorldSpace EBITDA.

The WorldSpace Parties entered into an Original Agreement Release with Stonehouse on September 30, 2003 whereby Stonehouse and the WorldSpace Parties permanently and irrevocably cancelled, released and discharged each other from all obligations and liabilities, including the WorldSpace debt owed under the Loan Agreement in the amount of $1,872,769,237 and all liens and security interests arising under the Security Agreements or any related agreement. This release became effective on December 31, 2004 upon completion of the Restructuring.

In connection with the Restructuring, we entered into an Exchange Agreement dated as of December 29, 2004 with WorldSpace Maryland, WIN and Yenura Pte. Ltd., (Yenura) a Singapore company in which our Chairman, Noah A. Samara, holds all voting shares and in which Salah Idris holds all non-voting shares, but a majority of the economic interest. Pursuant to this Agreement, we cancelled and discharged debt obligations in an aggregate principal amount of $120,084,654 owed by WorldSpace Maryland and WIN, as further described below, for 27.9 million shares of our Class B Common Stock.

Pursuant to a Purchase and Sale Agreement dated December 29, 2004, (the Industrial Purchase and Sale Agreement), Yenura purchased from Industrial Development two notes issued by WIN to Industrial Development in the original principal amounts of $10,000,000 and $56,097,912. On December 29, 2004, Yenura separately purchased from Saifcom Establishment, a Liechtenstein company (Saifcom) a note issued by WIN to Saifcom in the original principal amount of $10,000,000.

In addition, pursuant to the Loan Agreement and Guarantee dated as of September 21, 2002 among WorldSpace Maryland, WIN and Yenura, WorldSpace Maryland issued to Yenura a convertible note in the principal amount of $52,925,000. Pursuant to the First Supplemental Loan Agreement and Guarantee dated June 23, 2003 among the same parties, WorldSpace Maryland issued to Yenura a further convertible note in the principal amount of $24,750,000. Pursuant to the Second Supplemental Loan Agreement and Guarantee dated December 29, 2004 among the same parties, WorldSpace Maryland issued to Yenura a convertible note in the aggregate amount of $44,343,242.

In exchange for the cancellation and discharge of all of the WIN and WorldSpace Maryland debt obligations described above, we, as the successor corporation of both WIN and WorldSpace Maryland, issued to Yenura 27.9 million shares of WorldSpace Class B Common Stock.

Yenura has agreed to indemnify and hold us, our predecessor companies, our affiliates, shareholders, directors, officers, employees, attorneys, accountants and agents harmless from and against any loss suffered or incurred by a WorldSpace indemnitee resulting from or arising out of the inaccuracy of any

representation or warranty made by Yenura or the failure by Yenura to perform any covenant, agreement or other obligation contained in the Exchange Agreement. We agreed to indemnify Yenura and hold it, its affiliates, shareholders, directors, officers, employees, attorneys, accountants and agents harmless from and against any loss suffered or incurred by a Yenura indemnitee resulting from or arising out of the inaccuracy of any representation or warranty we made or by our failure to perform any covenant, agreement or other obligation contained in the Exchange Agreement.

On December 31, 2004, in connection with the Restructuring, New Investors acquired an aggregate principal amount of $155 million of senior unsecured convertible notes (Convertible Notes). In connection with this purchase, we granted to the New Investors certain registration rights. The terms of the Securities Purchase Agreement, Registration Rights Agreement, and Convertible Notes are discussed below:

We entered into a Securities Purchase Agreement dated as of December 30, 2004 with WorldSpace Maryland and Highbridge International LLC, Amphora Limited and certain other private equity investors whereby we issued to them the Convertible Notes. Each Convertible Note is convertible into shares of our Class A Common Stock which are subject to the Registration Rights Agreement. The principal terms of the Securities Purchase Agreement may be summarized as follows:

Proceeds. We are using the proceeds from the sale of the Convertible Notes for the repayment of certain amounts payable to Alcatel Space for the construction of the Company’s satellites, working capital and other general corporate purposes. Proceeds may not be used for (i) the repayment of our indebtedness or that of any of our subsidiaries or for (ii) the redemption or repurchase of any of our equity securities.

Dilutive Issuances. So long as any New Investor beneficially owns Convertible Notes, we will not issue (x) any Convertible Notes other than to the New Investors as contemplated by the Securities Purchase Agreement and (y) any other securities that would cause a breach or default under the Convertible Notes. After the registration of our Class A Common Stock becomes effective under the Securities Exchange Act of 1934 and for as long as any Convertible Notes remain outstanding, we will not, subject to certain exceptions provided in the Securities Purchase Agreement: (i) issue or sell common stock equivalents that allow the holder thereof to convert, exchange or exercise such common stock equivalents for shares of common stock at a conversion, exchange or exercise price which varies or may vary with changes in its market price (commonly known as “death spiral” or “toxic” converts), subject to exceptions for net share settlement and stock option plan transactions. After giving effect to the Yenura Exchange Agreement and the mergers of WIN into WorldSpace Maryland and WorldSpace Maryland into us, we may not lower the price at which any common stock equivalents outstanding on December 31, 2004 are exercisable or exchangeable for or convertible into shares of Class A Common Stock or Class B Common Stock.

We have agreed not to issue any additional shares of Class B Common Stock or Class B Common Stock equivalents without the consent of the New Investors.

Voting Rights. If we have not paid cash interest on the Convertible Notes on six consecutive interest dates and our qualifying initial public offering (IPO) has not occurred, the holders of the Convertible Notes will be entitled to elect not less than two additional directors to our board of directors.

Capital Stock. Prior to our IPO, we may not amend any voting powers, designations, preferences, rights or qualifications, limitations or restrictions of any of our capital stock without the prior written consent of the New Investors.

Listing. After our IPO, we must secure and maintain the listing of all shares underlying the Convertible Notes (Conversion Shares) on the NASDAQ National Market (and on each other national securities exchange and automated quotation system on which our Class A Common Stock is then listed).

As noted above, on December 30, 2004 we issued Convertible Notes due December 31, 2014 in an aggregate principal amount of $155 million. The principal terms of the Convertible Notes are as follows:

Ranking. Prior to our Qualifying IPO (as described below) the Convertible Notes will not be subordinate to any Indebtedness (as defined in the Convertible notes) and all payments will be senior to other debt of the company, other certain permitted pari passu indebtedness and royalty payments, any Scale Down Fees and foreclosure. Following our Qualifying IPO, the Convertible Notes may be expressly made subordinate and junior in right of payment to indebtedness payment incurred after the Qualifying IPO.

Optional Repurchase. The holders may require us to repurchase all or any portion of the Convertible Notes on the third anniversary of the issuance date at a price equal to 100% of the principal amount of the Convertible Notes plus any accrued and unpaid interest in cash.

Interest. Interest will accrue at a rate of 5% per annum and be payable quarterly in arrears. The interest rate will increase if new pari passu debt with a higher rate of interest is issued (in which event the rate on the Convertible Notes will increase to the rate of the new debt). Further, unless the interest rate has already been increased due the issuance of pari passu indebtedness at a higher rate of interest, the interest rate will increase by 100 basis points if the registration statement for our Qualifying IPO is not declared effective before December 31, 2005. If we have not completed our Qualifying IPO within two years of the issuance of the Convertible Notes, the interest rate will be the greater of the interest rate then in effect or 10% per annum.

Upon an event of default, the interest rate will be the greater of the interest rate then in effect or 15% per annum. If interest on the Convertible Notes is not paid in full on any interest payment date, the principal amount of the Convertible Notes will be increased for subsequent interest accrual periods by an amount that reflects the accretion of the unpaid interest at an annual rate equal to the interest rate then in effect plus 2%, calculated on a quarterly basis, from, and including, the first day of the relevant interest accrual period to, but excluding, the subsequent interest payment date.

Redemption. We may redeem the Convertible Notes on the later of (a) 18 months after the issuance date of the Convertible Notes or (b) the first anniversary of our Qualified IPO. Thereafter, subject to the satisfaction of certain Equity Conditions (as described below) we may redeem the Convertible Notes, provided that our Class A Common Stock publicly trades at a price, determined by a 20 day moving average, in excess of 150% of the IPO, at a redemption price in cash equal to 100% of the principal amount thereof plus any accrued and unpaid interest in cash upon 30 days notice; provided further that we will be obligated to pay the present value of all future interest coupons that would have accrued and been payable until the third anniversary of the issuance date of the Convertible Notes. Upon call for redemption, the holders will continue to have the right to convert the Convertible Notes into our Class A Common Stock prior to the date of redemption. The “Equity Conditions” that must be satisfied in order for the Company to redeem Convertible Notes may be summarized as follows: (a) a registration

statement covering the remaining Conversion Shares must be effective and available for resale of such shares or all of such shares must be eligible for resale under Rule 144(k), (b) the Class A Common Stock must be listed on the New York Stock Exchange or the NASDAQ National Market (c) there shall not have occurred either (i) the public announcement of a pending, proposed or intended fundamental transaction (e.g., merger, sale of all or substantially all of WorldSpace’s assets or certain other similar events in which the Company does not survive or control of the Company changes) which has not been abandoned, terminated or consummated or (ii) a default or an event of default under the Convertible Notes and (d) the Company must otherwise be in material compliance with the terms of the Stock Purchase Agreement, Convertible Notes and Registration Rights Agreement.

After the third anniversary of the issuance date of the Convertible Notes, we may (if a Qualified IPO has been completed), subject to the satisfaction of the Equity Conditions, redeem any or all of the outstanding Convertible Notes at 100% of the principal amount thereof plus all accrued and unpaid interest.

Following a change of control, the holders of the Convertible Notes may require us to redeem the Convertible Notes at a price equal to the greatest of (i) the sum of (A) the product of (x) the amount of the Convertible Notes being redeemed (including principal and accrued but unpaid interest) and (y) the quotient determined by dividing (I) the closing sale price of the Class A Common Stock immediately following the public announcement of such proposed change of control by (II) the then applicable conversion price and (B) the present value of the remaining interest payments on the Convertible Notes through the third anniversary of their issuance, (Present Value of Interest); (ii) the sum of (A) the value of the consideration, assuming that the entire principal amount and accrued but unpaid interest being redeemed were converted into shares of Class A Common Stock at the then prevailing conversion rate, issuable per share of common stock in such change of control for the entire principal amount of the Convertible Notes and accrued but unpaid interest being redeemed and (B) the Present Value of Interest (if any), or (iii) the sum of (A) the principal amount of the Convertible Notes and accrued but unpaid interest being redeemed and (B) the Present Value of Interest (if any).

The holders have the right to require us to redeem some or all of their remaining Notes (at their principal amount, plus accrued but unpaid interest) on the third anniversary of the issuance of the Notes

Conversion. The Convertible Notes may, at the option of the holder, be converted into shares of our Class A Common Stock at any time.

The currently applicable conversion price for the Notes is $8.45. Immediately following the completion of this offering, the conversion price will be the lesser of (i) the then applicable pre-IPO conversion rate or (ii) the product of (x) 0.9 and (y) the IPO price. The conversion price will be subject to adjustment as described under “—Anti-dilution; Adjustments to Conversion Price” below.

Events of Default. Events of default under the terms of the Convertible Notes include:

In addition to penalty interest, we are required to allow the holders of the Convertible Notes to redeem all or a portion of their Convertible Notes following an event of default. Certain events of default require payment of a 25% premium over the redemption price.

“Qualified IPO” means a firm commitment, fully underwritten public offering in the United States of our Class A Common Stock by a nationally recognized investment banking firm at a per share price of not less than $7.50 with gross proceeds to us of not less than $100 million, with the shares of our Class A Common Stock listed on either The New York Stock Exchange or the NASDAQ National Market. If the offering contemplated by this prospectus is consummated, we will have completed a “Qualifying IPO” within the meaning of this definition.

Voting Rights. As discussed above under the description of the Securities Purchase Agreement, the holders of Convertible Notes are not entitled to any voting rights unless interest has accrued and remains unpaid in cash after six consecutive quarters and no Qualified IPO has occurred, in which case the holders, as a class, may, subject to certain conditions, elect two additional directors to our board of directors or such greater number as may be commensurate with the implied ownership interest percentage of holders of the Convertible Notes based upon the number of shares of Class A Common Stock to which they would then be entitled upon conversions.

Pass-Through Dividends. All cash dividends or distributions paid or payable on the Class A Common Stock must also be paid concurrently to holders of Convertible Notes in respect of their Conversion Shares on an as-converted basis.

Effectiveness of Form S-1 Registration. If a Form S-1 registration statement is not declared effective prior to December 31, 2005 then (a) the initial coupon rate will be increased by an additional 1% and (b) the conversion price would be reduced to $7.86 per share (subject to adjustment for stock splits and similar circumstances).

Limitations on Incurrence of Debt. We may incur up to $175 million of debt that ranks pari passu with the Convertible Notes, inclusive of the Convertible Notes (i.e., $20 million of additional pari passu debt), provided, however, that we may not issue additional pari passu debt if the amount of our Alcatel

payables is greater than the pari passu basket (i.e., $175 million less the principal amount outstanding at any relevant time on the Convertible Notes). Prior to the consummation of a Qualified IPO, we may not incur any indebtedness that ranks senior to the Convertible Notes. Should new debt be incurred on a secured basis then the Convertible Notes shall share ratably in such security.

Anti-dilution; Adjustments to Conversion Price. The formula for adjusting the conversion rate on the conversion date and number of shares of our Class A Stock to be delivered are subject to customary anti-dilution adjustments if certain events occur. In addition, prior to the occurrence of the Qualified IPO (subject to an exception for certain securities issued to our officers, directors and employees for compensatory purposes), if any equity security is issued at a price lower than the then applicable conversion price, then the conversion price of all shares underlying the Convertible Notes will be adjusted to that lower price. Following the consummation of the Qualified IPO, the conversion price of the shares underlying the Convertible Notes will be subject to adjustment (on a weighted basis determined on the basis of the number of shares issued, the consideration received and the number of shares outstanding prior to the issuance) if any equity securities are issued at a price lower than the then current market price of a share of the Class A Common Stock.

On December 30, 2004, and in connection with the Securities Purchase Agreement described above, we entered into a Registration Rights Agreement with the New Investors pursuant to which we agreed to provide certain registration rights to the New Investors with respect to the Convertible Notes.

Right to Demand Registration. Beginning 180 calendar days after the Offering, the New Investors will have the right to demand, at any time or from time to time, that we file up to three registration statements registering for resale all or part of the shares of Class A Common Stock issuable upon conversion of the Convertible Notes. Only Highbridge International LLC, Amphora Limited and their affiliates who hold Convertible Notes, or if none hold any securities subject to the Registration Rights Agreement, a holder or holders holding at least $40 million or more of the aggregate principal amount of Convertible Notes, may request a demand registration. We are not obligated to effect a demand registration unless the reasonably anticipated aggregate offering price to the public of all registrable securities for which registration has been requested by the New Investors, together with any shares sold by us for our account, will be at least $25 million. After a demand registration statement has been declared effective by the SEC, the New Investors may not request an additional demand registration for 90 calendar days. In the event of a demand registration, each New Investor has agreed to a 30 day lock-up of registrable securities following the effectiveness of the registration statement filed pursuant to the exercise of a demand registration right, other than sales under such registration statement.

Required Shelf Registration. Within 10 calendar days of the first anniversary of this offering, we are required to file a shelf registration statement on Form S-3 covering the resale of all registrable securities held by all New Investors. Once we have filed the shelf registration statement, the New Investors will have no right to request any further demand registrations provided that the shelf registration statement is declared effective by the SEC within 120 days of the filing.

Registration Deadlines and Default Penalties. Upon a request for a demand registration, we must file a registration statement with the SEC within 90 calendar days and have it declared effective within 180 days of such request. We must file a shelf registration statement no later than 10 calendar days after the first anniversary of our IPO and have that registration statement declared effective within 120 days from filing with the SEC.

If a demand registration statement or the shelf registration statement is not filed with the SEC or not declared effective before the applicable deadline, which constitute a “filing failure” and an “effectiveness failure”, respectively, or if we fail to keep the registration statement effective for the applicable length of time, which constitute a “maintenance failure”, then we are obligated to pay to each of the New Investors holding registrable securities an amount in cash equal to 1% of the aggregate purchase price of such New Investor’s Notes on the date of the filing failure, the effectiveness failure or the maintenance failure, as applicable, and 2% of the aggregate purchase price of such New Investor’s Notes on every 30th day thereafter, until such failure is cured.

Blackout Periods. We are entitled to postpone a demand registration and to require the New Investors to discontinue disposition of their securities covered by the shelf registration if our board of directors determines in good faith that effecting such a registration or continuing such disposition at that time would not be advisable in light of pending or anticipated corporate developments or if we possess material, non-public information which the board of directors determines in good faith is not in our best interests to disclose at that time. We may exercise this right for two periods of up to 30 days or one period of up to 45 days in any 12 month period.

Piggyback Registration Rights. The Registration Rights Agreement provides that if we propose to allow any of our stockholders to participate in our IPO by selling a number of common shares that would likely result in aggregate gross proceeds to such stockholders in excess of $5 million, then the New Investors would be permitted to participate and sell a number of common shares in the offering that would likely result in aggregate gross proceeds to the New Investors in an amount not in excess of the amount being sold by stockholders less $5 million.

At any time at which there is not an effective registration statement in respect of the New Investors registrable securities (i.e., shares of Class A Common Stock underlying the Convertible Notes) and we propose or are required to register securities under the Securities Act, we are required to give notice to the New Investors and the New Investors will have a right to participate in the registration. This right does not apply to any registration in connection with our initial public offering or registrations on Forms S-4, S-8 or S-3 for compensatory, bonus or other similar plans, dividend reinvestment plans and stock purchase plans.

Underwritten Offerings. We have agreed to effect up to a maximum of three underwritten offerings under the Registration Rights Agreement, whether as demand registrations or sales under the shelf registration.

Expenses. We will pay all registration expenses in connection with any registration statement under the Registration Rights Agreement. Each New Investor will pay all their pro rata portion of discounts and commissions payable to underwriters, selling brokers, managers or other similar persons engaged in a distribution.

Termination. Our registration obligations under the Registration Rights Agreement will terminate upon the earlier of the date when a New Investor may sell all of our registrable securities pursuant to Rule 144(k) of the Securities Act.

WorldSpace has entered into a gifting agreement with First Voice International, a nonprofit Washington, D.C. corporation recognized under the U.S. tax laws as a charitable corporation (First Voice). Under this agreement, we gifted to First Voice 5% of the capacity of the AfriStar and AsiaStar satellites for social welfare and human development use. The gifting was for the remaining life of the satellites, subject to five year reviews by WorldSpace to ensure First Voice’s performance in making social welfare contributions in the coverage area of the satellites. Additionally, we agreed to provide uplink service to the satellites on a gifted basis for at least the first two years of the gifting agreement’s term. The Company’s Chairman is also the Chairman of First Voice.

The following table sets forth certain information regarding the beneficial ownership of our common stock immediately prior to, and as adjusted to reflect the sale of the common stock offered hereby, by:

The beneficial ownership of our common stock set forth in the table is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by any stockholder and the percentage ownership of such stockholder, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of the date hereof are deemed to have been exercised and to be outstanding. Such shares, however, are not deemed to have been exercised and to be outstanding for purposes of computing the percentage ownership of any other person.

Beneficial ownership of shares of Class A Common Stock and Class B Common Stock are shown separately; however, because shares of Class A Common Stock and shares of Class B Common Stock vote as a single class on all matters, except as otherwise required by law, with each share of Class A Common Stock and each share of Class B Common Stock entitling its holder to one vote, the percentage of beneficial ownership is calculated on the basis of the total number of shares of Class A Common Stock and Class B Common Stock outstanding. For a discussion of differences between Class A Common Stock and Class B Common Stock, see “Description of capital stock.” Accordingly, the calculation of the percentage of beneficial ownership is based on 37,138,107 shares of common stock (4,475,789 shares of Class A Common Stock and 32,662,318 shares of Class B Common Stock) outstanding on March 31, 2005. Unless otherwise indicated in the footnotes below, the persons and entities named in the table have sole voting and investment power as to all shares beneficially owned. Unless otherwise indicated below, the address of each person listed in the table is c/o WorldSpace, Inc., 2400 N Street, N.W., Washington, D.C. 20037.

In this section, “we,” “us” and “our” refer only to WorldSpace and not its subsidiaries. The following description of the material terms of our capital stock is only a summary. You should refer to our certificate of incorporation and by-laws as in effect upon the closing of this offering, which are included as exhibits to the registration statement of which this prospectus is a part.

We are currently authorized to issue 200 million shares consisting of 100 million shares of Class A Common Stock, par value $0.01 per share, 75 million shares of Class B Common Stock, par value $0.01 per share and 25 million shares of preferred stock, par value $.01 per shares.

As of March 31, 2005, we had 37.1 million shares of our common stock outstanding, including 4.5 million shares of our Class A Common Stock held by 40 holders of record and 32.7 million shares of our Class B Common Stock held by 3 holders of record. No shares of our preferred stock have been issued or are outstanding.

Holders of a majority of the shares of our Class A Common Stock and Class B Common Stock entitled to vote in any election of directors may elect all of the directors standing for election, subject to the rights of holders of any outstanding preferred stock. Holders of the Class A Common Stock will be entitled to receive ratably any dividends that the board of directors may declare out of funds legally available therefor, subject to any preferential dividend rights of outstanding preferred stock. Holders of the Class B Common Stock will be entitled to receive ratably (with the holders of the Class A Common Stock) dividends that the board of directors may declare out of funds legally available therefore if, and only to the extent that, the proposed distribution complies with the terms of the Royalty Agreement described above in the “Certain relationships and related party transactions” section of this prospectus. Upon our liquidation, dissolution or winding up, the holders of Class A Common Stock will be entitled to receive ratably our net assets available after the payment of all debts and other liabilities and subject to the prior rights of holders of any outstanding preferred stock. Holders of the Class B Common Stock will be entitled to receive ratably (with the holders of the Class A Common Stock) our net assets only to the extent that the distribution of the net assets complies with the requirements of the Royalty Agreement described above in the “Certain relationships and related party transactions” section of this prospectus. Holders of our Class A Common Stock and Class B Common Stock have no preemptive, subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of our capital stock are fully paid and nonassessable, and the shares of Class A Common Stock to be issued on completion of this offering will be fully paid and nonassessable.

All of the issued and outstanding Class B Common Stock is owned by Noah A. Samara and two entities affiliated with Noah A. Samara (Yenura Pte. Ltd. and TelUS Communications). Under the terms of our Certificate of Incorporation, all of the shares of the Class B Common Stock will automatically become shares of Class A Common Stock on the earlier of: (i) July 1, 2016; or (ii) the date the final royalty payment is made under the terms of the Royalty Agreement.

Our certificate of incorporation authorizes our board of directors, subject to limitations prescribed by law, to establish one or more series or preferred stock and to determine, with respect to any series of preferred stock, the terms and rights of that series, including:

The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisition and other corporate purposes, could have the effect of making it more difficult for a third-party to acquire, or discourage a third-party from acquiring, a majority of our outstanding voting stock.

Our board of directors may issue preferred stock with voting and conversion rights that could adversely affect the voting power of the holders of our common stock. There are no current agreements or understandings for the issuance of preferred stock, and our board of directors has no present intention to issue any shares of preferred stock.

In December 2004, we and certain holders of our Convertible Notes (Noteholders) entered into a registration rights agreement pursuant to which we granted to the holders of the Convertible Notes certain registration rights. The Noteholders party to the registration rights agreement have the right to require us, subject to certain terms and conditions, to register their shares of our common stock under the Securities Act at any time.

The stockholders will collectively have an aggregate of three demand registration rights following the offering. In addition, if the shelf registration is not the offering and if we propose to register any of our capital stock under the Securities Act, the Noteholders will be entitled to customary “piggyback” registration rights. The registration rights granted under the registration rights agreement are subject to

customary exceptions and qualifications and compliance with certain registration procedures. As of the date of this offering, we may be required to register up to shares of Class A Common Stock under the registration rights agreement.

For more information, see “Certain relationships and related party transactions” and the registration rights agreement, which is filed as an exhibit to the registration statement of which this prospectus is a part.

Delaware law authorizes corporations to limit or eliminate the personal liability of officers and directors to corporations and their shareholders for monetary damages for breach of officers’ and directors’ fiduciary duties of care. The duty of care requires that, when acting on behalf of the corporation, officers and directors must exercise an informed business judgment based on all material information reasonably available to them.

Our certificate of incorporation and by-laws provide that we must indemnify our directors and officers to the fullest extent authorized by Delaware law. We will also be expressly authorized to carry directors’ and officers’ insurance providing indemnification for our directors, officers and employees for some liabilities. We believe that the limitation of liability provisions in our certificate of incorporation and insurance are useful to attract and retain qualified directors and executive officers.

At present we are not aware of any pending litigation or proceeding involving any director, officer, employee or agent of our company in the person’s capacity with our company where indemnification will be required or permitted. We are also not aware of any threatened litigation or proceeding that might result in a claim for indemnification.

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND BYLAWS

Our certificate of incorporation and by-laws contain provisions that may have anti-takeover effects. Provisions of Delaware law may have similar effects.

Our certificate of incorporation provides that our board of directors will be divided into three classes of directors, with the classes as nearly equal in number as possible. As a result, approximately one-third of our board of directors will be elected each year. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our board of directors. Our certificate of incorporation provides that the number of directors will be fixed in the manner provided by a resolution adopted by a majority of the board of directors. Our certificate of incorporation and by-laws provide that the number of directors will be fixed from time to time solely pursuant to a resolution adopted by the board of directors. Upon completion of this offering our board of directors will have seven members.

Under Delaware law, unless otherwise provided in our certificate of incorporation, directors serving on a classified board of directors may be removed by the stockholders only for cause. Our certificate of incorporation and by-laws provide that directors may be removed only for cause upon the affirmative vote of holders of a majority of the voting power of all the then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class.

Our by-laws provide that any vacancy created by removal of a director shall be filled by a majority of the remaining members of the board of directors even though such majority may be less than a quorum.

Delaware law provides that stockholders are not entitled to the right to cumulative votes in the election of directors unless our certificate of incorporation provides otherwise. Our certificate of incorporation does not expressly provide for cumulative voting.

No stockholder action by written consent; Calling of special meetings of stockholders

Our certificate of incorporation prohibits stockholder action by written consent effective upon our becoming subject to the Securities Exchange Act of 1934, as amended. It also provides that special meetings of our stockholders may be called only by the board of directors, the Chief Executive Officer or the chairman of the board of directors.

Advance notice requirements for stockholder proposals and director nominations

Our by-laws provides that stockholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of stockholders must provide timely notice of their proposal in writing to the corporate secretary.

Generally, to be timely, a stockholder’s notice must be received at our principal executive offices not less than 90 nor more than 120 days prior to the first anniversary of the previous year’s annual meeting. Our by-laws also specify requirements as to the form and content of a stockholder’s notice. These provisions may impede stockholders’ ability to bring matters before an annual meeting of stockholders or make nominations for directors at an annual meeting of stockholders.

Our certificate of incorporation will grant our board of directors the authority to amend and repeal our by-laws without a meeting of stockholders in any manner not inconsistent with the laws of the State of Delaware or our certificate of incorporation.

We are a Delaware corporation and are subject to section 203 of the Delaware General Corporation Law. In general, section 203 prevents an “interested stockholder” (defined generally as a person owning 15% or more of our outstanding voting stock) from engaging in a merger, acquisition or other “business combination” (as defined in section 203) with us for three years following the time that person becomes an interested stockholder unless:

Generally, a “business combination” for these purposes includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” for these purposes is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting securities. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that Section 203 may discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

Delaware law does not require stockholder approval for any issuance of authorized shares. However, the listing requirements of the NASDAQ National Market, which would apply so long as our Class A Common Stock is listed on the NASDAQ National Market, require stockholder approval of certain issuances equal to or in excess of 20% of the voting power or the number of shares of Class A Common Stock and Class B Common Stock. These additional shares may be used for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions.

One of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.

Our Class A Common Stock has been approved for quotation on the NASDAQ National Market under the trading symbol “WINR.”

Prior to this offering, there has not been a public market for our common stock. Future sales of substantial amounts of our common stock in the public market, or the possibility of these sales, could adversely affect the trading price of the Class A Common Stock and could impair our future ability to raise capital through the sale of our equity at a time and price we deem appropriate.

Upon completion of this offering, we will have outstanding shares of Class A Common Stock. Of these shares, the shares sold in this offering and additional shares of Class A Common Stock will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by our “affiliates,” as defined in Rule 144 under the Securities Act, which would be subject to the limitations and restrictions described below.

of the remaining shares of Class A Common Stock outstanding upon completion of this offering will be “restricted securities” as defined in Rule 144.

In addition, we will have issued and outstanding 3.7 million shares of our Class B Common Stock. The Class B Common Stock will not be registered under Section 12 of the Exchange Act or listed for trading on the NASDAQ National Market or any other stock exchange. However, all of the Class B Common Stock will automatically become shares of Class A Common Stock after the payment of the final royalty payment due under the terms of the Royalty Agreement for the year ending December 31, 2015 or at such earlier time if and as the Company and Stonehouse amend the Royalty Agreement to eliminate the restrictions on “Distributions” contained in the Royalty Agreement.

There are also options granted on the Company’s Class A Common Stock and Class B Common Stock. As of the date hereof options to acquire 16.6 million shares of Class A Common Stock and 12.5 million Class B Common Stock are exercisable within the next 60 days.

As of the date of this prospectus, the Convertible Notes may be immediately converted into an aggregate of approximately 18.3 million shares of our Class A Common Stock. All of these shares would be restricted securities for purposes of the Securities Act. The holders of the Convertible Notes have certain registration rights with respect to the shares of Class A Common Stock underlying their Convertible Notes. Specifically, beginning 180 calendar days following completion of the Offering, certain holders of the Convertible Notes may initiate up to three demand registrations of their conversions shares. In addition, we have agreed to file a shelf registration statement on Form S-3 in respect of any unsold conversion shares one year after the completion of our initial public offering. The registration rights agreement with the holders of the Convertible Notes also provides for certain “piggyback” registration rights, allowing the holders of the Convertible Notes to register their shares on registration statements filed by the Company on behalf of other investors. The terms and conditions of the registration rights agreement are discussed in more detail in the “Certain relationships and related party transactions” section of this prospectus.

Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 and 144(k) promulgated under the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below and the provisions of Rules 144 and 144(k), additional shares of Class A Common Stock will be available for sale in the public market as follows:

All of these restricted securities will be eligible for sale in the public market, subject in some cases to the volume limitations and other restrictions of Rule 144, beginning upon expiration of the lock-up agreements described below.

In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person (or persons whose shares are required to be aggregated), including an affiliate, who has beneficially owned shares of our common stock for at least one year is entitled to sell in any three-month period a number of shares that does not exceed the greater of:

Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

In addition, a person who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, would be entitled to sell those shares under Rule 144(k) without regard to the manner of sale, public information, volume limitation or notice requirements of Rule 144.

We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of UBS Securities LLC for a period of 180 days after the date of this prospectus.

Our officers, directors and all of our stockholders have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock (other than

shares they may sell in this offering) or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of UBS Securities LLC until 180 days after the date of this prospectus. UBS Securities LLC may, in its sole discretion at any time without notice, release all or any portion of the shares of our common stock subject to these lock-up agreements.

The following summary describes material United States federal income tax consequences of the ownership and disposition of common stock by a Non-U.S. Holder (as defined below) as of the date of this prospectus. This discussion does not address all aspects of United States federal income taxation and does not deal with estate, gift, foreign, state and local tax consequences that may be relevant to such Non-U.S. Holders in light of their personal circumstances. Special U.S. tax rules may apply to certain Non-U.S. Holders, such as “controlled foreign corporations,” “passive foreign investment companies,” corporations that accumulate earnings to avoid U.S. federal income tax, investors in partnerships or other pass-through entities for U.S. federal income tax purposes, dealers in securities, holders of securities held as part of a “straddle,” “hedge,” “conversion transaction” or other risk reduction transaction, and certain former citizens or long-term residents of the United States that are subject to special treatment under the Internal Revenue Code of 1986, as amended, or the Code. Such entities and persons should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them. Furthermore, the discussion below is based upon the provisions of the Code, and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified with or without retroactive effect so as to result in United States federal income tax consequences different from those discussed below.

If a partnership (or an entity treated as a partnership for U.S. federal income tax purposes) holds the common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Persons who are partners in partnerships holding the common stock should consult their tax advisors.

The authorities on which this summary is based are subject to various interpretations, and any views expressed within this summary are not binding on the Internal Revenue Service (which we also refer to as the IRS) or the courts. No assurance can be given that the IRS or the courts will agree with the tax consequences described in this prospectus.

As used herein, a “Non-U.S. Holder” means a beneficial owner of our common stock that is not any of the following for U.S. federal income tax purposes:

A “Non-U.S. Holder” does not include a non-resident alien individual who is present in the United States for 183 days or more in the taxable year of disposition and who is not otherwise a resident of the United States for U.S. federal income tax purposes. Such an individual (who, under current law, is subject to a

30% tax imposed on the gain derived from the sale or exchange of common stock) is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the sale, exchange or other disposition of common stock.

Prospective purchasers are urged to consult their own tax advisors regarding the U.S. federal income tax consequences, as well as other U.S. federal, state, and local income and estate tax consequences, and non-U.S. tax consequences, to them of acquiring, owning, and disposing of our common stock.

If we make distributions on our common stock, such distributions paid to a Non-U.S. Holder will generally constitute dividends for U.S. federal income tax purposes to the extent such distributions are paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the Non-U.S. Holder’s investment to the extent of the Non-U.S. Holder’s adjusted tax basis in our common stock. Any remaining excess will be treated as capital gain.

Dividends paid to a Non-U.S. Holder generally will be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. A Non-U.S. Holder of common stock who wishes to claim the benefit of an applicable treaty rate for dividends will be required to (a) complete IRS Form W-8BEN (or appropriate substitute form) and certify, under penalty of perjury, that such holder is not a U.S. person and is eligible for the benefits with respect to dividends allowed by such treaty or (b) hold common stock through certain foreign intermediaries and satisfy the certification requirements for treaty benefits of applicable Treasury regulations. Special certification requirements apply to certain Non-U.S. Holders that are “pass-through” entities for U.S. federal income tax purposes. A Non-U.S. Holder eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

This United States withholding tax generally will not apply to dividends that are effectively connected with the conduct of a trade or business by the Non-U.S. Holder within the United States, and, if a treaty applies, attributable to a United States permanent establishment or fixed base of the Non-U.S. Holder. Dividends effectively connected with the conduct of a trade or business, as well as those attributable to a United States permanent establishment or fixed base of the Non-U.S. Holder under an applicable treaty, are subject to United States federal income tax generally in the same manner as if the Non-U.S. Holder were a U.S. person, as defined under the Code. Certain IRS certification and disclosure requirements must be complied with in order for effectively connected income to be exempt from withholding. Any such effectively connected dividends received by a Non-U.S. Holder that is a foreign corporation may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

A Non-U.S. Holder generally will not be subject to United States federal income tax (or any withholding thereof) with respect to gain recognized on a sale or other disposition of common stock unless:

Gain recognized on the sale or other disposition of common stock and effectively connected with a United States trade or business, or attributable to a United States permanent establishment or fixed base of the Non-U.S. Holder under an applicable treaty, is subject to United States federal income tax on a net income basis generally in the same manner as if the Non-U.S. Holder were a U.S. person, as defined under the Code. Any such effectively connected gain from the sale or disposition of common stock received by a Non-U.S. Holder that is a foreign corporation may, under certain circumstances, also be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

We believe that we currently are not a USRPHC. In addition, based on these financial statements and current expectations regarding the value and nature of our assets and other relevant data, we do not anticipate becoming a USRPHC.

If we become a USRPHC, a Non-U.S. Holder nevertheless will not be subject to United States federal income tax if our common stock is regularly traded on an established securities market, within the meaning of applicable Treasury regulations, and the Non-U.S. Holder holds no more than 5% of our outstanding common stock, directly or indirectly, during the five-year testing period identified in the second bullet point immediately above. We expect that our common stock will be quoted on the NASDAQ National Market and may be regularly traded on an established securities market in the United States so long as it is so quoted.

We must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the Non-U.S. Holder resides under the provisions of an applicable income tax treaty.

The United States imposes a backup withholding tax on dividends and certain other types of payments to United States persons (currently at a rate of 28%) of the gross amount. Dividends paid to a Non-U.S. Holder will not be subject to backup withholding if proper certification of foreign status (usually on an IRS Form W-8BEN) is provided, and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person, or the holder is a corporation or one of several types of entities and organizations that qualify for exemption, also referred to as an exempt recipient.

Information reporting and backup withholding generally are not required with respect to the amount of any proceeds from the sale or other disposition of shares of common stock by a Non-U.S. Holder outside the United States through a foreign office of a foreign broker that does not have certain specified connections to the United States. However, if a Non-U.S. Holder sells or otherwise disposes of shares of common stock through the U.S. office of a United States or foreign broker, the broker will be required to report the amount of proceeds paid to such holder to the IRS and to apply the backup withholding tax (currently at a rate of 28%) to the amount of such proceeds unless appropriate certification (usually on an IRS Form W-8BEN) is provided to the broker of the holder’s status as either an exempt recipient or a

non-U.S. person, and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person. Information reporting also applies if a Non-U.S. Holder sells or otherwise disposes of its shares of common stock through the foreign office of a broker deriving more than a specified percentage of its income from United States sources or having certain other connections to the United States and the foreign broker does not have certain documentary evidence in its files of the Non-U.S. Holder’s foreign status.

Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.

We are offering the shares of our Class A Common Stock described in this prospectus through the underwriters named below. UBS Securities LLC is the representative of the underwriters. UBS Securities LLC is the sole book-running manager of this offering. We have entered into an underwriting agreement with the representative. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase the number of shares of Class A Common Stock listed next to its name in the following table.

The underwriting agreement provides that the underwriters must buy all of the shares if they buy any of them. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

Our Class A Common Stock is offered subject to a number of conditions, including:

We have been advised by the representative that the underwriters intend to make a market in our Class A Common Stock, but that they are not obligated to do so and may discontinue making a market at any time without notice.

In connection with this offering, certain of the underwriters or securities dealers may distribute prospectuses electronically.

We have granted to the underwriters an option to purchase up to an aggregate of additional shares of our Class A Common Stock. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with this offering. The underwriters have 30 days from the date of this prospectus to exercise this option. If the underwriters exercise this option, they will each purchase additional shares in proportion to the amounts specified in the table above.

Shares sold by the underwriters to the public will initially be offered at the initial offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representative may change the offering price and the other selling terms. Sales of shares made outside of the United States may be made by affiliates of the underwriters. Upon execution of the underwriting agreement, the underwriters will be obligated to purchase the shares at the prices and upon

the terms stated therein, and, as a result, will thereafter bear any risk associated with changing the offering price to the public or other selling terms. The representative of the underwriters has informed us that it does not expect sales to accounts over which such representative exercises discretionary authority to exceed 5% of the shares of Class A Common Stock to be offered.

The following table shows the per share and total underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional shares.

We estimate that the total expenses of this offering payable by us, not including the underwriting discounts and commissions, will be approximately $ million.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act. If we are unable to provide this indemnification, we have agreed to contribute to payments the underwriters may be required to make in respect of those liabilities.

We, our executive officers and directors and all of our existing shareholders have entered into lock-up agreements with the underwriters. Under these agreements, we and each of these persons may not, without the prior written approval of UBS Securities LLC, offer, sell, contract or agree to sell, hypothecate, hedge, pledge, grant any option to purchase or otherwise dispose of, directly or indirectly, any of our common stock or securities convertible into or exchangeable for our common stock, or warrants or other rights to purchase our common stock. These restrictions will be in effect for a period of 180 days after the date of this prospectus. At any time and without public notice, UBS Securities LLC may in its sole discretion, release all or some of the securities from these lock-up agreements. The lock-up period may be extended for up to 37 additional days under certain circumstances where we release, or pre-announce a release of, our earnings or material news or a material event shortly before or after termination of the 180-day period.

We have applied to have our Class A Common Stock approved for quotation on The NASDAQ National Market under the trading symbol “WINR.”

In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our Class A Common Stock including:

Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our Class A Common Stock while this offering is in progress. These transactions may also include making short sales of our Class A Common Stock, which involves the sale by the underwriters of a greater number of shares of Class A Common Stock than they are required to purchase in this offering and purchasing Class A Common Stock in the open market to cover positions created by short sales. Short sales may be “covered short sales,” which are short positions in an amount not greater than the underwriters’ over-allotment option referred to above, or may be “naked short sales,” which are short positions in excess of that amount.

The underwriters may close out any covered short position by either exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option.

Naked short sales are in excess of the over-allotment option. The underwriters must close out any naked short position, by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A Common Stock in the open market that could adversely affect investors who purchased in this offering.

The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representative has repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions.

As a result of these activities, the price of our Class A Common Stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. The underwriters may carry out these transactions on the NASDAQ National Market, in the over-the-counter market or otherwise.

Prior to this offering, there has been no public market for our Class A Common Stock. The initial public offering price of our Class A Common Stock will be determined by negotiation by us and the representative of the underwriters. The principal factors to be considered in determining the initial public offering price include:

At our request, certain of the underwriters have reserved up to 5% of the Class A Common Stock being offered by this prospectus for sale to our directors, officers, employees, strategic partners and other individuals associated with us and members of their families at the initial offering price. The sales will be made by UBS Securities LLC through a directed share program. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. These persons must commit to purchase no later than the close of business on the day following the date of this prospectus. Any employees, strategic partners or other persons purchasing such reserved shares will be prohibited from disposing of or hedging such shares for a period of at least 180 days after the date of this prospectus.

Certain of the underwriters and their affiliates have in the past and may in the future provide from time to time certain commercial banking, financial advisory, investment banking and other services for us in the ordinary course of their business for which they will be entitled to receive separate fees. UBS Securities LLC arranged the private placement of the Convertible Notes in December 2004, for which it received customary fees. In connection with the restructuring of debt we owed to Yenura and Stonehouse, a consultant currently affiliated with UBS received cash compensation and warrants exercisable for shares of our Class A Common Stock in exchange for providing financial advisory services to us (See Note K to our consolidated financial statements contained elsewhere in this prospectus). At the time we entered into our arrangement with this consultant, the consultant was not a UBS affiliate and this arrangement is no longer in place.

The validity of the Class A Common Stock offered hereby will be passed upon for us by Coudert Brothers LLP, New York, New York. Certain legal matters in connection with the offering will be passed upon for the underwriters by Milbank, Tweed, Hadley & McCloy LLP, New York, New York.

The consolidated financial statements of WorldSpace, Inc. as of December 31, 2004 and 2003 and for each of the three years ended December 31, 2004, 2003 and 2002 included in this prospectus have been audited by Grant Thornton LLP, independent registered public accountants, as set forth in its report thereon appearing elsewhere herein, and which have been included herein in reliance on said report of such firm given on its authority as experts in auditing and accounting.

We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act of 1933, as amended, with respect to the Class A Common Stock we are offering. This prospectus, which constitutes part of the registration statement filed with the Commission, does not include all of the information included in the registration statement and the exhibits and schedules thereto. For further information with respect to us and our common stock, you should refer to the registration statement and to the exhibits and schedules thereto.

You may inspect a copy of the registration statement and the exhibits and schedules to the registration statement without charge at the public reference room of the Commission, which is located at Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549. You may obtain copies of all or any part of the registration statement from the public reference room, upon the payment of the prescribed fees. You may obtain information on the operation of the public reference room by calling the Commission at 1-800-SEC-0330. The Commission maintains a web site at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants like us that file electronically with the Commission. You can inspect the registration statement on this website.

Upon completion of this offering, we will be subject to the information requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, we will file annual, quarterly and current reports, proxy statements and other information with the Commission.

We have audited the accompanying consolidated balance sheets of WorldSpace, Inc. (the Company), as of December 31, 2004 and 2003, and the related consolidated statements of operations, changes in shareholders’ deficit and comprehensive loss, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of WorldSpace, Inc., as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is presented for purposes of additional analysis and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Consolidated Statements of Changes in Shareholders’ Deficit and Comprehensive Loss

WorldSpace, Inc. (WSI) was organized on July 29, 1990, and incorporated in the State of Maryland on November 5, 1990. WorldSpace, Inc. and Subsidiaries (the Company) is engaged in the design, development, construction, deployment and financing of a satellite-based radio and data broadcasting service, which serve areas of the world where traditional broadcast media or internet services are limited. The Company, which operates in 10 countries, has one satellite in orbit over Africa (accepted for service in 1999) and another over Asia (accepted for service in 2000). The Company has a completed third satellite currently in storage at EADS Astrium’s facilities in France. This satellite, which can be used to replace either of the Company’s two operational satellites, may also be modified and launched to provide DARS in Western Europe.

During March 2004, the Company began generating sales in India related to its satellite-based radio and data broadcasting service and exited the development stage, as defined by Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises.

In December 2004, WorldSpace International Network, Inc. (WIN), a wholly owned subsidiary of the Company, was merged into WSI. Immediately following the merger, WSI was merged into a newly created company of the same name incorporated in the State of Delaware.

Adequate liquidity and capital are critical to the Company’s ability to continue as a going concern. As shown in the accompanying financial statements, the Company incurred a substantial net loss of $577 million for fiscal year 2004 and has an accumulated deficit as of December 31, 2004 of $2,113 million. The Company’s continued existence is dependent upon the Company’s ability to successfully introduce and market its satellite-based radio and data broadcasting services. In addition the Company may need to undertake additional financing activities. In a series of related transactions occurring on December 31, 2004, the Company converted approximately $256 million in long-term debt and accrued interest to equity. The Company also raised $155 million in exchange for the issuance of convertible promissory notes and restructured $1,814 million in debt, net of debt discount and deferred financing costs. These transactions are described further in Note C. The cash on hand at December 31, 2004 was $154 million and consisted mainly of proceeds from the issuance of the convertible promissory notes. These proceeds, net of transaction expenses, will be used to fund marketing, subscriber management, content development, capital expenditures (including the roll-out of terrestrial repeater networks), and working capital needs to support the growth of its subscriber base in India, increase sales to agencies of the United States Government, and to provide developmental funding in additional markets. The Company believes that its existing capital resources will be adequate to fund projected operations through at least December 31, 2005 based on projections of subscriber growth, other revenue and planned spending levels. The Company believes its cash and cash equivalents at December 31, 2004 will provide adequate liquidity and capital to fund its operations over the next 12 months in accordance with its business plan. The Company is subject to certain business risks associated with operating a satellite-based broadcasting company including, but not limited to, in-orbit failures, regulatory compliance, and additional challenges such as developing successful satellite receiver and subscription sales programs adequate to fund operations, developing program content acceptable to and desired by its target audiences and assuring the availability of appropriate levels of satellite radio receivers. There can be no assurances as to when, or if, the Company will be successful in meeting these challenges, some of which are not under its control.

The Company is currently in negotiations with its insurance carrier to obtain a new in-orbit policy on the AfriStar satellite. The absence of insurance coverage on the AfriStar satellite represents a potential loss to the Company. Should a failure occur involving this satellite, the future financial condition and operations of the Company could be adversely affected. In March 2005, the Company obtained a new insurance policy on the AsiaStar satellite with no lapse in coverage.

The accompanying consolidated financial statements include the accounts of WorldSpace, Inc. and its majority and wholly-owned controlled subsidiaries. The equity method of accounting is used to account for investments in enterprises over which the Company has significant influence, but of which it has less than 50 percent ownership. All significant intercompany transactions and balances have been eliminated in consolidation.

The preparation of consolidated financial statements which conform to accounting principles generally accepted in the United States of America requires that management make estimates and assumptions relating to the amounts of assets and liabilities reported and the contingent assets and liabilities disclosed as of the date of the financial statements. Estimates and assumptions must also be made concerning the amounts of revenues and expenses reported in the financial statements. Actual results may differ from management’s estimates.

Revenue from the Company’s principal activities, subscription audio services and capacity leasing, is recognized as the services are provided. Revenue from subscribers, which is generally billed in advance, consists of fixed charges for service, which are recognized as the service is provided, and non-refundable activation fees that are recognized ratably over the expected 40-month life of the customer relationship, which was estimated based upon Management’s judgement. Direct activation costs are expensed as incurred. Advertising revenue is recognized in the period in which the spot announcement is broadcast. Revenue from the sale of satellite radio receivers is recognized when the product is shipped.

The Company provides for an allowance for doubtful accounts equal to the estimated uncollectible receivables. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. The Company has recorded an allowance for doubtful accounts of $2,530,000 and $1,617,000 at December 31, 2004 and 2003, respectively.

Assets and liabilities were translated into U.S. dollars at the exchange rates in effect as of the respective balance sheet dates. Revenues and expenses were translated into U.S. dollars at the weighted-average exchange rates in effect during the periods reported. Translation adjustments have been reported as a component of accumulated other comprehensive income or loss in the accompanying consolidated statements of changes in shareholders’ deficit and comprehensive loss.

In accordance with the requirements of SFAS No. 130, Reporting Comprehensive Income, the Company reports the net effects of foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities as comprehensive income or loss, and reflects the accumulated balance as a component of shareholders’ deficit in the accompanying consolidated financial statements.

The financial instruments included in the accompanying consolidated balance sheets consist of cash and cash equivalents, short-term investments, restricted cash and investments, accounts receivable, accounts payable, short- and long-term debt, dividends payable, and royalty obligation. The recorded values of cash and cash equivalents, short-term investments, restricted cash and investments, accounts receivable, accounts payable, dividends payable, and short-term debt approximate their fair values based on their short-term nature. Management is unable to estimate the fair value of convertible notes and royalty obligation due to the unique features of these arrangements (see Note C).

All liquid investments, defined as having initial maturities of three months or less, have been classified as cash equivalents. Cash equivalents, as of December 31, 2004 and 2003, consisted primarily of demand deposits. Cash balances in individual banks exceed insurable amounts.

Cash and investments that are deposited with a lessor or committed to support letters-of-credit issued pursuant to lease agreements have been classified as restricted cash and investments in the accompanying consolidated balance sheets.

Inventories are stated at the lower of cost or market value using the first in, first out (FIFO) method of accounting. Inventories primarily consist of satellite radio receivers manufactured to the Company’s specifications by independent third parties. Provisions in the amount of $322,000, $4,796,000 and $1,879,000 have been recognized in 2004, 2003 and 2002, respectively, to reduce excess or obsolete inventories to their estimated net realizable value.

Property and equipment is stated at cost, net of accumulated depreciation and amortization, which is computed using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are three to five years for computers and equipment, and five to seven years for furniture and fixtures. Estimated useful lives for leasehold improvements are the shorter of the estimated useful lives or the remaining lease terms.

Expenditures relating to the development and construction of satellites and related systems consist of satellite design, manufacture, launch, launch insurance, and ground system design and construction. Interest costs related to financing satellites and related systems under construction are capitalized and included in the costs of construction. There was no interest capitalized in 2004, 2003 and 2002.

After a satellite has been successfully launched, tested and accepted, the satellite and related systems are placed in service, and the related costs are depreciated over an estimated useful life of 10 years. Certain software related to tracking advertising and subscription revenue is capitalized and amortized over periods of three to five years. The AfriStar satellite was launched in October 1998 and accepted in April 1999. The AsiaStar satellite was launched in March 2000 and accepted in July 2000. A third satellite was delivered on the ground and accepted in January 2001. This third satellite, which can be used to replace either of the Company’s two operational satellites, may also be modified and launched to provide DARS in Western Europe. A fourth satellite, for which the long lead parts have been procured and partially assembled, is currently maintained in storage at the manufacturer’s facility in Toulouse, France.

As required by Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, the Company reviews the carrying values of its long-lived assets for impairment whenever current events or changes in circumstances indicate that the carrying values of its long-lived assets may not be recoverable, requiring that a loss be recognized. The Company wrote down assets in the amount of approximately $3.6 million in 2004 related to the impairment of certain ground system assets which were determined to be impaired. The write-down is included in depreciation expense in the accompanying consolidated statement of operations as of December 31, 2004. In the first quarter of 2003, the Company filed a notice of loss relating to a progressive degradation problem with the solar array output power of its AfriStar satellite which Management withdrew in April 2005. The amount of the claim was $6,527,800. The aggregate sum insured at that time in the event of the total or constructive total loss of the satellite was $200 million. Based upon discussions with the insurance carriers and further evaluation of this matter, management determined it was not in the best interest of the Company to pursue recovery further and withdrew this claim during the first quarter of 2005. The Company has determined that the satellite will continue to function through the end of its estimated useful life; therefore, no adjustment has been made to its useful life. The Company’s management will continue to monitor this situation carefully with the aid of the satellite manufacturer, and may adjust the estimated useful life of this satellite based on future information. The Company has not recorded any impairment charge due to its forecasted cash flows, which are sufficient to recover the system assets. However, should the Company reduce or fail to meet its forecasted cash flows, or reduce the estimated useful lives of the satellites, it may be required to record an impairment, which may be substantial, at that time. Management believes its remaining investment in long lived assets is fully recoverable and no further adjustment for impairment is warranted. However, due to events and circumstances not necessarily under the Company’s control, such as changes in technology,

regulatory actions, the availability of financing sufficient to enable the execution of management’s business plan, and the competitive environment, it is possible that material reductions in the carrying value of long-lived assets may be required in the future.

It is the Company’s policy to allocate the total cost of leasing space, including rent abatements and fixed or scheduled increases in rent, over the life of the lease on a straight-line basis. Differences between rent expense recognized and rent paid are carried in the balance sheet as prepaid or deferred rent.

Costs incurred in raising debt are deferred and amortized as interest expense over the term of the related debt. Unamortized deferred financing costs associated with the restructured debt were reclassified as a reduction of the carrying value of the restructured debt as described in Note C. Amortization of deferred financing costs was $4.0 million for each of the years ended December 31, 2004, 2003 and 2002, respectively. Accumulated amortization of deferred financing costs was $0 and $31.7 million at December 31, 2004 and 2003, respectively. The Company recorded $14.7 million in deferred financing costs associated with the convertible note financing on the accompanying balance sheet at December 31, 2004.

SFAS No. 123, Accounting for Stock-based Compensation, encourages, but does not require, companies to record stock-based employee compensation plans at their fair value. The Company has elected to account for stock-based compensation using the intrinsic-value method as prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for employee stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of grant over the exercise price an employee must pay to acquire the stock. The Company accounts for equity instruments issued to nonemployees in accordance with Emerging Issues Task Force 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with, Selling, Goods, or Services. Accordingly, the estimated fair value of the equity instrument is recorded on the earlier of the performance commitment date or the date on which services required are completed.

The following table illustrates the effect on net loss if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

Research and development costs and costs associated with the Company’s third-party product development agreements are charged to expense as incurred.

Advertising costs are charged to expense as incurred, and are included in general and administrative expenses. The Company incurred advertising expense of $1.6 million, $363,000 and $2.2 million for the years ending December 31, 2004, 2003 and 2002, respectively.

The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities, the financial reporting amounts at each year-end, and operating loss carryforwards, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

SFAS No. 142, Goodwill and Other Intangible Assets, which became effective beginning in 2002, provides that goodwill, as well as identifiable intangible assets with indefinite lives, should not be amortized, but instead be reviewed annually (or more frequently if impairment indicators arise) for impairment. Intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. Accordingly, with the adoption of SFAS No. 142 in 2002, the Company discontinued the amortization of goodwill and indefinite-lived intangibles. As a result of an impairment assessment performed by the Company, an impairment loss of $44.3 million was recorded during 2002, as a change in accounting principle.

The Company calculates basic and diluted loss per share in accordance with SFAS 128, “Earnings Per Share.” Basic loss per share is computed by dividing net loss by the weighted-average number of outstanding shares of common stock. Diluted loss per share is computed by dividing net loss by the weighted-average number of shares adjusted for the potential dilution that could occur if stock options, warrants and other convertible securities were exercised or converted into common stock.

For the years ended December 31, 2004, 2003 and 2002, options, warrants and other convertible securities to purchase 47.3, 25.6 and 24.6 million shares of common stock, respectively, were outstanding, but not included in the computation of diluted earnings per share, because the effect would have been anti-dilutive.

In January 2003, and as revised in December 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities. This interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities. Prior to this interpretation, two enterprises had been generally included in consolidated financial statements, because one enterprise controls the other through voting interests. This interpretation defines the concept of variable interests, and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risks among the parties involved. The Company’s adoption of this interpretation in fiscal year 2004 did not have an impact on its financial position or results of operations.

In December 2004, the FASB issued revised SFAS No. 123R, Share-Based Payment. SFAS No. 123R sets accounting requirements for share-based compensation to employees and requires companies to

recognize, in the income statement, the grant-date fair value of stock options and other equity-based compensation. SFAS No. 123R is effective in interim or annual periods beginning after June 15, 2005. The Company will be required to adopt SFAS No. 123R in its third quarter of fiscal year 2005. The Company is currently evaluating the impact of the adoption of SFAS 123R.

Also in December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets—An Amendment of APB Opinion No. 29. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. SFAS No. 153 is to be applied prospectively for non-monetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company’s adoption of SFAS No. 153 is not expected to have a material impact on its financial position or results of operations.

In 2004, 2003 and 2002, the Company had revenue from the U.S. government of approximately $1.7 million, $5.5 million and $819,000, representing 19.8 percent, 42.1 percent and 8.5 percent of total revenue, respectively.

Certain prior-year amounts have been reclassified to conform to the current-year consolidated financial statement presentation.

In January 1999, the Company obtained a loan of $10 million for working capital purposes. The Company repaid $3 million of that loan in March 2000. The remaining balance of $7 million was payable immediately if the Company received proceeds in excess of $100 million from one or more financing transactions entered into after February 28, 2000. During 2004, as noted below, this loan was purchased by Yenura Pte. Ltd. (Yenura), following which Yenura released the Company for this and other debts in exchange for Class B Common Stock.

On September 30, 2003, the Company concluded definitive agreements (the Restructuring Agreements) with a lender to restructure $1,553 million in notes payable and advances. The executed Restructuring Agreements were placed in escrow until the Company met certain conditions, the principal condition

being the raising of $50 million from one or more parties unrelated to the Company’s equity and debt holders within one year of the signing of the Restructuring agreements. On September 28, 2004 the Restructuring Agreements were amended to provide the Company until March 31, 2005 to meet the conditions precedent for the restructuring. On December 31, 2004, the Restructuring Agreements were released from escrow and became effective pursuant to the Company raising net $142 million ($155 million, less $13 million in issuance costs) by issuing $155 million of 5 percent convertible promissory notes to several investors.

The convertible promissory notes mature on December 31, 2014, and are convertible into reserved Class A shares of the Company’s common stock at the lesser of $8.45 per share or 90 percent of the price of an initial public offering (IPO) common share, subject to certain adjustments as defined in the promissory note agreements. In accordance with Emerging Issues Task Force 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” the Company may record additional interest expense upon conversion of the debt. Interest payments are due quarterly beginning on March 31, 2005 or may be added to the principal balance outstanding, at the option of the Company. The promissory note agreements contain provisions that will cause the interest rate to increase if the Company does not file for or complete an IPO by specified dates. If the registration statement for an IPO is not filed with the Securities and Exchange Commission (SEC) within 6 months of the promissory notes issuance date, the interest rate will be increased by 1 percent. The interest rate will increase an additional 1 percent if the IPO is not completed at the end of one year and an additional 3 percent if still not completed in two years. Certain other events could cause the interest rate to increase further as defined in the agreements. The related registration rights agreement also provides that beginning 180 days after an IPO of the Company’s common stock, the investors have the right to demand that the Company file up to three registration statements with the Securities and Exchange Commission (SEC) at any time during the period defined in the related registration rights agreement, in order to sell some or all of the Class A Common Stock received upon any conversion of the convertible promissory notes. If a registration statement is not filed by the Company with the SEC by the applicable deadline, a penalty of 1 percent of the aggregate purchase price of the promissory notes will be imposed. If the filing still has not been made within 30 days of the applicable deadline, an additional penalty of 2 percent of the aggregate purchase price of the promissory notes will be imposed then and on every 30^th day thereafter. Three years following the effective date of the issuance of the convertible promissory notes, the investors may require the Company to redeem the unpaid principal and accrued interest.

Under the Restructuring Agreements, the ongoing obligations of the Company to the lender were set forth in a separate Royalty Arrangement (Royalty Agreement), under which the Company is required to pay the lender 10 percent of earnings before interest, taxes, depreciation, and amortization, if any, for each year through 2015 in exchange for the lender releasing all claims. The Company is subject to certain covenants regarding the disposition of assets, liquidation of the Company, reporting, and distributions or payments to certain of the current shareholders. The Royalty Agreement also requires the Company to have a segregated reserve, to be funded each quarter in any year in which payment under the Royalty Agreement is projected, at the rate of 25 percent of the estimated annual payment. In addition, 80 percent of the annual payment is required to be made within 60 days after year-end, and the remaining portion within 180 days following year-end. Even though management is satisfied that the debt may not be reinstated, in accordance with SFAS No. 15, Extinguishment of Debt, the debt restructuring is not considered an extinguishment of debt because the future payments under the agreement are indeterminate. Accordingly, the carrying value of the debt and accrued interest of $1,814 million has been reclassified as a contingent royalty obligation on the accompanying balance sheet at December 31, 2004. The obligation will be reduced by the future payments made under the Royalty Agreement and will remain on the Company’s balance sheet until 2015, the last year payment under the Royalty Agreement is required.

As of December 31, 2003, the Company had issued convertible promissory notes to Yenura, a related entity controlled by the Chief Executive Officer of the Company, in exchange for $94 million in working capital advances dating back to 2002. During 2004, Yenura made additional advances of $25 million and received additional convertible promissory notes.

In connection with the convertible debt financing and restructuring, the Company converted $256 million in debt, consisting of $119 million of convertible promissory notes issued to Yenura, $7 million of short-term notes and $66 million of convertible promissory notes acquired by Yenura, and accrued interest of $64 million, to 27,882,308 shares of the Company’s Class B Common Stock. The Company determined the number of shares to issue based on the conversion price stated in the promissory notes or based upon a negotiated conversion rate.

On October 24, 2002, WorldSpace India Private Limited, a wholly owned subsidiary of the Company, entered into a $1,000,000 line-of-credit agreement in order to purchase inventory. The Company and four directors of WorldSpace India Private Limited have guaranteed the debt. Substantially the entire inventory serves as collateral under the agreement. As of December 31, 2004 and 2003, $229,000 and $0, respectively, was outstanding on the line-of-credit and the amount is included in accounts payable in the accompanying balance sheet at December 31, 2004.

During December 2004, upon incorporation in Delaware the Company’s Board of Directors authorized the issuance of Class A and Class B Common Stock. The Company converted 4,780,000 shares of common stock held, directly or indirectly, by the Company’s CEO to Class B Common Stock and the remaining 4,475,789 shares of outstanding common stock converted to Class A Common Stock.

On December 31, 2004, Yenura, which is controlled by Mr. Samara, was issued 27,882,308 shares of Class B Common Stock in exchange for the assumption and cancellation of debt as described in Note C.

As provided in the Company’s certificate of incorporation, holders of shares of Class A and Class B Common Stock are entitled to vote as one class on all corporate matters with the exception of amendments to the Certificate of Incorporation that relate solely to the terms of one or more series of outstanding preferred stock. As of December 31, 2004, no preferred stock was issued or outstanding.

The authorized, issued and outstanding shares of Class B Common Stock automatically convert into shares of Class A Common Stock upon the earlier of (i) July 1, 2016 or (ii) the date the final royalty payment is made under the terms of the Royalty Agreement, as further described in Note C.

Shareholders of Class A and Class B stock are entitled to receive ratably any dividends, as and when declared by the Board of Directors, subject to any preferential right of preferred shareholders and provided, however, that the Class B Shareholders are only entitled to dividends if annual payments required under the Company’s Royalty Agreement described in Note C have been paid in full.

In the event of any distribution of assets upon a liquidation, dissolution or winding up of the Company, Class A and Class B shareholders, subject to rights granted to preferred shareholders, are entitled to receive equally and ratably any assets available for distribution after the payment of all debts and other

liabilities of the Company, provided, however, that Class B Shareholders may be required, at the lender’s option, to pay a scale-down fee under the Royalty Agreement equal to 60% of the liquidation distribution. The initial scale-down fee percentage would be applicable until the first $50 million in payments is made by the Company in royalty payments. Each additional $50 million in royalty payments made by the Company would reduce the scale-down fee percentage by 10%.

The Company had a short-term note payable of $125,000, and a note receivable of $1.6 million, with the Chairman and Chief Executive Officer (CEO) as of December 31, 2003. In December 2004, the Chairman and CEO repaid in its entirety such $1.6 million indebtedness to the Company and, in January 2005, the Company repaid in its entirety such $125,000 note payable to the Chairman and CEO.

In April 2003, the Company made a loan of $200,000 to an equity method investee. This loan was written off in 2003.

The Company leases office space under various non-cancelable operating leases that expire through 2012. The minimum annual rental commitments under non-cancelable leases as of December 31, 2004, are as follows (in thousands):

Minimum payments exclude minimum sublease rental income of $8.2 million due in the future under non-cancelable subleases, which end in September 2008. Rent expense was approximately $7.9 million, $7.0 million, and $9.0 million for 2004, 2003 and 2002, respectively. As security for two of its lease commitments, the Company issued letters-of-credit in the amount of $3.8 million to the lessors. In 2002, these letters were converted to cash deposits held by the lessor. This cash is held in interest-bearing accounts and has been included in restricted cash and investments in the accompanying consolidated balance sheets.

In November 11, 2004, the Company entered into an amendment to the Washington D.C. Headquarters office lease under which the Company may elect, at its option, to vacate the premises during the first six months of 2005. The Company also has the option to extend for an additional 60 days its entire lease with the exception of space that has been subleased by the Company to a third-party. Alternatively, the Company has an option to enter into a new lease for a term of up to three years covering its currently occupied premises other than the first floor, may reduce the space under lease to the area located on the 1^st floor of the building. The latter option is contingent upon the successful closing of the sale of the building to a new owner. The Company is currently considering its options and is actively pursuing an alternative location for its Headquarters facility. The Company agreed to forfeit a $1.9 million payment of its security deposit in connection with the lease amendment. This is recorded as selling, general and administration expense in 2004.

The Company is subject to various claims and assessments. In the opinion of management, these matters will not have a material adverse impact on the Company’s financial position or results of operations. In evaluating the exposure associated with various tax filing positions, the Company accrues charges for probable exposures. Based on annual evaluations of tax positions, the Company believes it has appropriately accrued for probable exposures. To the extent the Company were to prevail in matters for which accruals have been established or be required to pay amounts in excess of reserves, the Company’s effective tax rate in a given financial statement period may be materially impacted.

WorldSpace has entered into a gifting agreement with First Voice International, a nonprofit Washington, D.C. corporation recognized under the U.S. tax laws as a charitable corporation (First Voice). Under this agreement, the Company gifted to First Voice five percent of the capacity for the AfriStar and AsiaStar satellites for social welfare and human development use. The gifting was for the remaining life of the satellites, subject to five year reviews by WorldSpace to ensure First Voice’s performance in making social welfare contributions in the coverage area of the satellites. Additionally, the Company agreed to provide uplink service to the satellites on a gifted basis for at least the first two years of the gifting agreement’s term. The Company values the services provided during 2004, 2003 and 2002 at approximately $2.5 million, $2.6 million and $2.6 million, respectively, which is not recorded in the Company’s financial statements. The Company’s Chairman and CEO is also the Chairman of First Voice.

The Company is committed to purchasing 726,445 satellite radio receiver chipsets for approximately $18.3 million as of December 31, 2004. The chipsets have not been purchased as of March 31, 2005. The Company has recorded a liability, equal to the excess of the aggregate purchase price over the expected sales price, of $13.3 million and $13.1 million at December 31, 2004 and 2003, respectively, as accrued purchase commitment on the accompanying consolidated balance sheets.

On January 21, 1995, the Company entered into an in-orbit delivery contract (the IOD Contract) with Alcatel Espace (Alcatel), under which Alcatel was to deliver three in-orbit satellites, one ground spare satellite, ground stations, mission control stations, and related documentation and training. Alcatel was also obligated to provide launch services and launch insurance for the three in-orbit satellites. The risk of loss of each satellite transfers to the Company after the successful first eclipse following launch. For launched satellites title to each satellite passes to the Company after the satellite has been placed in orbit and the Company has completed an in-orbit acceptance review. In July 1999, the Company decided to delay the construction of the ground spare satellite. As a result, the Company has incurred, and will continue to incur, costs related to storage and resuming construction (if that decision is made). In January 2001, the Company decided to accept the third satellite constructed by Alcatel under the IOD Contract on the ground rather than in orbit. The third satellite is also now in storage and title passed to the Company during the first quarter of 2005. During 2004, 2003 and 2002, $1.3 million, $1.4 million and $1.7 million, respectively, were charged to expenses relating to storage for these two satellites.

Under the IOD Contract, the Company was allowed to defer certain payments until construction was completed by Alcatel and approved by the Company. Interest accrued on deferred payments at the three-month London Interbank Offered Rate (LIBOR). As of December 31, 2004, the Company had incurred IOD Contract, storage and interest costs of $657.7 million under the IOD Contract, of which $625.2 million had been paid and $32.4 million had been accrued as a liability. The total value of the IOD Contract with Alcatel is $764.8 million.

On June 26, 1996, the Company entered into the On-Station Operation Services contract (the OSOS Contract) with Alcatel, under which Alcatel would provide on-station operations for three in-orbit satellites through the in-orbit acceptance review after the launch, document various operating procedures for the first in-orbit satellite (AfriStar), and supervise operations of each satellite during the first eclipse period after launch. As of December 31, 2004, the Company had incurred costs of $10.3 million under the OSOS Contract, of which $9.4 million had been paid and $900,000 had been accrued as a liability.

In addition to the IOD and OSOS Contracts, on November 9, 1995, the Company entered into the End-to-End (EtE) contract with Alcatel. Under this contract, Alcatel performed the engineering and validation tests, and procured broadcast stations, broadcast control systems and radio receiver prototypes to validate and test the entire system. The value of this contract is $34.1 million, of which $31.6 million has been paid and $2.5 million has been accrued. This contract was expensed as research and development cost as incurred.

On January 7, 2000, Alcatel agreed to defer certain payments from the Company, related to the IOD Contract, the OSOS Contract, the EtE contract and cost for the satellite construction delay. Under this arrangement and subsequent understandings, the Company was required to pay interest on the outstanding deferred payment balance at the rate of LIBOR plus 3 percent. As of December 31, 2004, the Company has paid Alcatel a total of $666.0 million and has accrued approximately $40.1 million, consisting of $29.0 million of deferred payments and other invoices and $11.1 million of interest. The Company continued to accrue interest on the remaining deferred payment until a settlement agreement was entered into with Alcatel subsequent to December 31, 2004. In February 2005, the Company entered into a Memorandum of Agreement on Settlement with Alcatel to reduce the total amount owed as further discussed in Note O. This Agreement also terminated the OSOS Contract, the IOD Contract and the EtE Contract.

In January 2001, the Company purchased an option to purchase all shares of a receiver manufacturer for a specified price. As consideration for the option, the Company paid approximately $1.1 million. The Company could have exercised the option during the option period, which ended in January 2002. In 2002, the Company did not exercise the option, and wrote off the $1.1 million option.

The Company maintains a defined contribution plan (Plan) that covers all employees provided that certain service requirements are met. Participants may elect to contribute a specified portion of their salary to the Plan on a tax deferred basis. The Company makes discretionary matching contributions to the Plan up to 3% of the employee’s annual salary. For the years ended December 31, 2004, 2003 and 2002, the Company contributed to the Plan $0, $0 and $54,000, respectively.

The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or income tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and the tax basis of assets and liabilities, using enacted tax rates for the year in which the differences are expected to reverse.

The significant components of the Company’s income tax provision for 2004, 2003 and 2002 are as follows (in thousands):

The reconciliation between the Company’s statutory tax rate and the effective tax rates for 2004, 2003 and 2002 is as follows:

As of December 31, 2004 and 2003, the significant components of deferred taxes are as follows (in thousands):

As of December 31, 2004, the Company had foreign net operating losses of approximately $77.9 million, which expire at varying dates through 2025. Management has established a full valuation allowance against the benefit of these losses as a result of uncertainty surrounding their ultimate utilization. The change in the valuation allowance from December 31, 2003 to December 31, 2004 was a decrease of $372.8 million and related primarily to the reduction of tax attributes under Internal Revenue Code Section 108.

As discussed in Note C, during 2004 the Company entered into Restructuring Agreements with respect to certain notes payable. Under the Restructuring Agreements, the ongoing obligations of the Company to the investor were set forth in a separate Royalty Arrangement. For US tax purposes, this transaction caused the Company to realize cancellation of indebtedness (“COD”) income. Under US tax law, a Company that realized COD income is entitled to exclude such income from taxable income to the extent of the Company’s insolvency. Under Internal Revenue Code Section 108, a Company that excludes COD income is required to reduce certain tax attributes in an amount equal to the COD income excluded from taxable income. Accordingly, the Company reduced its US tax attributes by approximately $1,726 million. As a result of such attribute reduction, the US Company’s US net operating loss and capital loss carryforwards at December 31, 2004 were eliminated, and the remaining tax basis in its satellite assets, fixed assets and stock in its foreign subsidiaries were also reduced to zero.

From time to time, WSI has issued options (WSI Options) to its founders, employees, directors, creditors and consultants. WSI Options vest over various periods up to five years and have a maximum life of 10 years from the date of grant, but have been extended in several instances. WIN, prior to the merger with WSI in December 2004, was a wholly owned, consolidated subsidiary of the Company, and had a

separate stock option plan, the WorldSpace 1996 Shares Option Plan, under which options were granted (WIN Options). The exercise price and vesting schedule for options was determined by the Board of Directors, or a committee thereof, which was established to administer the WIN Options. WIN Options vested over periods ranging from one to five years and had a maximum life of 10 years.

Pursuant to the merger, 10,092,900 WIN options were converted into 22,709,025 WSI options at a conversion rate of 1 WIN to 2.25 WSI. In addition, the exercise price for each WIN option was divided by 2.25 to arrive at the converted WSI exercise price. The 2.25 conversion factor was based on the relative fair values of each entity as of the date of merger. All remaining terms of the WIN options were unchanged. Based upon the guidance in APB 25, “Accounting for Stock Issued to Employees” and related interpretations, the modification of the WIN options created a new measurement date. Accordingly, the Company was required to record as stock-based compensation expense the excess of the intrinsic value of the modified options over the intrinsic value of the options when originally issued. This resulted in a charge to stock-based compensation expense of $87 million as of December 31, 2004. A portion of this charge totaling $48 million related to a grant of 5,000,000 WIN options to the CEO in April 2000 to purchase WIN common stock at $9.43 per share. These options converted into 11,250,000 of WSI options upon the merger and the exercise price was reduced to $4.19. In connection with the restructuring of debt, these options became fully vested and exercisable as of December 31, 2004.

Exercise prices for WSI Options outstanding as of December 31, 2004, are as follows:

The Company recorded $3,310,000, $3,528,000 and $3,981,000 of compensation expense in 2004, 2003 and 2002, respectively, relating to issuing options issued below their fair value in 2000.

As part of performing the proforma calculations, the fair values of options granted during 2004 were estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:

The weighted-average grant-date fair value of WIN Options granted during 2004, 2003 and 2002, was $-0-for each year.

The Company issued 300,000 warrants to a consultant during 2003 in exchange for investment banking services to be received. The warrants have an exercise price of $1.00 per share and a contractual period of 10 years. Following the successful completion of the Company’s December 31, 2004 convertible note financing, 250,000 of the warrants vested and became exercisable. The remaining 50,000 warrants will vest and become exercisable in the event of an IPO. The fair value of the 250,000 warrants on December 31, 2004, as determined by the Black-Scholes option pricing model, was $2.1 million and is recorded as deferred financing costs in the accompanying balance sheet at December 31, 2004 as these costs were direct and incremental to the financing.

At various dates from 1994 to 1998, the Company has issued 430,000 warrants to non-employees in consideration for services received. The exercise prices range from $1.66 to $5.00 per share and expire in 2006.

The Company recorded $2.1 million in deferred financing costs in connection with the fair value of warrants issued to a consultant, as described in Note K, and converted $256 million of debt to Class B common shares, as described in Note C.

Excludes deferred financing costs, investments in restricted assets and investments in affiliates and other assets.

On February 25, 2005 the Company entered into a Memorandum of Agreement (Agreement) with Alcatel under which the total amount of deferred payments and accrued interest due of $40 million at December 31, 2004 was reduced to $19 million. Of that amount, $10 million has been paid as of March 31, 2005, $2 million is payable at the earlier of 15 days after the closing of an IPO or on August 31, 2005 and $7 million will be payable through the issuance of shares of the Company’s common stock at the closing of the IPO. If the IPO does not occur by January 31, 2006, the $7 million will be due and payable in cash. The Company may also be subject to additional payments of at least $2 million if certain events occur as defined in the Agreement. The Company will record, in 2005, $12 million of the reduction in deferred payments and accrued interest as a gain on the extinguishment of debt and the remaining $9 million as a decrease in Satellites and related systems under construction.

Inside Back Cover Page Prospectus: contains a collage with individual words, naming, various cities in WorldSpace’s coverage area, types of content offered and aspects of the service. Superimposed over the words are pictures of persons in the coverage area enjoying music.]

The following table sets forth the expenses expected to be incurred by the Registrant in connection with the offering described in this Registration Statement, other than underwriting discounts and commissions. All amounts are estimates, other than the SEC registration fee, the NASD filing fee and the NASDAQ National Market listing fee.

We will pay all of the expenses to be incurred in connection with the issuance and distribution of the securities registered hereby.

Delaware General Corporation Law. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit, or proceeding, provided the person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. A similar standard of care is applicable in the case of actions by or in the right of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such person will have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action was brought determines that, despite the adjudication of liability but in view of all of the circumstances of the case, the person is fairly and reasonably entitled to indemnity for expenses that the Delaware Court of Chancery or other court shall deem proper.

Charter and by-laws. Our certificate of incorporation and bylaws provide that we will indemnify and advance expenses to our directors, officers and employees to the fullest extent permitted by Delaware law

in connection with any threatened, pending or completed action, suit or proceeding to which such person was or is a party or is threatened to be made a party by reason of the fact that he or she is or was our director, officer or employee, or is or was serving at our request as a director, officer, employee or agent of another corporation or enterprise. Prior to the closing of this offering, we intend to enter into indemnification agreements with each of our directors and executive officers that provide them with rights to indemnification and expense advancement to the fullest extent permitted under the Delaware General Corporation Law.

Indemnification agreements. Prior to the consummation of this offering, we intend to purchase directors’ and officers’ liability insurance to insure our directors and officers against liability for actions or omissions occurring in their capacity as a director or officer, subject to certain exclusions and limitations.

SEC Position. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

Pursuant to the underwriting agreement, in the form filed as an exhibit to this registration statement, the underwriters will agree to indemnify directors and our officers and persons controlling us, within the meaning of the Securities Act against certain liabilities that might arise out of or are based upon certain information furnished to us by any such underwriter.

Since its inception, we have issued securities in the following transactions, each of which was exempt from the registration requirements of the Securities Act of 1933 (Securities Act), as amended (Securities Act), under Sections 3(a)(9) and 4(2) of the Securities Act. All of the below-referenced securities issued pursuant to the exemption from registration under section 4(2) of the Securities Act are deemed restricted securities for the purposes of the Securities Act.

On December 30, 2004, we reincorporated from Maryland to Delaware and, in connection therewith, we issued shares of our Class A Common Stock or shares of our Class B Common Stock to the shareholders of our Maryland predecessor on a one-for-one basis based on their shares in the predecessor. On the same date, we issued 27.9 million shares of our Class B Common Stock to Yenura Pte. Ltd. (Yenura), a Singapore company controlled by our Chairman and Chief Executive Officer, in exchange for notes in the aggregate amount of $256 million (principal and accrued interest) issued by us and held by Yenura. The aforesaid transactions were exempt from registration pursuant to section 3(a)(9) of the Securities Act. Also on the same day, we issued $155 million of senior convertible notes to seven institutional investors. This transaction was exempt from registration under section 4(2) of the Securities Act.

In 2003, our predecessor issued warrants to purchase 300,000 shares of common stock to a financial advisor, which was an accredited investor. This transaction was exempt from registration under section 4(2) of the Securities Act.

In 2003, our predecessor issued options to purchase 25,000 of its shares of common stock to one of its directors. In each of 2002, 2003 and 2004, our predecessor issued options to purchase 100,000 shares of common stock to one of its officers. In 2002, our predecessor issued options to purchase 200,000 shares of common stock to a second of its officers. In each of 2002 and 2003, our predecessor issued options to purchase 200,000 shares of common stock to a third of its officers. These transactions were exempt from registration under section 4(2) of the Securities Act or under Rule 701 under the Securities Act.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act will be deemed to be part of this registration statement as of the time it was declared effective.

2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York, on this 13th day of April, 2005.


WORLDSPACE, INC.

By:		/S/ NOAH A. SAMARA
		Noah A. Samara Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on April 13, 2005. Each person whose signature appears below as a signatory to this registration statement hereby constitutes and appoints Noah A. Samara and Donald J. Frickel, or either one of them, as such person’s true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign any and all amendments and post effective amendments to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as that person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or any substitute therefore may lawfully do or cause to be done by virtue hereof.


	Per Share	Total
Public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds, before expenses, to us	$	$


Management		95
Pre-offering recapitalization		103
Certain relationships and related party transactions		105
Principal stockholders		115
Description of capital stock		117
Shares eligible for future sale		122
Certain material U.S. income tax consequences to non-U.S. holders		125
Underwriting		129
Legal matters		133
Experts		133
Where you can find additional information		133
Index to consolidated financial statements		F-1


	Years Ended December 31,
Consolidated statements of operations data:	2000			2001			2002			2003			2004
	(in thousands, except share and per share data)
Revenue	$	3,683		$	10,114		$	9,589		$	13,074		$	8,581
Cost of revenue		29,661			12,798			21,454			22,941			14,677

Gross loss		(25,978	)		(2,684	)		(11,865	)		(9,867	)		(6,096	)
Operating expenses
Research and development		2,331			1,030			902			64			—
Selling, general and administrative		62,823			58,036			35,855			33,425			32,765
Stock-based compensation		32,398			5,178			3,981			3,528			90,323
Depreciation and amortization		50,958			63,029			61,354			60,909			61,183

Total operating expenses		148,510			127,273			102,092			97,926			184,271

Operating loss		(174,488	)		(129,957	)		(113,957	)		(107,793	)		(190,367	)
Other income (expense)
Interest income		3,853			649			337			542			431
Interest expense		(134,144	)		(142,312	)		(114,349	)		(108,371	)		(119,302	)
Other		(37,738	)		(15,935	)		(2,890	)		(2,089	)		(877	)

Total other expense		(168,029	)		(157,598	)		(116,902	)		(109,918	)		(119,748	)

Loss before income taxes and cumulative effect of accounting changes		(342,517	)		(287,555	)		(230,859	)		(217,711	)		(310,115	)
Income tax provision (benefit)		28,458			—			—			—			(267,272	)

Loss before cumulative effect of accounting changes		(314,059	)		(287,555	)		(230,859	)		(217,711	)		(577,387	)
Cumulative effect of accounting changes		—			—			—			—			—
Impairment of goodwill		—			—			(44,255	)		—			—

Net loss	$	(314,059	)	$	(287,555	)	$	(275,114	)	$	(217,711	)	$	(577,387	)

Loss per share—basic and diluted
Loss per share before accounting change	$	(35.23	)	$	(31.07	)	$	(24.94	)	$	(23.52	)	$	(61.87	)
Cumulative effect per share of a change in accounting principle		—			—			(4.78	)		—			—

Net loss per share	$	(35.23	)	$	(31.07	)	$	(29.72	)	$	(23.52	)	$	(61.87	)

Weighted average number of shares outstanding		8,914,693			9,255,789			9,255,789			9,255,789			9,332,179


	As of December 31,
Consolidated balance sheet data:	2000			2001			2002			2003			2004
	(in thousands)
Current assets
Cash and cash equivalents	$	28,702		$	1,368		$	2,788		$	1,740		$	154,362
Other current assets		40,570			21,471			15,736			9,615			6,322

Total current assets		69,272			22,839			18,524			11,355			160,684
Restricted cash and investments		4,783			4,195			3,996			3,819			1,775
Property and equipment, net		25,608			21,191			15,664			11,696			11,431
Satellites and related systems, net		682,026			634,238			576,721			520,539			459,426
Deferred finance costs, net		34,756			30,721			26,688			22,654			14,724
Investments in affiliates and other assets		69,665			57,607			6,364			1,982			1,047

Total assets	$	886,110		$	770,791		$	647,957		$	572,045		$	649,087

Long-term debt, current portion		—			—			10,000			1,411,723			—
Other current liabilities		68,698			69,673			76,892			526,923			114,338
Long-term debt, net of current portion		1,387,026			1,413,956			1,430,891			56,098			155,000
Contingent royalty obligation		—			—			—			—			1,814,175
Other long-term liabilities		124,830			263,664			377,606			37,811			254,980

Total liabilities		1,580,554			1,747,293			1,895,389			2,032,555			2,338,493
Shareholder’s deficit		(694,444	)		(976,502	)		(1,247,432	)		(1,460,510	)		(1,689,406	)

Total liabilities and shareholder’s deficit	$	886,110		$	770,791		$	647,957		$	572,045		$	649,087


	As of December 31, 2004
	Actual			As Adjusted for Offering
	(in thousands)
Cash and cash equivalents	$	154,362		$


Convertible Notes issued December 30, 2004		155,000

Stockholders’ Deficit
Preferred Stock, par value $.01 per share; 25,000,000 shares authorized; no shares issued and outstanding, actual and as adjusted		—
Class A Common Stock, par value $.01 per share; 100,000,000 shares authorized; 4,475,789 shares issued and 9,255,789 outstanding		45
Class B Common Stock, par value $.01 per share; 75,000,000 shares authorized; 32,662,318 shares issued and outstanding, actual; shares issued and outstanding, as adjusted		326
Additional paid-in capital		425,108
Deferred compensation		(1,085	)
Accumulated other comprehensive loss		(354	)
Deficit accumulated		(2,113,446	)

Total stockholders’ deficit		(1,689,406	)


Total capitalization	$	(1,534,406	)	$


Prospectus summary		1
Risk factors		9
Special note regarding forward-looking statements		30
Industry data		31
Use of proceeds		32
Dividend policy		32
Capitalization		33
Dilution		34
Selected historical consolidated financial data		35
Management’s discussion and analysis of financial condition and results of operations		37
Business		57
Government regulation		86


Assumed initial public offering price per share		$
Net tangible value per share as of December 31, 2004	$
Increase in net tangible value per share attributable to this offering
Net tangible value per share after giving effect to this offering

Dilution per share of Class A Common Stock issued to new investors		$


	Total shares			Total Consideration			Average price per share
	Number	%		Amount	%		Average price per share
Existing shareholders		%		$	%		$
New investors

Total		100	%	$	100	%


	Years ended December 31,
Net Cash Flow:	2002			2003			2004
	(in thousands)
Net cash provided by (used in) operating activities	$	(35,970	)	$	(27,672	)	$	(17,838	)
Net cash provided by (used in) investing activities		718			(1,038	)		(444	)
Net cash provided by (used in) financing activities		36,672			27,662			170,904

Increase (decrease) in cash and cash equivalents		1,420			(1,048	)		152,622
Cash and cash equivalents at beginning of period		1,368			2,788			1,740

Cash and cash equivalents at end of period	$	2,788		$	1,740		$	154,362


	Payments Due By Period
	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
	(in millions of U.S. dollars)
Long-term debt(1)	$	155.0	$	—	$	—	$	—	$	155.0
Operating lease obligations		59.7		8.1		23.2		15.5		12.7
Satellite and ground systems commitments		42.2		42.2		—		—		—
Purchase obligations		13.3		13.3		—		—		—

Total contractual obligations	$	270.2	$	63.6	$	23.2	$	15.5	$	167.7


				India Channels
Channels	Language	Program	Type	Free-to-Air	Premium
International Music
UPop	English	Global Hits	WS-branded		ü
The System	English	Electronica Dance	WS-branded		ü
Orbit Rock	English	Classic Rock	WS-branded		ü
Bob	English	Modern Rock	WS-branded		ü
Riff	English	Jazz	WS-branded		ü
WorldZone	English	World Music	WS-branded		ü
The Hop	English	Oldies Rock & Roll	WS-branded		ü
Up Country	English	Country	WS-branded		ü
Maestro	English	Classical	WS-branded		ü
Potion	English	Adult R&B	WS-branded		ü
Voyager	English	Adult Pop	WS-branded		ü

International News
BBC—Asia West	English/ Multi	Regional News	Broadcaster	ü
BBC Global Service World News	English	Global News	Broadcaster		ü
CNN International	English	News	Broadcaster	ü
NPR	English	News	Broadcaster		ü
Bloomberg	English	News	Broadcaster		ü
RFI	French	News	Broadcaster	ü
WRN	English	News	Broadcaster	ü
Fox News	English	News	Broadcaster		ü

International Sports
talkSPORT	English	U.K. Sports	Broadcaster		ü

International LifeStyle
Infusion Radio	English	Motivational	Broadcaster		ü

Indian Regional Music
KL Radio	Tamil	Tamil Film Music	Broadcaster		ü
RM Radio	Malayam	Kerala Music	Broadcaster		ü
Sparsha	Kannada	Kannada Regional Music & Lifestyle	WS-branded		ü
Spandana	Telugu	Telugu Pop & Lifestyle	WS-branded		ü
Tara	Bengali/English	Bengali Pop & Lifestyle	WS-branded		ü
Spin	English	Western Pop	WS-branded		ü

India Regional News
NDTV India	Hindi	Indian News	Broadcaster		ü
NDTV 24x7	English	Indian News	Broadcaster		ü

India Niche Genres
Sahara 1	Hindi/English	General Entertainment	Broadcaster	ü
Sahara 3	Hindi/English	Indian News/ Current Events	Broadcaster	ü
Sahara 7	Hindi/English	Hindi Film Oldies	Broadcaster	ü
Sahara 9	Hindi/English	Youth Oriented	Broadcaster	ü
Shruti	Multilingual	Carnatic Classical	WS-branded		ü
Gandharv	Hindi/English	Hindustani Classical	WS-branded		ü
Jhankaar	Hindi/English	Current Bollywood	WS-branded		ü
Farishta	Hindi/English	Retro Film Hits	WS-branded		ü
Sai Global Harmony	Several	Devotional, Meditations	Broadcaster	ü
Asia Development	English & Nepalese	Informational	Broadcaster	ü


Name of unit	Manufacturer	Price	Picture
Celeste I	BPL	Rs.6,890 (approximately $160)

Celeste II	BPL	Rs.6,690 (approximately $155)

Celeste IV—Vibe	BPL	Rs.2,790 (approximately $65)

DAMB-R	Tongshi	Rs.9,990 (approximately $230)

Diva	BPL	Rs.3,790 (approximately $85)

PWS 1 & 2	Polytron	Rs.11,690 (approximately $270)

WSSR 11	G-Hanz	Rs.3,790 (approximately $85)


Location	Type of Facility	Square footage	Lease Expiration
North America
Washington D.C.	Headquarters, studio for WorldSpace-branded International channels and Regional Operations Center servicing AfriStar.	148,325	Sept. 1, 2005

India
Bangalore	WorldSpace India headquarters	7,050	June 30, 2006
Bangalore	Experience Brand Store	1,750	Nov. 8, 2008
Bangalore	WorldSpace Franchise Store	392	Dec. 11, 2007
Bangalore	WorldSpace Studios	6,000	March 9, 2008
Bangalore	Warehouse	2,600	April 11, 2005
New Delhi	Regional Office	1,800	Nov. 14, 2007
Chennai	Regional Office	1,500	Dec. 31, 2005
Chennai	WorldSpace Franchise Store	1,359	June 20, 2007
Mumbai	Regional Office	2,200	Nov. 9, 2008
Hyderabad	Branch Office	2,400	Feb. 29, 2008
Hyderabad	WorldSpace-Branded Store	1,335	Feb. 29, 2008

China
Beijing, China	Regional Office	4,161	March 20, 2006

AsiaStar support
Melbourne, Australia	TCR, ROC, Uplink and PFLS Stations broadcasting for AsiaStar	34,107	Dec. 31, 2007
Singapore	Host services contract with Sing Tel for TFLS Hub and PFLS station broadcasting for AsiaStar	3,725	expired; renewal under negotiation

Europe
Paris, France	Regional office	215	Month-to-month
Toulouse, France	Research and development engineering group	5,522	Jan. 14, 2012
London, United Kingdom	Hub Feeder Link Station for AfriStar	12,000	March 25, 2018


Name	Age	Position(s)
Noah A. Samara	47	Chairman, Chief Executive Officer and President
Sridhar Ganesan	42	Executive Vice President—Chief Financial Officer
Andy Ras-Work	41	Chief Operating Officer
M.G. Chandrasekhar	53	Executive Vice President—Technology and Product Development
Donald J. Frickel	62	Executive Vice President and General Counsel and Secretary
Jack Kemp	69	Director
James R. Laramie	55	Director & Assistant Secretary
Charles McC. Mathias	83	Director
Dr. Michael Nobel	65	Director
L.G. Schafran	66	Director
William Schneider, Jr.	63	Director


		Annual compensation
Name and principal position(s)	Year	Salary ($)		Bonus ($)		All other compensation ($) (1)
Noah A. Samara Chairman of the Board and Chief Executive Officer	2004 2003 2002	482,004 407,032 455,239	(2) (3)	— — —	(4) (5)	— — —

Andy Ras-Work Chief Operating Officer	2004 2003 2002	250,000 242,188 200,000		— — —		— — —

Mesfin Ayenew Executive Vice President—Government Sales	2004 2003 2002	225,000 218,488 204,058		— — —	(6)	— — —

Donald J. Frickel Executive Vice President and General Counsel, Secretary of the Board	2004 2003 2002	219,289 211,400 202,989		— — —		— — —

M.G. Chandrasekhar Executive Vice President—Technology and Product Development	2004 2003 2002	205,600 198,365 163,664		— — —		— — —


PRELIMINARY PROSPECTUS		Subject to Completion		, 2005


Name of executive officers	Number of securities underlying unexercised options at December 31, 2004		Value of unexercised in-the-money options at December 31, 2004 ($) (1)
	Exercisable	Unexercisable	Exercisable	Unexercisable
Noah A. Samara	12,540,763	—
Andy Ras-Work	—	—
Mesfin Ayenew	180,000	45,000
Donald J. Frickel	1,462,500	—
M.G. Chandrasekhar	191,250	33,750


	Shares of common stock owned (1)			Percentage of total common stock Held
Name of beneficial owner	Shares of class A common stock	Shares of class B common stock	Total	Before offering	After offering
Yenura Pte. Ltd.(2)	—	27,882,308	27,882,308	75.1
Amphora Limited (3)	6,508,956	—	6,508,956	14.9
Highbridge International LLC(4)	6,508,956	—	6,508,956	14.9
Eyob Samara(5)	3,077,500	3,000,000	6,077,500	15.3
TelUS Communications(6)	—	3,000,000	3,000,000	8.1

Noah A. Samara(7)	—	45,203,081	45,203,081	91.0
Jack Kemp	25,000	—	25,000	*
James R. Laramie	2,667,500	—	2,667,500	6.7
Charles McC. Mathias	100,000	—	100,000	*
Dr. Michael Nobel	75,000	—	75,000	*
L.G. Schafran	100,000	—	100,000	*
William Schneider, Jr.	—	—	—	*
M.G. Chandrasekhar(8)	191,250	—	191,250	*
Mesfin Ayenew	180,000	—	180,000	*
Donald J. Frickel(8)	1,462,500	—	1,462,500	3.8
Andy Ras-Work	—	—	—	*
Directors and Executive Officers as a Group (12 persons)	4,801,250	45,203,081	50,004,331	91.8


Number of Shares		Date
		After the date of this prospectus.
		After 180 days from the date of this prospectus.


Report of Independent Registered Public Accounting Firm		F-2

Consolidated Financial Statements

Consolidated Balance Sheets		F-3

Consolidated Statements of Operations		F-4

Consolidated Statements of Changes in Shareholders’ Deficit and Comprehensive Loss		F-5

Consolidated Statements of Cash Flows		F-6

Notes to Consolidated Financial Statements		F-7

Schedule II—Valuation and Qualifying Accounts		F-25


December 31,	2004			2003
	(in thousands, except share information)
*Assets*
Current Assets
Cash and cash equivalents	$	154,362		$	1,740
Accounts receivable, net		1,738			4,175
Prepaid expenses		2,240			3,130
Inventory, net		1,154			1,376
Other current assets		1,190			934

Total Current Assets		160,684			11,355
Restricted Cash and Investments		1,775			3,819
Property and Equipment, net		11,431			11,696
Satellites and Related Systems, net		459,426			520,539
Deferred Financing Costs, net		14,724			22,654
Investments in Affiliates and Other Assets		1,047			1,982

Total Assets	$	649,087		$	572,045

*Liabilities and Shareholders’ Deficit*
Current Liabilities
Accounts payable	$	54,496		$	37,255
Accrued expenses		14,380			13,933
Income taxes payable		20,000			—
Accrued purchase commitment		13,258			13,105
Current maturities of long-term debt, net of discount		—			1,411,723
Short-term note payable		—			7,157
Related-party working capital notes and advances		—			93,560
Accrued interest		10,801			361,913
Deferred tax liability		1,403			—

Total Current Liabilities		114,338			1,938,646
Long-term Debt		155,000			56,098
Accrued Interest		—			28,672
Deferred Tax Liability		245,869			—
Other Liabilities		9,111			9,139
Contingent Royalty Obligation		1,814,175			—

Total Liabilities		2,338,493			2,032,555

Commitments and Contingencies		—			—
Shareholders’ Deficit
Preferred Stock, $.01 par value; 25,000,000 shares authorized; no shares issued and outstanding as of December 31, 2004 and 2003		—			—
Class A Common stock, $.01 par value; 100,000,000 shares authorized; 4,475,789 and 9,255,789 shares issued and outstanding as of December 31, 2004 and 2003		45			93
Class B Common stock, $.01 par value; 75,000,000 shares authorized; 32,662,318 shares and no shares issued and outstanding as of December 31, 2004 and 2003		326			—
Additional paid-in capital		425,108			80,995
Deferred compensation		(1,085	)		(4,593	)
Accumulated other comprehensive loss		(354	)		(946	)
Accumulated deficit		(2,113,446	)		(1,536,059	)

Total Shareholders’ Deficit		(1,689,406	)		(1,460,510	)

Total Liabilities and Shareholders’ Deficit	$	649,087		$	572,045


Years ended December 31, 2004, 2003 and 2002
	2004			2003			2002
	(in thousands, except per share information)
Revenue	$	8,581		$	13,074		$	9,589
Cost of revenue		14,677			22,941			21,454

Gross Loss		(6,096	)		(9,867	)		(11,865	)
Operating Expenses
Research and development		—			64			902
Selling, general and administrative		32,765			33,425			35,855
Stock-based compensation		90,323			3,528			3,981
Depreciation and amortization		61,183			60,909			61,354

Total Operating Expenses		184,271			97,926			102,092

Operating Loss		(190,367	)		(107,793	)		(113,957	)
Other Income (Expense)
Interest income		431			542			337
Interest expense		(119,302	)		(108,371	)		(114,349	)
Other		(877	)		(2,089	)		(2,890	)

Total Other Expense		(119,748	)		(109,918	)		(116,902	)

Loss Before Income Taxes and Cumulative Effect
of Accounting Change		(310,115	)		(217,711	)		(230,859	)
Income Tax Provision		(267,272	)		—			—

Loss before Cumulative Effect of Accounting Change		(577,387	)		(217,711	)		(230,859	)
Cumulative Effect of Accounting Change
Impairment of goodwill		—			—			(44,255	)

Net Loss	$	(577,387	)	$	(217,711	)	$	(275,114	)

Loss per share—basic and diluted
Loss per share before accounting change	$	(61.87	)	$	(23.52	)	$	(24.94	)
Cumulative effect per share of a change in accounting principle		—			—			(4.78	)

Net Loss per Share	$	(61.87	)	$	(23.52	)	$	(29.72	)

Weighted Average Number of Shares Outstanding		9,332,179			9,255,789			9,255,789


	Class A Common Stock					Class B Common Stock			Additional Paid-in Capital			Deferred Compensation			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total			Comprehensive Loss
	Shares		Amount			Shares	Amount		Additional Paid-in Capital			Deferred Compensation						Accumulated Deficit			Total			Comprehensive Loss
	(in thousands, except for share information)
Balance, December 31, 2001	9,255,789		$	93		—	$	—	$	84,264		$	(15,371	)	$	(2,254	)	$	(1,043,234	)		$(976,502	)
Employee stock-based compensation	—			—		—		—		(2,975	)		6,956			—			—			3,981		—
Foreign currency translation adjustment	—			—		—		—		—			—			203			—			203		203
Net loss	—			—		—		—		—			—			—			(275,114	)		(275,114	)	(275,114	)

Comprehensive loss																								(274,911	)
Balance, December 31, 2002	9,255,789			93		—		—		81,289			(8,415	)		(2,051	)		(1,318,348	)		(1,247,432	)
Employee stock-based compensation	—			—		—		—		(294	)		3,822			—			—			3,528		—
Foreign currency translation adjustment	—			—		—		—		—			—			1,105			—			1,105		1,105
Net loss	—			—		—		—		—			—			—			(217,711	)		(217,711	)	(217,711	)

Comprehensive loss																								(216,606	)
Balance, December 31, 2003	9,255,789			93		—		—		80,995			(4,593	)		(946	)		(1,536,059	)		(1,460,510	)
Conversion of common stock	(4,780,000	)		(48	)	4,780,000		48		—			—			—			—			—		—
Issuance of common stock	—			—		10		—		—			—			—			—			—		—
Debt conversion	—			—		27,882,308		278		255,239			—			—			—			255,517		—
Warrants issued to consultant	—			—		—		—		2,059			—			—			—			2,059		—
Employee stock-based compensation	—			—		—		—		86,815			3,508			—			—			90,323		—
Foreign currency translation adjustment	—			—		—		—		—			—			592			—			592		592
Net loss	—			—		—		—		—			—			—			(577,387	)		(577,387	)	(577,387	)

Comprehensive loss																								(576,795	)
Balance, December 31, 2004	4,475,789		$	45		32,662,318	$	326	$	425,108		$	(1,085	)	$	(354	)	$	(2,113,446	)	$	(1,689,406	)


	2004		2003
Restructured debt (net of debt discount)	$	—	$	1,401,723
Convertible promissory notes		155,000		66,098

		155,000		1,467,821
Less: current maturities		—		(1,411,723	)

	$	155,000	$	56,098


2005	$	8,170,208
2006		7,852,281
2007		7,881,433
2008		7,551,753
2009		7,681,553
Thereafter		20,598,361

	$	59,735,589


	2004			2003
Deferred Tax Assets:
Deferred interest expense	$	—		$	3,930
Depreciation		—			(18,803	)
Investment in equity securities		—			359
Capitalized start-up costs		—			3,915
Unrealized inventory loss		89			10,197
Stock option compensation		56,194			13,502
Other		4,914			14,664
Net operating losses		33,127			378,212

		94,324			405,976
Less: valuation allowance		(33,127	)		(405,976	)

Total deferred tax assets		61,197			—

Deferred Tax Liabilities:
Depreciation		(185,958	)		—
Intercompany receivables		(118,621	)		—
Other		(3,890	)		—

Total deferred tax liabilities		(308,469	)		—

Net deferred tax liabilities	$	(247,272	)	$	—


	WSI Shares Subject to Options		Weighted- Average Exercise Price
Balance, January 1, 2002:	5,844,842		$	2.04
Expired	—			—

Balance, December 31, 2002:	5,844,842			2.04
Granted	25,000			10.00
Expired	—			—

Balance, December 31, 2003:	5,869,842		$	2.07
Forfeited	(260,000	)		(3.72	)
Converted WIN Options	22,709,025			4.34

Balance, December 31, 2004	28,318,867		$	3.91

Exercisable	28,180,087		$	3.90


Outstanding				Excercisable
Range of Exercise Prices	Number Outstanding as of December 31, 2004	Weighted- Average Contractual Life Remaining	Weighted- Average Exercise Price	Number Exercisable as of December 31, 2004	Weighted- Average Exercise Price
$ 0.74-1.66	5,455,067	0.37	$1.61	5,455,067	$1.61
2.22	2,537,055	2.20	2.22	2,537,055	2.22
3.78-5.00	12,327,590	5.23	4.18	12,327,590	4.18
5.33-6.67	7,687,980	5.50	5.45	7,549,200	5.45
9.00-10.00	311,175	5.77	9.36	311,175	9.36

	28,318,867			28,180,087


	WIN Shares Subject to Options		Weighted- Average Exercise Price
Balance, January 1, 2002:	9,399,040		$	9.61
Granted	500,000			12.00
Forfeited	(172,200	)		11.91

Balance, December 31, 2002:	9,726,840			9.69
Granted	300,000			12.00
Forfeited	(22,540	)		12.23

Balance, December 31, 2003:	10,004,300			9.75
Granted	100,000			12.00
Forfeited	(11,400	)		13.31
Converted to WSI Options	(10,092,900	)		9.77

Balance, December 31, 2004	—		$	—


Risk-free interest rate		4%
Expected life of options		8 years
Expected stock price volatility		0%
Expected dividend yield		0%


	Geographical Area Data
	2004		2003		2002
	(in thousands)
Revenues from External Customers
United States	$	4,216¹	$	9,234²	$	3,625
France		2,323		1,833		1,774
Kenya		986		583		877
South Africa		—		537		1,068
Singapore		85		221		202
India		763		384		1,114
Other foreign countries		208		282		929

	$	8,581	$	13,074	$	9,589


United States	$	469,283	$	530,194	$	589,670
Foreign countries		1,574		2,042		2,715




2004	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total for Year
	(Amounts in thousands, except per share data)
Revenue	$	2,874		$	1,877		$	1,557		$	2,273		$	8,581
Gross loss		(421	)		(1,625	)		(2,061	)		(1,989	)		(6,096	)
Net loss		(51,009	)		(51,609	)		(57,068	)		(417,701	)¹		(577,387	)
Net loss per share—basic and diluted		(5.51	)		(5.58	)		(6.17	)		(44.61	)		(61.87	)



2003	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total for Year
	(Amounts in thousands, except per share data)
Revenue	$	4,232		$	3,703		$	3,122		$	2,017		$	13,074
Gross loss		(3,693	)		(2,065	)		(1,338	)		(2,771	)		(9,867	)
Net loss		(55,901	)		(53,417	)		(52,557	)		(55,836	)		(217,711	)
Net loss per share—basic and diluted		(6.04	)		(5.77	)		(5.68	)		(6.03	)		(23.52	)


Quarter ended December 31, 2004	Net Loss			Net Loss Per Share
Net Loss before adjustments (Unaudited)	$	(63,416	)	$	(7.57	)
Conversion of WIN Options (Note K)		(87,013	)		(9.10	)
Income tax expense (Note J)		(267,272	)		(27.94	)

Net Loss for Quarter (Unaudited)	$	(417,701	)	$	(44.61	)


Col. A	Col. B		Col. C Additions		Col. D		Col. E
Description	Balance at beginning of the period		Charged to costs and expenses	Charged to other accounts	Deductions		Balance at the end of the period
	(in thousands)

Year Ended December 31, 2002
Allowance for doubtful receivables	$	488	1,279	—	(544	)	1,223
Valuation allowance on inventory		—	1,879	—	(1,879	)¹	—
Valuation allowances on deferred tax assets		164,370	150,617	—	—		314,987

Year Ended December 31, 2003
Allowance for doubtful receivables	$	1,223	828	—	(434	)	1,617
Valuation allowance on inventory		—	4,796	—	(4,796	)¹	—
Valuation allowances on deferred tax assets		314,987	90,989	—	—		405,976

Year Ended December 31, 2004
Allowance for doubtful receivables	$	1,617	808	105	—		2,530
Valuation allowance on inventory		—	322	—	(322	)¹	—
Valuation allowances on deferred tax assets		405,976	—	—	(372,849	)	33,127

¹) Write-off of Inventory


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